Once a pumper, always a pumper. The man who dreamed up 40-year amortizations and implemented them just as the US real estate market was crashing, and who allowed government-backed 0%-down house financing and who’s overseen growth of the largest real estate bubble in history, has done it again.
In his much-hyped budget, F choked. As expected.
There will be no murdering of the 30-year mortgage and a return to a maximum of 25 years, as several big banks were pleading.
No suggestion that minimum down payments be raised from 5% to 7%, as experts had suggested, to protect property virgins from themselves, and massive debt.
No end to cash-back mortgages, meaning 100% financing continues, backed by taxpayers.
And no word on raising (or doing anything, for that matter) CMHC’s lending ceiling of $600 billion, which has been all but consumed in an orgy of recent borrowing.
Only this: Ottawa will bring in “enhancements to the governance and oversight framework” of the crown corp. Also (as far as I can tell at this moment), nothing immediate about reforming the system of ‘covered bonds’ which have helped create an ocean of borrowing (but indications that new laws are coming). In fact, in his budget speech Flaherty was strangely silent on what many economists (including Brother blog dog Carney) think is the biggest time bomb ready to take out economy growth – runaway household debt.
Here is all that the 498-budget says about the biggest social issue facing most Canadian families:
The Government continuously monitors housing finance risks and takes action when necessary. Adjustments to the rules for government-backed insured mortgages were announced in July 2008, February 2010 and January 2011. In addition, in June 2011 Parliament approved legislation to formalize arrangements with private mortgage insurers and Canada Mortgage and Housing Corporation (CMHC), enhancing the Government’s ability to manage risks arising from the mortgage insurance sector.
As part of the Government’s continuous efforts to strengthen the housing finance system, the Government will introduce enhancements to the governance and oversight framework for CMHC, contributing to the stability of the housing market and benefitting all Canadians. The Government will propose legislative amendments to strengthen oversight of CMHC and to ensure its commercial activities are managed in a manner that promotes the stability of the financial system.
The Government is moving forward with a legislative framework for covered bonds. A legislative framework will support financial stability by helping lenders find new sources of funding and by making the market for Canadian covered bonds more robust. CMHC will be the administrator of this covered bond program, which will be available to federally and provincially regulated mortgage lenders in Canada.
By the way, the budget does mention, cryptically, that CMHC’s budget will be cut by$102.4 million by 2015-5. Obviously an austerity kick in terms of post-it notes and mouse pads.
As you know, F nicked a few bucks off Parliament’s budget, cut overall government spending by a smidge, promised to eliminate 19,000 civil servants (over time), and exempted almost all Boomers from the move to chop OAS spending. That $6,000-per-year handout just because your knees won’t work will continue to be paid to everyone currently 54 or older, when they hit 65.
So, what does it mean?
For the housing market, nothing. The trap continues to be baited with cheap rates, free-flowing mortgages, no-money-down financing and nary a word of waning. In fact in the entire budget, for which at least one medium forest died, the words “mortgage debt” do not appear. No cautions about overborrowing or the dangerous amount of collective net worth now stuffed into a single asset.
So much for Mark Carney. His continuous warnings about overheated housing in Vancouver, condo madness in Toronto or the inevitable impact of higher interest rates – all gone in a poof of elfin pixie dust. This is what politics does to people who once owned principles. Or told you they did.