Thursday, January 14, 2010

Circle the Wagons!

Circle the Wagons

Seems the feds wondering aloud about tightening up mortgage lending requirements has predictably got the dander up of those in the real estate/lending industries up. Rapidly they have began circling the wagons, and now we're starting to see the PR counter assault.

The builders, lenders, and brokers wasted no time squealing when the rumours first started to circulate, and today we saw one of the first of their more official responses with CAAMP pumping out a special report to protect the shield and tell the world (and more specifically Jim Flaherty) there is apparently no need for concern and that everything is rosy.

Not sure words can really do justice to the simple gesture of rolling ones eyes as far back in their sockets as humanly possible. It's about as blatantly slanted a 'report' as one is likely to find. One must wonder how many showers it took Will Dunning to feel clean after signing his name to such tripe.

The report could have offered some real insight, but instead resorted to cherry picking data that met their pre-determined narrative... and even at that, it needed to employ some amazingly convenient assumptions just to get that far. Loaded with vague language, and immediately dismissive of anything that would poke holes in their rice paper castle of a hypothesis.

Most glaring was their refusal to discuss the potential effects of fixed rate mortgages going up to a significant degree... instead, conveniently assuming they will go no higher than 5.25%, a level WAY below the long term average, and overly optimistic even in the era of rock bottom rates of the last decade.

Or that the rush of buyers trying to 'take advantage' of the all-time low rates this last year has effectively left us with a made-in-Canada version of the ARM disaster that contributed to the US housing collapse. Rather than lender offered teaser rates, we had record low market rates bound to rise to a significant degree when these loans come up for renewal in five years.

And thanks to nearly half of all first-time-buyers flocking to 30+ year amortizations and other exotic arrangements, come renewal they will have made up minimal equity and will thus bear the full brunt of higher market rates. If that's not scary enough, according to today's report somewhere between 50-60% of the record sales this year (or any year) are made by first time buyers.

But of course such talk doesn't further their agenda, even if it was in the long-term interest of the market (and their own members) to tighten lending... that would cause short-term pain to the mortgage brokers out there, and CAAMP can't have that. But why should they be different than anyone else whose sight can't seem to extend past the end of the current quarter.