The ghost of F

After a 13-year absence, during which I did useful things, I lost my mind and again ran for Parliament. The Progressive Conservatives were toast. Mulroney was gone. Harper was in. The new Conservatives had turned harder right. “I’m gonna try this thing,” Dorothy heard me say. “How bad could it be?”

It was bad.

The new finance minister, Jim Flaherty, reached out and asked me what he should do in his first budget. Be careful about housing, I said. “The American situation is melting down.” Then he ignored everything.

So in the 2006 inaugural Harper budget the government shocked just about everyone by proposing people be allowed to buy houses with 0% downpayments and government-insured 40-year mortgages, while opening the market to private insurers. “These changes will result in greater choice and innovation in the market for mortgage insurance, benefiting consumers and promoting home ownership,” F said in his speech on the floor of the Commons.

Included were plans to let big US corps in the door. Like AIG, the guys who were soon to be massacred in the 2008-9 credit crisis. Ottawa was embracing the philosophy of expanding home ownership through high-risk mortgages – which had led to NINJA loans in the States (No income, No job. No assets), mortgage securitizations and teaser rates. Then, collapse. The US real estate crash came as close as Covid to causing a global depression.

Flaherty’s budget proposals had to pass the committee stage before being approved by Parliament. I was on that all-party finance panel, which was dominated by Con members. They all lined up dutifully in support of the boss. Not me. It was bad policy, and said so. I allied with the oppo guys and forced hearings into the matter. During the process the Chief Government Whip summoned me into his giant, wood-panelled office and delivered a message from Harper. Play ball, or you’ll regret it.

I didn’t. But the bill passed anyway. Canada got 0%-down, 40-year loans. And eventually I was expelled from caucus, leading to an inevitble electoral defeat.

What happened then?

You know. Real estate values and household debt started an ascent which has continued to this day. Flaherty eventually realized the error of his ways, and tried heroically to stuff the genie back in the bottle. In the autumn of 2008 the max mortgage amortization was scaled back to 35 years. The 0% downpayment was punted and replaced by a 5% requirement. In early 2011 mortgage length was reduced to 30 years. The next year it was chopped to 25 years – where it has remained since.

Until now.

On Friday the prime minister fudged when asked if his government would bring back 30-year taxpayer-backed mortgages again in next week’s budget. “On mortgages we will have more to say between now and the budget date on April 16, and perhaps we will save it for April 16,” he demurred. Currently buyers with less than a 20% downpayment are forced to insure their home loans, which cannot be longer than 25 years and must be for homes worth under $1 million. As we all know, even those measures have not stopped an historic rise in prices.

The mortgage industry is abuzz with rumours Trudeau is about to take a page from Flaherty’s disastrous playbook. Once again 30-year insured loans will be allowed. And the $1 million cap will be increased.

“On a $1 million home @ 4.99%, this would mean an approximate decrease in monthly payment ($5589 to $5128). Income needed to qualify $210k vs $225k,” says mortgage broker Darin Bauer. “Also they may raise the price cap over $999k to maybe $1.2 million or something. Again these are just rumors but wouldn’t be surprised. They are desperate for votes. This would also NOT be good for inflation and the Bank of Canada will be pissed.”

That’s for sure.

The CB has been working for two years to contain inflation which led to 10 interest rate hikes and an explosion in mortgage costs. So far, so good. The CPI has gone from over 8% to under 3%. But meanwhile real estate prices have budged only a small amount and the federal government has taken massive grief for a ‘housing crisis’.

Will Trudeau undo Tiff Macklem’s work? After all, fiscal policy (government actions) can run couner to monetary policy (what the Bank of Canada does). If Ottawa increases spending or cuts taxes it stimulates an economy the CB is trying to cool. Likewise, if housing demand is goosed (with 30-year loans and cheaper monthlies) then real estate flares once more. The central bank may well respond by delaying or even cancelling planned rate cuts in the wake of political desperados. That would court recession.

Poor little F is gone. Deceased too soon. Pity.

Must we learn it all again?

About the picture: “Our Golden Doodle Sambuca has long since gone to that great ball retrieving place in the sky,” writes Scott, “and we recently brought our fourth Doodle into our family, this one a St Berdoodle! Her name is Weeza and here is a picture of her being quite comfortable after a couple days with us. She is just 4 1/2 moths and she already tops 38lbs. She is quite the bundle of fun and she is keeping our 10 year old Sheepadoodle Theo young!”

To be in touch or send a icture of your beast, email to ‘[email protected]’.