Bank CEOs complain Canadian mortgage rules are too lax

Household debt is “key risk” to economy: Bank of Canada


Two of Canada’s bank CEOs say that the number of people taking on extremely-long-amortized mortgages is putting the economy at risk. Ed Clark, CEO of TD Bank says that the federal government should reduce the maximum allowable amortization on home loans from 35 years to 25 years. Bank of Montreal CEO Bill Downe told The Financial Post that he agrees that tighter mortgage rules are “consistent with maintaining healthy consumer debt levels.” Their comments came as the Bank of Canada warned in the December issue of Financial System Review that consumer debt is “a key risk” for the Canadian economy. Over the last two years, Canadians have been borrowing at rates much faster than income growth, which makes them vulnerable to a changes in the economy, says the Bank.

Financial Post

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Bank CEOs complain Canadian mortgage rules are too lax

  1. Interesting. The banks want to reduce the max amortization period because it's good for consumers, but they won't just do it on their own. Inevitably one lender (or more) will offer amortization periods up to the maximum allowable, thereby stealing potential customers from the banks who hold strong on the 25-year limit.

    I don't think I've seen any statistics on how many people have mortgages with amortization periods longer than 25 years.

    I have a 35 year amortization period, but I immediately set up the payments as if it were a 25-year period. It's nice to know there's a bit of a safety net there in case of cashflow problems.

  2. Wow.. I didn't know those poor banks were being forced to make mortgages with 35 year amortization periods..

    ..oh wait.. they aren't.

    And this is where we see the free-market uber-alles theory start to break. The banks realize that a lot of people taking out these 35 year mortgages are going to wind up in trouble. However, if they refuse them on their own, those people will just go to their competitors. This will allow their competitors to out-compete them due to a stronger accumulation of assets over the short-term, because people tend not to think about the long term — and there's enough of them that even those who do think about the long term can run into trouble when having to fight the crowds.

    So instead of trying to compete and losing, they call for the gov't to pass a law to make people behave sensibly.

    Which is really exactly what government is supposed to be doing.

  3. But yet, these are the comments from Mr. Charles Bean, Deputy Governor of the Bank of England, about how consumers should be out spending their capital to stimulate the world's economy:

    Some of these bankers are off message!

  4. I agree with some of the earlier posters, this is something that the big 5 banks can do on there own without waiting for the government. I wonder what percent of people take 35 year mortgages? It cannot be that significant.

    • Except, as we point out.. they really can't, because they'll be out-competed by the banks who continue to offer the 35 year ones.

      And what percent? While I don't know, I expect the answer is "most", because remember, longer terms mean lower monthly payments, and these days everybody is, quite rationally, trying to keep their monthly requirements as low as possible — hoping that the future will be better.

  5. Dear Canadians – Instead of borrowing valuable Loonies to buy houses in Canada, why not buy the state of Arizona with worthless US dollars and make us a colony?

    We want to be Canadians now. Because we let our real estate situation get out of hand, we have many unemployed mortgage agents. They will happily lend you the US dollars to buy Arizona at tempting introductory rates. If you do not wish to buy Arizona, you may invade and conquer us (we will pre-surrender). If you do not wish to invade, we will attack ourselves and surrender to Canada. If the self-invasion fails, we will erect temples at our airports, and burn offerings to the gods so Canadians will fly here to rule us.

    Our central government hates us and sues because we want our borders secure. They sue us because we want only citizens of Arizona to vote in Arizona. We are tired of being punished because our love for our rulers is judged as insufficient. We will be delighted to sell our state to you.

    You will gain a land mass equal in size to Italy, with a warm desert climate and a sufficiently beaten down population to obey your most trivial commands. See alternative methods to acquire Arizona at . Thank you in advance for your wise purchase of Arizona.

    • Will native Arizonians be available for domestic work?

  6. I agree CMHC should stop insuring mortages for periods of greater than 25 years. And they should also raise the minimum down payment to 10%, even for first time homebuyers, if not 15%. Or, we could just get rid of the CMHC and go back to requiring down payments of 20% or more (I believe 20% down is the threshold beyond which CMHC does not have to insure a mortgage, but I could be wrong on that.)

    But nah, why change anything? Let's just sleepwalk towards a mortgage & housing meltdown like the US did. I usually get schooled on how "we're different" when I bring up that scenario. Yes, we are different. We haven't had our housing meltdown yet. What a joyous thing that will be.

    • ten percent is a sensible minimum, but 15-20% gets pretty steep when we think about the price of a decent home in Canadian cities these days, it's not easy to save up 50-70K for a first home! (btw, you're correct, 20% is generally the minimum for waiving the CMHC mortgage insurance, although I have heard of lenders covering the premium for some "preferred borrowers: with a smaller down payments)

  7. BANK CEOs salaries and bank charges are what's wrong with our economy.

  8. Wouldn't it be nice if we forced people to make weekly payments and bring down bank interest charges.

  9. How about this headline:
    The low interest rates and 35 year mortgages are similar to what started the world.s economic meltdown and housing crisis which is still going on in the U.S.. And the worst part of it all is that very litttle has been done to prevent it from getting worse or from happening again. We Canadians owe over $1Trillion in mortgage loans and this can result in a very nasty situation not too different than our southern neighbour. The Governor of the Bank of Canada is a former employee of Goldman Sachs so he should completely understand the situation.

  10. No one is forcing the Banks to give out long mortgage amortizations. If the banks think 35 years is too long, then why don't they limit their mortgages to 25 years. Why should the government be involved ?

    Interestingly, if the government tried to pass a law limiting the compensation of bank CEOs the uproar over government interference would be deafening.

  11. Bankers cry wolves. They are the wolves.

    • Nah, be nice. Bankers aren't so bad(at least Canadian ones). Lawyers and vote sucking politicians are the real wolves. Worse of all, politicians who are lawyers. The Conservatives are the dolts who increased the mortgage durations and reduced the downpayments. Idiots. They are trying to backpeddle on this by going from 40 years to 35 but it's too little. They are the opposite of the name of their party. They are suppose to be conservatives, for crying out loud but they vote suck like the best of them. And in the process, they managed to go from the Liberal 5 billion budget surplus to a 50 billion deficit. Yeah, so much for being conservative. Well at least the Prime Minister can fall back on a musical career if he gets the boot next election.

      • What do you think the government's motivation was for Americanizing our mortgages? Was it just the lobbying efforts of companies like AIG?

  12. Jan, if you are addressing your question to me, I really don't know what would possess politicians to ease the mortgage rules. I figured it was just to curry voters who are thinking of buying a house but no doubt, as I believe you apparently suspect, some big money lobbying may have played a big role.

  13. The exorbitant salaries of bank executives, their near monopolies, and the methods they use to screw their customers is putting the economy at risk. Mine, as well as the country's.

  14. Banks are pissed because they have loaded up everyone they can with debt and there isn`t any sufficiently large set of balance sheets they can loot to keep the ponzi scheme going. Let`s not pretend that the banker`s hand wringing is concern for the welfare of Canadian households or businesses.