|My Open letter to Mr Flaherty|
Mar 14 2012 fishyre.blogspot.com
The Honorable Jim Flaherty
Minister of Finance
March 9th 2012
I am writing to you as a concerned citizen worried about the effect a housing slow-down will have on the financial well-being of the CMHC and of our country.
As you are no doubt aware the CMHC has now reached the level of leverage attained by Fannie Mae and Freddie Mac in the US prior to the US housing collapse.
The CMHC is supposed to make home ownership more accessible to Canadians, however by its actions it is having the opposite effect.
1) Insuring investment property purchases surely takes homes out of the housing stock.
The result is that the CMHC has, in my opinion, been a significant factor in the recent huge and unsustainable rise in home prices across Canada and decline in affordability.
This rise in house prices gives the impression of wealth, and certainly increases the net worth of current owners. However new entrants into the market and those who 'move up' are left struggling with such huge burdens of debt that there is little money left over for discretionary spending and no capacity to deal with set-backs in employment or income.
As you are also aware a number of organizations have rung the alarm bells on the CMHC. The IMF has called for greater insight and better risk management, the CD Howe Institute has drawn attention to the huge risk that the Canadian tax-payer is exposed to, and even recently Bloomberg has drawn parallels between the failed US mortgage institutions and the CMHC.
Would it not be sadly ironic, that having watched the debacle in the US from front row seats, we nevertheless march onwards and repeat their same mistakes.
I am sure Canadians would not look kindly on the legacy of a Finance Minister who allowed this to happen unfettered. The CMHC seems to have taken on a life of its own and has moved into areas that increase their size and importance but are well away from their stated mandate.
1) Do no allow the CMHC to increase its lending ceiling. We are already at $540 Billion, that is higher per capita than Freddie Mac and Fannie Mae were to the US tax-payer.
2) The CMHC should get out of insuring investment property. That is more risky and is reducing the stock available for other owner-occupiers.
Chair of the Board of Directors, CMHC
Principal, Chiesa Group
James A. Millar
André G. Plourde
E. Anne MacDonald
Where are the academics, the high level actuarial talent watching out for the tax-payers' interests, where are the impartial voices whose livelihoods are not tied to housing? Does this board seem to you reasonable for overseeing many Billions of tax-payer exposure? The IMF doesn't seem to think so.
Clearly you have concerns about rising household debt and the high price of housing, as you have voiced caution many times publicly. However talk alone is not enough, we need action.
We need to rein in one of the largest enablers of this debt explosion, the CMHC, and reduce the liability that we will all face once there is a correction in housing.
Canadian banks have already shown with their ultra-low rates, cash back mortgages and stated income loans that despite their rhetoric and reputation they are following the same pattern as the US banks prior to their housing collapse, let us at least try and mitigate some of this by removing the CMHC's gasoline from the fire as much as possible.
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