Jim Flaherty: ‘I Thank’ the Banks that Didn’t Cut Mortgage Rates
Finance Minister Jim Flaherty has been known in the past for lashing out at the banks for their “irresponsible lending” habits and for encouraging Canadian consumers to take on even more debt that they can’t afford. When the Bank of Montreal slashed their mortgage rates to just 2.99 per cent for a 5-year fixed term recently, it was widely believed that another warning would be issued by the Finance Minister. Instead, he’s taking the opportunity to thank the other banks for not following suit.
But first, he spoke to BMO, telling them that he was worried about the impact such a mortgage rate cut could mean to Canadian consumers, and the economy.
“I spoke with BMO about that this week and expressed my concern in two ways,” the Finance Minister said when speaking to reporters in Ottawa.
“One, it’s an objective reduction of course, but it’s also symbolic, and I remain concerned with the housing market in Canada,” he continued. “We’ve seen some moderation in the housing market, which I think is a good thing. As you know, we’ve tightened up the mortgage insurance rules four times over the recent years, so I thank those Canadian financial institutions that have not chosen to reduce their rates further.”
But, even though his sentiments were actually heaping praise on many of the banks here in Canada, some still think it’s not his place to be making judgement calls about the banks’ practices.
“It’s strange to be concerned about banks offering low rates, if the worry is that the consumer might like low rates and are willing to take them up on the deal, because banks are in the business of making money by underwriting prudent mortgages and if they didn’t do that they’d be in a lot of trouble with their shareholders,” says Finn Poschmann, vice-president of research for the C.D. Howe Institute.
But, Mr. Flaherty has an argument for that too, and it’s not a bad one. As the governing body of the country, Mr. Flaherty and the rest of the Conservatives have a responsibility to the nation, and to the consumers within it. We rely on them to protect us and to provide us with certain programs, such as social assistance programs – and the CMHC, which provides insurance on many of those homes being purchased. This makes the reason for the government’s interest in banking lending practices two-fold.
“I encourage responsible lending,” Mr. Flaherty said to those same reporters on Friday. “I think that the financial institutions of course are major players in the residential mortgage market and it forms a major part of their asset portfolios and the Government of Canada has a lot to say about it, not only because we’re concerned about the economic fiscal health of the country, but also we have CMHC and many of those mortgages held by the private sector financial institutions are insured with Canada Mortgage and Housing Corp.”