Good news on the mortgage lending front. The headline read “TD Economist to Gov’t: Raise Minimum Down Payment” and the reaction from the mortgage brokerage industry was swift. The Minister of Finance did not take the bait thrown at him recently from big bank economists who called for a bigger minimum down payment of 7 per cent, and a further reduction in maximum amortization to 25 years, making it tougher to get a mortgage. TD bank economist Craig Alexander said that the real culprit in spiking debt levels ‘has been growing home purchases in the current low interest rate environment’. Riiiight! Funny none of the banks said a word about ‘loading people up with revolving consumer debt, then billing interest only minimum payments (so principal doesn’t get paid down) then put them in a corner with their new collateral mortgage product registered at 100%+ of property value’ thereby limiting future options.

Alexander also stated “If the current overvaluation (of real estate) unwound rapidly, it would be three times the correction (we suffered) in the early 1990’s”, which resulted in property values declining by as much as 50%. In our view this is pure ‘fear mongering’ and is so easy to see through that it’s absurd.

Everybody knows that the real culprit is credit cards and lines of credit, and while we salute Flaherty for showing some guts, the government does not seem to have the will to focus on consumer credit which is THE PROBLEM. By making it more difficult to refinance, Canadians have less ability to eliminate high cost debt much of which the big banks have found ways to manipulate into ‘secured’ debt versus unsecured debt, yet rates remain excessive.

How much power and how much profit should the banks be allowed to get away with? Clearly they have already gone too far and done it ‘all together’. Some may view this as ‘collusionary’ even ‘anti-competitive’ when an entire industry acts ‘in concert’. Until OSFI, the regulatory body of financial institutions investigates their new collateral mortgage product, the view of the mortgage brokerage industry (although admittedly not unbiased) is that it is wise to avoid taking a bank mortgage. Period.

One final thought. Mr. Flaherty, how about putting a moratorium on new credit card and lines of credit for one year, and see what happens to ‘growing’ household debt loads.