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The Free Market and Mortgages (in Canada)

in Mortgage Rates, Rant

Recently we have had two different lenders come up with “cut-rate” Mortgage (BMO and Manulife) “deals” and both have now withdrawn those “deals” after urging from the Government (specifically the Department of Finance (and in the case of Manulife the Finance Minister himself)).

Thumb Screws

Finance Minister’s New Tool for Dealing with Rogue Banks?

The direct quotes (from the CBC web site) from those involved were:

“My expectation is that banks will engage in prudent lending — not the type of ‘race to the bottom’ practices that led to a mortgage crisis in the United States,” Finance Minister Jim Flaherty said of BMO’s “cut rate” mortgage deal.

and a further quote from the finance minister:

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

So there you have it my fellow Canadians, evidently there is now plenty of room for the government in our bedrooms (and homes) (to paraphrase Pierre Trudeau).

Now I could not find enough information on what kind of “deal” both BMO and Manulife were offering for these alleged 5 year mortgages, however offering rates of 2.99% and then 2.79% makes these sound like great deals (however, I am willing to hear from folks who are better informed on the entire deal on whether over payments were possible, and whether there might have been hidden penalties as well), but that is not the real point, it is the fact that the “Harper Government” now feels that market forces cannot be trusted.

Have they overstepped their bounds? No, both of the firms could have said, “Sod off!” (however imprudent that might have been), this was not an act of parliament, but it does open an interesting discussion about How Big a Nurse Maid Must the Government Be?

Would there have been a run on “cut-rate” mortgages? There might have been, can you trust banks to not cut their own throats? Rhetorical question now, I suppose, but currently I am fairly certain that I could walk into my bank and after a lot of threatening to leave, I might get a fixed rate of somewhere near 3.5% (without too much work, maybe even lower, who knows).  Would we end up with a Bunch of Stupid Mortgages causing a US-like Sub-prime debacle? Guess we shall never know.

Does the government think Canadians are Financially Stupid? Actions speak louder than words in this case.

Also, I find it hilarious to then hear Tom Mulcair (I am a former Quebecois so that is what we call him there) complaining about the Conservatives interfering with the free market, the irony of hearing a staunch Socialist complaining that the Free Market should decide is not lost on me.

No word on the heir apparent for the Liberals (Mini Trudeau) about whether the Government should be stepping in here.

What do you folks think? Should the government stopped this foolishness or let the marketplace decide?

{ 12 comments }

  • Denis March 22, 2013, 8:08 AM

    If this were only about getting renewed mortgages I would be ok with the low rates, but kinda iffy on new mortgages. I think that people should have to pass the test as to whether they can still pay if the mortgage rates were to double or even triple before they qualify.

    Now if he (Minister Flaherty) were kicking the butts of the payday loan places instead, I would be cheering him on, (and so would many other people!)

    Reply
    • bigcajunman March 22, 2013, 9:14 AM

      Me too, but for some reason Pay Day Loan places are being left alone (for now).

      Reply
  • Matt March 21, 2013, 8:39 AM

    Now this is a post loaded with possible discussions! Do I think that what the government did was wrong? Yes to some extent because these organizations are fairly large and lets be honest they can’t possibly be that stupid (I could be wrong). They’re all trying to compete for the same pool of mortgages and everyone knows what happened in the us so a sub-prime battle doesn’t seem likely.

    With that said there is something to be said for the government keeping an eye on the industries and companies that really prop up a critical infrastructure position (in this case the financial segment). When Air Canada goes on strike does the government eventually not get involved? There are times when it makes sense for them to step in. Here it sounds like they were warned about the direction they were going rather than told to do anything.

    As for the financial literacy of canadaians – that is a loaded question if I ever saw one and a discussion that needs a few beers because it’ll be a long one.

    Reply
    • bigcajunman March 21, 2013, 9:11 AM

      Yes, I think I should have prefaced this post with “It’s Inflammatory Comment Thursday!” 🙂 . I think I am OK with this intervention, but watching all the cojetations it caused in the media was entertaining. As for Canadian Financial Literacy, there are MANY posts out there dedicated to that discussion.

      Reply
  • B March 21, 2013, 7:40 AM

    The race to the bottom is still on, but just not advertised:
    http://forums.redflagdeals.com/official-mortgage-rates-thread-351105/1275/#post16528326

    I’m hoping to get 2.89% or better when I renew in a few months time.

    Reply
    • bigcajunman March 21, 2013, 9:09 AM

      Interesting, as I said, I am curious to find out how low I could make my bank go if I say I want to lock in.

      Reply
  • LifeInsuranceCanada.com March 21, 2013, 7:29 AM

    I’m all for the free market and I’m not a fan of gov’t regulations and intervention….but everything I see says that the gov’t regulators do a world class job of protecting consumers and our financial industry, particularly with respect to long term stability.

    Does that mean they should be dictating specific business practices to specific banks? That’s probably over the line. The reasoning though, of ensuring Canadians en masse don’t end up over their head in debt, that’s a good reason. It prevents a complete meltdown across the country, that would impact all of us, even those without debt.

    So, right idea, a bit too specific in it’s implementation though.

    Reply
    • bigcajunman March 21, 2013, 9:09 AM

      I think “over the line” is introducing legislation to control things, simply flexing their influence is maybe the right way to do this, but still an interesting problem.

      Reply
  • Bet Crooks March 21, 2013, 7:02 AM

    I don’t mind him rumbling and getting lots of publicity for the problem but I would not support a government actually passing some sort of rule to prevent price competition on mortgage rates.

    Reply
    • bigcajunman March 21, 2013, 7:23 AM

      I think anything that makes Tom Mulcair whine about wanting a Free Market is well worth saying…

      Reply
    • Matt March 21, 2013, 8:42 AM

      I totally agree – make the possible issue known, even encourage companies that look like they’re about to go down a dark road back but don’t actually dictate price policies at the legal level.

      Reply
      • bigcajunman March 21, 2013, 9:12 AM

        Agreed. Simply influencing is fine by me, but going to a legislative response is going too far.

        Reply

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