Jim Flaherty vs. Mortgage amortization

by Aaron Wherry

In October 2008, the Harper government reduced the maximum mortgage amortization from 40 years to 35 years. In January 2011, Jim Flaherty reduced it to 30 years. Today, the Finance Minister reduced it to 25 years.

Nearly four years ago, the Globe traced the introduction of 40-year mortgages to the Harper government’s 2006 budget.

Just yesterday, Finance Minister Jim Flaherty repeated the mantra that the government acted early to get rid of risky mortgages. What he and Prime Minister Stephen Harper do not explain, however, is that the expansion of zero-down, 40-year mortgages began with measures contained in the first Conservative budget in May of 2006. At the time, Mr. Flaherty announced that the government was opening up the market to more private insurers. ”These changes will result in greater choice and innovation in the market for mortgage insurance, benefiting consumers and promoting home ownership,” Mr. Flaherty said.

The new rules encouraged the entry of such U.S. players as American International Group – the world’s largest insurance company – and Triad Guarantee Inc. of Winston-Salem, N.C. Former Triad chief executive officer Mark Tonnesen, who spearheaded his company’s aborted push into Canada, said the proliferation of high-risk mortgages could have been mitigated if Ottawa had been more watchful. ”There was a lack of regulation around the expansion of increased risk,” he said.




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Jim Flaherty vs. Mortgage amortization

  1. Need to give credit when credit is due, smart move on the government’s part. I think it’s safe to say the market did not react to the drop from 35 years to 30 a year ago, so the drop from 30 to 25 is justifiable, especially given that the current outlook on interest rate hikes isn’t perhaps what it was 6 months ago.
    With all this said, in my opinion, and as the BoC has repeatedly hinted, consumer debt is just as big, if not a bigger problem than the housing market.

    • At this point. No. This is not a smart move.

      The reason the market didn’t react a year ago was because the effects wont be seen until 2013-2014. That’s when all those people who refinanced into 35 and 40yr mortgages as interest hit the bottom in 2008-2009 will find their mortgages expiring and won’t be able to qualify for the renews at the lower 25 yr requirement, which would lop off 5-10 years of their estimated payback time.

      When interest rates do go up, it’ll be because our economy (and the US economy) is working better, so supposedly people will be able to seek higher wages. Shortening these payback times before the economy has improved, however, is a great way to short-circuit any sort of soft-landing for the housing market bubbles in various regions in Canada and send them into a tailspin.

      It’s like these guys kicked a vase off a shelf, and on realizing what they’ve done, are trying to make it right simply by putting the pieces back together. It doesn’t take a lot of sense to see that that idea simply doesn’t hold water.

  2. Spending spree of western governments between 2000-2007 was fueled by credit. Governments have run up huge debt and they have encouraged people to increase their private debt as well to keep the economy growing. Western governments have been using banks as part of their industrial strategies – give massive mortgages to consumers to buy expensive houses, and a bit extra to buy new white goods and granite countertops when moving in, and it keeps economy moving. Governments always seems to have plans to keep people spending but no plans on how to produce wealth.

  3. Sometimes I wish the word Yahoo had never been used to name something useful. Now we’ve lost the original use of the word to name unpleasant people obsessed with pretty stones that they dig out of the mud.

  4. So it seems we have a government that does not trust Canadians to run their own finances. Don’t worry, though. They’ll protect us from ourselves.

  5. Thanks to Mr. Wherry for reminding us of another economic policy the Conservatives first got wrong and had to backtrack. Remember the 2008 recession that Harper and Flaherty never saw coming, the November 2008 Economic Statement that forecasted a surplus,which turned into the largest deficit in history, the income trust fiasco, the campaign to deregulate Canadian banks, etc. I still can’t understand why Canadians think that Harper is the best to manage the economy when all their first reactions to economic problems are wrong. Their economic management reputation is so overrated.

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