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“There is no question that there will be pain in the system but the question is how much and whether incremental demand picks up some of the slack,” said Gord Nixon, former chief executive of Royal Bank of Canada, the country’s biggest lender.
Employment levels — the key indicator watched by bankers when it comes to assessing the risk of mortgage delinquencies and defaults — have dipped considerably during the COVID-19 pandemic. But household income loss has been muted, for now, by the government programs.
Nixon declined to speak to the Post specifically about Siddall’s letter, but during a television interview on BNN Bloomberg on Thursday, he said the views the CMHC head expressed seemed “a little bit alarmist” to him.
Industry sources say many on Bay Street were surprised to see the CMHC head take aim at private market competitors Genworth Financial Mortgage Insurance Company Canada and Canada Guaranty Mortgage Insurance Co.
It is evident that people aren’t reading what we wrote and (are) misrepresenting our views
Evan Siddall, CMHC CEO
One veteran banker also questioned why CMHC was pushing mortgage insurers to set standards for lenders, rather than leaving the job to the regulator, the Office of the Superintendent of Financial Institutions (OSFI).
Siddall said in his letter to lenders that he was simply explaining CMHC’s rationale for the July 1 changes — which included increasing the minimum credit score required to obtain CMHC insurance and eliminating insurance for those borrowing their downpayment — and trying to ensure the fallout did not undermine CMHC’s market presence “unnecessarily.”
However, part of his rationale — high household debt in Canada — was also questioned by bankers because it is far from a new issue and has been flagged as a risk for years by domestic and international organizations including the Organisation for Economic Co-operation and Development (OECD). Despite these warnings, the residential mortgage sector has remained relatively free of damagingly high defaults through the 2008 financial crisis and the oil price collapse in 2015, the veteran banker noted.
Siddall appears to have intended his views on mortgage underwriting to remain behind closed doors, but he posted the letter on the online networking platform LinkedIn this week after suggesting “someone leaked” it, noting he wanted people to see it in full rather than excerpts of it.
He also took to Twitter, where he pushed back on suggestions he was trying to halt business lenders do with CMCH’s private market competitors Genworth and Canada Guaranty, and said his letter had been “twisted by self-serving commentators” in the days after it came to light.
“Excessive borrowing creates future economic drag and I offered that as reasoning behind our changes,” he wrote. “I acknowledged that our market share would decline, and I merely asked lenders not to allow our competitors to gain share beyond what we are now avoiding.”