Canada Mortgage and Housing Corporation (CMHC) is making it known that it’s very opposed to loosening the rules on the mortgage stress test.
“My job is to advise you against this reckless myopia and protect our economy from potentially tragic consequences,” said CMHC’s president and CEO, Evan Siddall, in a strongly worded letter sent to the Standing Committee on Finance on Thursday.
Siddall’s dynamic defence of the stress test is fanning the flames surrounding the debate on whether or not to revisit how restrictive the test is to homebuyers.
Real estate boards, some economists, and other industry groups have been sounding off for some time now on why it might be time to ease the stress test rules and instead introduce other measures, like longer-term mortgages.
In a statement provided to the Toronto Star, Ontario Real Estate Association CEO Tim Hudak said, “Ontario Realtors are fighting for Canadians who are having their dream of becoming homeowners dashed by bureaucratic overreach in the mortgage market and outdated red tape and expensive regulations restricting housing supply and choice.”
Siddal, meanwhile, told the committee to “look past the plain self-interest” of these sorts of groups in his letter.
That didn’t sit so well with Paul Taylor, president and CEO of Mortgage Professionals Canada (MPC), one of the other groups that’s called for adjustments to the test.
“I’m quite surprised to see that our community was somewhat vilified by the letter,” he told the Star.
The B-20 mortgage stress test, introduced in January 2018, requires lenders to test potential borrowers at the Bank of Canada’s five-year benchmark rate, or two percentage points above their negotiated rate, whichever is greater.
It was introduced in order to cool the housing market, which many argue it has done effectively. But given its restrictive nature, many within the industry feel it’s time to reevaluate the test’s purpose.
The test has come under criticism for effectively locking out many homebuyers from the housing market altogether, making it exceptionally difficult for them to prove they could afford payments at even higher rates.
The CMHC is the latest organization to join the debate. Earlier this week, the IMF came out in opposition to loosening the test’s rules, citing the risks it could pose to the economy.
In his letter, Siddall said, “Critics of the stress test ignore the fact that high house prices are the overwhelming reason why home ownership is out of reach.”