Scotia’s CEO Richard Waugh is receiving a rare show of support from the broker channel, after stating finance minister Jim Flaherty should stop interfering on mortgage rates.
Scotia’s CEO Richard Waugh is receiving a rare show of support from the broker channel, after stating finance minister Jim Flaherty should stop interfering on mortgage rates.
“I would have to agree with Mr. Waugh’s remarks,” says Ian McSevney, president of Mortgage-Advisors, Altmore MIC. “The markets are dictating the mortgage rates, albeit within the confines of the Bank of Canada's rate policy. So the government getting involved in product pricing is philosophically wrong. It would mean the government is interfering in the individual banks product pricing – which would be unfair to the mortgage consumer.”
Waugh was attending the annual shareholders meeting in Halifax Tuesday, when he told the Financial Post that although he understands why the finance minister is concerned about the economy, he doesn’t feel the government should be setting product pricing.
“Despite the difficulties of central banks to use interest rates, the alternative of trying to manage specific products or prices, to me, is fraught with difficulty,” Waugh told reporters.
“I personally think that the finance minister should stay out of the industry pricing for mortgages,” says Bill Harries of The Mortgage Centre, Sky Financial Corporation in Edmonton. “I understand Mr. Flaherty’s concerns, but it’s an area that I don’t think that the government should get involved in and should let the market price it’s self accordingly.”
McSevney is also sympathetic with the finance minister’s concerns, but feels the banks are responsible.
“I too understand that Mr. Flaherty is concerned about the Canadian economy as we all should be,” adds McSevney. “The government does have a job to do as a regulator and already works to regulate rates through the Bank of Canada's rate policy. We have a pretty long history now of the use of securitization through mortgage-backed securities in the Canadian marketplace which ties mortgage rates to bond yields.
“The banks simply would not be offering a rate to the Canadian consumer that they could not afford to offer.”
In fact, Waugh did allude to the possibility of Scotia expanding their unsecured lending, citing stronger than expected credit card and personal loan portfolio. But Harries sees this as a prime example as to how the government needs to apply the same rules to all types of lending.
“As for unsecure credit, I think that the same lending guidelines used for applying for a mortgage should be used by all institutions for TDS ratios regardless of the type of credit, loans or credit cards approved,” says Harries.
Finance minister Flaherty has been in the news repeatedly throughout the month of March, first publicly chastising BMO for lowering its posted rate to 2.99 per cent, then having his department contact Manulife when that lender lowered its rate to 2.89 per cent, crossing Flaherty’s rate Rubicon.
Manulife reversed its posted rate change back to 3.09 the following day.
For McSevney, he feels the true restraint on banking behaviour should come from the shareholders, not government.
“I think it would be up to the shareholders of the individual banks to complain if they were unhappy with the rates that were being offered, not the government,” he told MortgageBrokerNews.ca. “The government has already done its part putting in place the benchmark qualifying rate.”
