Bill Morneau and the Office of the Superintendent of Financial Institutions performed a deft duet on Friday. The Minister of Finance delivered a message of caution to prospective buyers of houses and condominiums, warning them not to commit themselves too rashly, or too speculatively. So he raised (as of next Feb. 15) a purchaser's minimum down payment on an insured mortgage – though it's not retroactive – if the purchase price is $500,000 or more.
Correspondingly, OSFI said it intends to warn the mortgage lenders, too; that is, the banks. The financial-institution regulator hasn't set a number yet, but it wants to raise the amount of capital that the banks have to hold to protect themselves from residential mortgage defaults – another form of insurance. At least the banks get time to discuss this, unlike home-buyers; then again, there are a lot more home-buyers than chartered banks.
The workings of the Canadian mortgage market can't be reduced to an exact science. That's why Mr. Morneau was able to say with a straight face that he and the Department of Finance are worried about "pockets of risk." Specifically, two very densely populated pockets known as Vancouver and Toronto.
The phrase "pockets of risk" is apparently borrowed from a recent C.D. Howe Institute paper by Craig Alexander and Paul Jacobson, called "Mortgaged to the Hilt."
So the revised policy is "very targeted," says Mr. Morneau, even though the new down-payment rules applies to all of Canada. The premiss of this logic is that, though "the Alberta situation is challenging," house prices are apt to be lower in Alberta, because of the severe downturn in oil and gas prices. Consequently, Albertans are less likely to be hurt by the higher mortgage-insurance premiums. Cold comfort, but true.
The people who will pay more for insurance will have to be able to pay at least $45,000 in the first place, and at least 6.4 per cent interest, according to Mr. Morneau.
Meanwhile, OSFI's worries about the mortgage market are connected with its current studies about "risk culture" in the banks, and their questionable relationship to the banks' written policies.
All these issues reveal uncertainty. We need much more data.