- First Time Buyers and Affordable Housing at Risk
NEW WESTMINSTER, B.C., Dec. 10 /CNW/ - Elbert K. Paul, Chartered Accountant and former partner of a major national accounting firm, has requested the Honorable James Flaherty , Minister of Finance to take urgent action to protect first time home buyers and rental tenants due to a possible pending shortage of mortgage funds and/or possible increase in rates. In his five page letter to the Minister, Paul requested that the government immediately suspend implementation of an Advisory being proposed by the Office of the Superintendent of Financial Institutions "(OSFI) with elements" scheduled to take effect on December 31, 2009 . He also requested that the House of Commons Standing Committee on Finance initiate an immediate review of this proposed OSFI policy.
The proposed OSFI changes will significantly decrease access to affordable mortgage loans for first time Canadian home-buyers and apartment investors as the Canada Mortgage and Housing "(CMHC)" securitization program is curtailed by changes to the capital governance rules that will restrict a financial institution's ability to generate Government guaranteed loans or require an injection of capital (equity).
CMHC's current securitization program supports affordable housing by enabling banks and financial institutions to issue more Government guaranteed loan products, thus making it possible for these institutions to provide credit to Canadians at lower interest rates as the securitization frees up space on their balance sheets. This allows these institutions to meet the demand for more mortgage loans than they otherwise could if they had to hold all the loans on their balance sheets, which are subject to several restrictive regulatory capital leverage ratios.
The OSFI's proposed policy will effectively tighten the capital governance rules and reduce an institutions capacity to generate these government backed mortgages.
"These are exactly the consequences that most of the academics, industry and political parties have openly said they do not want as they are all supportive of retaining the CMHC programs (supporting over 900,000 housing units worth $148 billion in 2008) instead of curtailing them" said Paul.
"CIBC senior economist, Benjamin Tal describes CMHC as the "secret weapon" and he credits CMHC's ability to provide inexpensive credit as one of the reasons Canadian banks did not need a bailout during the recent recession. (Globe and Mail, Report on Business October 17)"
John McCallum, Liberal Finance critic stated (Globe and Mail, Report on Business October 17 ) "I don't think we want the government to be rationing Canadian home-buying."
Also, the Finance Minister's office of the Federal Conservative Government reported that the "Canadian financial sector and housing market have remained sound throughout the recent crisis largely due to the effectiveness of the roles played by the federal institutions including CMHC in supporting markets, backstopping risks and sustaining the availability of credit." (Globe and Mail, Report on Business October 17 )
In his letter to the Minister, Paul states: "Urgent action is needed to review the OSFI Draft Advisory on Conversion to International Financial Reporting Standards. The implication of this Draft Advisory is that it will impede the recovery and growth of Canada's economy as well as restrict Canadian's access to home buying. Mr. Paul also advised the Minister that he has requested the Competition Bureau to determine whether the Minister of Finance's proposed action through OSFI to modify regulation of financial institutions will substantially compromise Section 49 - "Conspiracy Among Federal Financial Institutions" of the Competition Act and thus seriously reduce competition to the detriment of the public interest.
"It would be extremely ironic if the Canadian public efforts to protect our major banks resulted in the large banks obtaining a predatory position over smaller banks, trust companies and other competing financial institutions and thus increase their market share, reduce competition and increase loan pricing for all of us" said Paul.
Mr. Paul is a community activist and was an outspoken critic of the $1 Billion BC fast ferry fiasco and was successful in obtaining a value for money audit by the BC Auditor General of the fast ferry cost overruns.
Here is the letter sent to the Hon James Flaherty: http://files.newswire.ca/840/Letter1_v6.doc
For further information: For further information: Elbert K. Paul, (778) 991-7756, [email protected]