I encourage people to not only read this, but to also follow the link and read the comments for further insight into mortgage rule changes pending March 2011.
The Reason Bank CEOs are Superheroes (to their shareholders):
Rob McLister, CMT
In one epic and brilliantly calculated move, bank CEOs like TD’s Ed Clarke and BMO’s Bill Downe convinced Canadians they had consumers’ interests at heart, and convinced the Finance Department to:
- Overlook credit card debt, a market that’s yielded double-digit growth for banks and funded $260 billion of purchases last year
- Ignore the risk of unsecured lines of credit (ULOCs) so banks can continue offering them to their customers when 85% LTV refinances aren’t enough [Brokers don’t generally sell ULOCs.]
- Quash broker’s primary source of growth (first-time buyers) with amortization restrictions
- Cut off consumers’ ability to refinance profitable high-interest consumer debt into low-interest mortgage debt
- Eliminate HELOC competition from non-deposit-taking lenders which rely on securitization (HELOCs have been massive money-makers for banks, with 170% growth over the last decade. HELOCs now account for 12% of household debt. Banks like TD, BMO, and RBC are largely unaffected by the new HELOC rules because they don’t depend on securitization. )
- Increase HELOC funding costs at banks with broker channels (like Scotiabank and National Bank—both of which securitize some of their readvanceable products, according to sources)
- Brush aside the consultative recommendations of CAAMP aimed at permitting well-qualified borrowers to retain mortgage flexibility in exchange for tighter borrower qualification standards
- Make it harder for more people with collateral charge mortgages to change lenders (Thanks to the lower 85% LTV refi maximum. Bravo to TD’s Ed Clarke on this one.)
In short, the big bank CEOs orchestrated a virtuoso performance for their shareholders, at the expense of sensible mortgage holders. It’s moves like this that justify every crumb of their $5 to $15 million+ compensation packages.