The CEO of Canada Mortgage and Housing Corporation is forcefully defending mortgage stress test rules and warning federal policy makers to hold the line amid calls for the measure to be changed.
“The stress test is doing what it is supposed to do,” wrote president and CEO Evan Siddall in a letter dated Thursday to the Standing Committee on Finance, calling out accusations of unintended consequences.
The stress test requires would-be borrowers to show they would still be able to make payments if faced with higher interest rates or less income. It first applied to insured mortgages or those with down payments of less than 20 per cent of the purchase price with a variable rate and a term of less than five years.
In Oct. 2016, Federal Finance Minister Bill Morneau extended it to five-year mortgages. The Office of the Superintendent of Financial Institutions amended the B-20 rule starting January 2018 to include uninsured mortgages or those with a down payment of more than 20 per cent.
The goal of the measures is to lower house prices and protect Canadians from borrowing too much money.
“Housing affordability is CMHC’s raison d’être and we will consistently argue for that,” Siddall wrote.
Changes to the stress test requirements starting in 2010 have helped keep house prices 3.4 per cent lower nationally than where they otherwise would have been, he said.
“Critics of the stress test ignore the fact that high house prices are the overwhelming reason why home ownership is out of reach.”
Some groups and economists have called for changes to the B-20 as property sales and house prices fall across Canada.
Last month, CIBC World Markets Inc. deputy chief economist Benjamin Tal released a report showing that the new mortgage stress tests accounted for at least half of the $25-billion decline in new mortgages started late last year. Tal argued the test was necessary, but could be made more flexible by taking into account rising interest rates, for example.
Last week, Conservative Leader Andrew Scheer promised to “re-work” the stress test “that have pushed the dream of home ownership out of the reach of so many Canadians across this country.”
Siddall called out critics who have asked for the stress test to be eased and other measures, like offering 30-year mortgage terms.
These measures would inflate property prices by up to one to two per cent in Canada’s large cities, he said, as well as stimulate more borrowing.
“My job is to advise you against this reckless myopia and protect our economy from potentially tragic consequences,” he said, asking the committee to “look past the plain self-interest” of the Canadian Home Builders Association, the Mortgage Professionals Association of Canada and the Ontario Real Estate Association.