Why Do Flaherty and Harper Hate Canadian Homeowners?

A good article in today's Globe & Mail accompanied by a good interpretation by Garth Turner at his blog. The Fox News-style title pretty much sums it up.

The story uncovers how Harper's neo-con ideology, i.e. if it's American, it's gotta be good for Canada, along with Flaherty's legendary incompetence combined to subvert Canada's housing market. What they did is something they'd had in mind well before they defeated the Martin government - the zero-down, 40-year term mortgage. They made sure it was in their very first budget in 2006.

"New mortgage borrowers signed up for an estimated $56-billion of risky 40-year mortgages, more than half of the total new mortgages approved by banks, trust companies and other lenders during that time, according to banking and insurance sources. Those sources estimated that 10 per cent of the mortgages, worth about $10-billion, were taken out with no money down.

The mushrooming of a Canadian version of subprime mortgages has gone largely unnoticed. The Conservative government finally banned the practice last summer, after repeated warnings from frustrated senior officials and bankers that the country's financial system was being exposed to far too much risk as the housing market weakened."

In keeping with their standard Karl Rovian practice, Flaherty praises the Harper government for banning these toxic mortgages while conveniently omitting that they were his idea, his creation in the first place.

At the time, Mr. Flaherty announced that the government was opening up the market to more private insurers.

"These changes will result in greater choice and innovation in the market for mortgage insurance, benefiting consumers and promoting home ownership," Mr. Flaherty said.

The new rules encouraged the entry of U.S. players such as American International Group [you may know them as AIG, the outfit that got a quarter-trillion dollar bailout from Washington]- the world's largest insurance company - and Triad Guarantee Inc. of Winston-Salem, N.C. Former Triad chief executive officer Mark Tonnesen, who spearheaded his company's aborted push into Canada, said the proliferation of high-risk mortgages could have been mitigated if Ottawa had been more watchful.

"There was a lack of regulation around the expansion of increased risk," he said.'

Garth Turner warns we'll all pay the price of the Harper/Flaherty ideology over the next year or two:

"One year ago, in December 2007, I sat and wrote the book, “Greater Fool” which spelled out in detail my problem with these Canadian subprime mortgages, and predicted the outcome – a US-style real estate contagion which would sweep Canada. Unfortunately, I was right. It is now infecting every city. It will grow more virulent as the economy weakens and unemployment spreads. By the time the real estate market bottom in perhaps a year, maybe longer, values will have dropped by up to a third more."

I have my own take on this, one honed during the years I practised bankruptcy law. I've seen this story far too many times - a newly married couple wanting to start their family, a rising real estate market, real desperation to get a house for the kids to come. With the best of intentions (who intends their own financial ruin?) they find a house that they can afford but just barely. They take the plunge hoping that the market won't falter, that neither of them will lose their job, that they'll somehow hold on until their incomes grow and their debtload lightens.

Now imagine that same young couple when a 40-year term, no down payment mortgage is dangled before their eyes. No money down, no need to wait. 40-year term, either lower but still barely affordable payments or more house. They lunge at the bait and that's just what Harper and Flaherty and their pals at AIG were counting on. Suddenly you have an overheated real estate market in which first time homebuyers are spending an estimated 78% of their combined, after tax income on servicing their mortgages. That's the figure reported by CBC for first time homebuyers in Vancouver last year.

I want to repeat that again. SEVENTY EIGHT PER CENT of COMBINED AFTER TAX INCOME.

And, while you may argue that these subprime borrowers got themselves into it, that they're the authors of their own misfortune, the Conservative policies that made this possible have wreaked damage that has spread throughout the real estate market.

Especially today with Republican conservative subversion of global securities/stock markets, many Canadians are seeing their retirement portfolios crater before their eyes. Now Harper/Flaherty have undermined their fallback retirement asset, their home equity. They did it in the deliberate pursuit of a mad, uber-right ideology and we're all going to pay dearly for that.

I want to be hypothetical for a minute. If Stephen Harper and Jim Flaherty had any integrity - any integrity - they would take responsibility for the havoc they have wrought on the Canadian public and they would resign not just their offices but their seats in parliament. Yet Stephen Harper is bent on doing to our constitutional structure pretty much the same thing as he's done to our real estate markets - smother it in a thick layer of his greasy ideology. The man has to be stopped and driven straight out of Ottawa before he can make our lives and our country that much worse.

http://www.theglobeandmail.com/servlet/story/LAC.20081213.MORTGAGE13/TPStory/National