Flaherty blasted for pressuring Manulife to reverse mortgage rate cut - Macleans.ca

Flaherty blasted for pressuring Manulife to reverse mortgage rate cut


OTTAWA – Finance Minister Jim Flaherty is coming under fire for using his position to pressure a private sector mortgage lender to raise its interest rates.

“That’s Banana Republic behaviour,” said NDP Leader Tom Mulcair, who added the minister has no business interfering with the free marketplace.

Liberal interim leader Bob Rae called the minister’s actions “ridiculous” and in essence working to increase borrowing costs for Canadians.

“Either we have a market or we don’t,” he said. “The banks have huge profits. The idea that they shouldn’t be able to give a break to consumers is ridiculous and the idea that the Minister of Finance would basically be trying to create some kind of a cartel among the banks and the financial institutions as to what they can offer consumers by way of interest rates is I think completely inappropriate, completely wrong actually.”

On Tuesday, Flaherty admitted he asked a member of his staff to phone Manulife Financial Corp. (TSX:MFC) after it had cut its posted rate for five-year fixed mortgages to 2.89 per cent from 3.09 per cent.

The company quickly reversed its decision, saying only that “after consulting with the Department of Finance, Manulife Bank has withdrawn the promotional campaign and reverted to our previous posted rate.”

It’s the second time in a few weeks that Flaherty interfered in the mortgage market. Earlier in the month, he called the Bank of Montreal (TSX:BMO) after it had dropped its posted five-year rate to 2.99 per cent, but on that occasion BMO did not reverse itself.

Afterwards, he thanked other institutions for not following the BMO lead, at least until Manulife’s brief discounted offering.

Since the government tightened mortgage rates in July, Canada’s housing market has slowed considerably in terms of sales, starts and even prices. Two weeks ago, the Bank of Canada signalled it was no longer as concerned about Canadian debt levels, saying it does not expect the situation to worse appreciably from its current high levels.

Slowing home sales and credit, however, has intensified competition among financial institutions and banks for a dwindling slice of the mortgage market, a relatively safe and lucrative sector of the industry.

Flaherty told reporters he acted with Manulife to keep lenders from taking on risky loans and was happy with the company’s subsequent decision.

“As I said before, we encourage prudent lending practices, we don’t want a race to the bottom on mortgage rates by our financial institutions so I’m pleased at their response,” he said.

“I had one of my staff call them and indicate my displeasure, which is the same thing I did with the BMO except I called myself.”

But the opposition leaders said the government has no right to interfere in the free marketplace once it sets the ground-rules. To act otherwise is to substitute its opinion for that of the players in the market.

“That company is operating completely with full respect of the law, they see an advantage in attracting clients at this rate, why shouldn’t they go out to do that?” Mulcair asked.

“It’s none of his business. It’s the minister’s opinion, it’s nuts. We’ve never seen this before.”

Flaherty has for the past several years complained that Canadians are borrowing beyond their means, particularly on mortgages, and worried they will be trapped once interest rates start to rise.

To slow down borrowing, he has tightened the rules on four occasions, reducing the amortization rate to 25 years from a historic high of 40 years, which was reached under Flaherty’s watch.

As well, he has asked the federal watchdog on financial institutions to enact stricter lending practices and controls.

While the first three attempts did little to slow down the housing and credit growth, the last move in July seemed to accomplish the trick. The market has been on a steady downward slide ever since, with analysts predicted prices may fall between 10 per cent and 25 per cent over the next few years.

The central bank notes that credit growth has also slowed, adding it expects household debt to disposable income to remain at or near the record level of 166 per cent, where it has been the past two quarters.

But while Ottawa has apparently succeeded in pricking the housing bubble, one of the offshoots of the policy has been to slow down economic growth to below two per cent.

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Flaherty blasted for pressuring Manulife to reverse mortgage rate cut

  1. Conservative Comrade Stalin has ordered his minions to artificially keep interest rates high. These guys are all over the map.

  2. No free market in Canada. More government interference as usual! Here is your sign Canada! If the government is not directly in a business,it’s manipulating it!! The Harper government is just a elected mafia!! If you let them get away with it,you deserve what you get!

  3. Free markets? We don’t need no stinkin’ free markets.

  4. Haven’t Bob Rae and Tom Mulcair heard that Canada is in a major housing bubble right now? (You guys HAVE noticed that house prices are kinda, like, outrageous, no?)

    I’m no fan of Harper’s government, but for once they are doing the right thing.

    The banks love lower interest rates- they can get more customers to sign for mortgages which are CMHC insured. That means there is no risk to the bank if the home buyer defaults. The CMHC pays for defaults. That’s the government. Which means you and me. The bank gets to sucker in more people for huge mortgages, but we Canadians assume all the risk for defaults.

    We canadians are already “insuring” about 600 BILLION dollars in mortgages.

    You read right, Billions, with a B.

    House prices are coming down, there is no doubt about it. Even realtors admit it. (And THAT’s a big deal for a realtor to admit. ) How much and how fast is anybody’s guess. The economy is pretty slow now, and if housing really slacks off, the economy could go into the toilet, because construction (and related industries like realtors, renovation, furniture, insurance ,etc.) is a big part of Canada’s economy. There will be defaults.

    And you and I will be paying for the defaults, not the banks.

    Think the GST is high now? Think you are paying too much income tax?

    Well let the banks get into rate war, suck in more buyers at the peak in house prices and watch your taxes balloon when it all blows up.

    I’m sure that it will comfort you to know that the bank CEO’s will still get their pay raises.

    “You stuck the Canadian taxpayers with all the losses. Pure F$%king genius! Of course the board will approve you raise, mister CEO!”