Leading economist calls out government on lack of information about mortgage market

By Garry Marr, Financial Post, April 3, 2014 - It wouldn’t have prevented a U.S.-style housing crash, but CIBC deputy chief economist Benjamin Tal is demanding more information about the mortgage market from the government. “What was the dollar value of new mortgages originated in Canada in the last quarter? What is the credit score distribution of mortgage credit in Canada? What is the share of non-conforming loans in the Canadian landscape? What is the delinquency rate of those non-conforming loans? What is the trend in re-financing and pre-payments? What is the net equity position of new and existing mortgages? What is the flow of rental activity in the country? What is the share of foreign investors in the condominium market? What is the average down payment?”

Mr. Tal, in a report issued Thursday, says none of these questions can be effectively answered in Canada.

“We simply don’t know,” he writes. “Having all that information is not a sufficient condition for preventing a collapse, but it could be a necessary condition.”

The economist says there is general agreement the housing market is now overshooting, but the real test for consumers will come when interest rates begin to rise.

“How can you determine the level of rate sensitivity if you do not have information on the distribution of mortgages by actual mortgage rates, the level of down-payment and the distribution of borrowers by their debt service ratio?,” writes Mr. Tal.

He says banks have access to much of this information, more than the average observer, and those with a bearish opinion on the market are making that call because they don’t have the same data.

The economist says the “short Canada” position is gaining traction among foreign fund managers because it is also based on similar partial information.

“This situation is unhealthy. Due to competitive reasons lenders cannot reveal all the information they sit on, while other players are forced to use their limited information to make decisions,” writes Mr. Tal.

He says the key to closing this information gap is for Canada Mortgage and Housing Corp. to provide more timely information to the market.

“Canada’s credit bureaus must find a way to incorporate crucial mortgage information into their reporting; the Superintendent of Financial Institutions (OSFI) through coordination with the country’s largest financial institutions can provide more information regarding credit and default trajectories — ditto for the Canadian Bankers’ Association,” says Mr. Tal. “The time to act is now.”

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