Briefing highlights
- Scotiabank's 10 points on housing
- CPPIB joins Bombardier revolt
- More deposit erosion at Home Capital
- Charlie Brown joins DHX Media
‘Grossly misinformed’
Bank of Nova Scotia’s head of capital market economics is taking pains to spread the gospel on mortgages and housing in Canada.
For a couple of days now, Derek Holt has tried to counter what he believes is bad information about mortgage financing and housing markets.
This comes amid the turmoil at Home Capital Group Inc. and widespread concerns over inflated housing markets in and around Toronto, with the latter sparking sweeping new Ontario measures.
It comes, too, after years of warnings about record levels of household debt.
“Interest in Canada’s mortgage financing system and housing market from domestic and foreign accounts remains high,” Mr. Holt said in a research note.
“On balance, I continue to believe that efforts to equate what has happened in Canada over time to what happened to non-conforming loans and riskier strategies elsewhere to be grossly misinformed,” he added.
In charts and text, Mr. Holt laid out 10 points in his daily note Tuesday to provide “a snapshot of the breadth of products and their utilization with a focus upon the ones that are perceived to be riskier in nature.”
1. About one-third of households in Canada carry a mortgage. The rest either rent or own outright.
2. “Reliance” on interest-only home equity lines of credit, or HELOCs, is low. That includes those outstanding and recent.
3. Amounts drawn on those HELOCs , in percentage terms, are “fairly modest.”
4. Homeowners hold “relatively high” levels of equity in their properties. Said Mr. Holt: “Note the virtual absence of negative equity and low-equity mortgages following various rounds of tightened mortgage rules.”
5. Withdrawals on home equity are “modest and mostly skewed toward relatively prudent purposes.”
6. Mortgage amortizations of more than 25 years “have pretty much disappeared following their elimination as an insured option.”
7. Most first-time home buyers are using their savings for down payments.
8. Remember how new rules now mean borrowers must qualify at a five-year posted rate? Since then, Mr. Holt said, “significant padding to rate risk has been imposed on the mortgage market as judged by the spread between the qualifying rate and the rates that are actually paid ... This offsets much of the concern about a potential rate shock.”
9. Most mortgages are fixed. Indeed, the percentage of fixed-rate mortgages rose in those taken out last year.
10. While a proxy for mortgages aimed at buying to let now accounts for about 10 per cent of financing, that includes “fully” renting out a property or part of one’s own.
Most Canadians, of course, understand the system. Some observers who don’t live here may not quite get it, and, thus, may have visions of American-style meltdowns dancing through their heads.
Which is why Canadian banks are suddenly being asked about the situation. “In addition to a sweep of mortgage product characteristics are arguments that are well understood across the domestic account base but still imperfectly understood abroad,” Mr. Holt said.
“Banks have full recourse over incomes and assets so forget about no-recourse loans,” he added.
“By law, one has to take out mortgage insurance if one has less than a 20-per-cent down payment and said insurance has been guaranteed through explicit government-backed guarantees.”
Securitization is also not a particularly big issue in Canada, Mr. Holt added.
CPPIB joins Bombardier revolt
Canada’s largest pension fund has joined a rash of other institutional shareholders looking to shake up Bombardier Inc.’s board of directors, withholding its vote for chairman Pierre Beaudoin in the face of widening public opposition to the company’s executive compensation plan.
The decision by Canada Pension Plan Investment Board means the country’s major institutional investors are now solidly behind shaking up the family-controlled company, The Globe and Mail’s Josh O’Kane and Nicolas Van Praet report.
The manufacturer’s annual meeting takes place Thursday. CPPIB joins others including Caisse de dépôt et placement du Québec, Ontario Teachers Pension Plan, Quebec’s Solidarity Fund FTQ and British Columbia Investment Management Corp.
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