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"You're poorer than you think" revisited

A VO reader pointed out some inaccuracies in yesterday’s story about my re-posting of the Globe & Maiil story on CMHC’s ‘Emili’ program.

The thrust of the Globe’s investigation is that the computer generated program used by CMHC is over-assessing the value of these homes. The reader rightly points out that CMHC does not insure HELOCs and I apologize for that inference.

It is worth noting that the reader’s link is written in an online website called That site has been created by Robert and Melanie McLister, both of whom appear to operate a mortgage brokerage under the umbrella of I have nothing against mortgage brokers – I have used them myself – but stories which appear on their site might be construed as being in their own self interest, while the Globe & Mail – recent scandals to the contrary – does not. The website referred to does offer some good information, and I thank him for pointing it out to me.

Today’s story furthers the discussion by pointing out that Lenders opposed a crackdown on home equity borrowing.

There are two fairly widely divergent points of view on the matter of mortgages, HELOCs, and Canadian (make that “Toronto and Vancouver”) home values. One – espoused by the Bank of Canada and Mark Carney – is that Canadians have taken on too much mortgage debt and a ‘day of reckoning’ will come when interest rates “inevitably” begin to rise.

Another view – this one held by the real estate and mortgage industry, which clearly does not want the  party to end – is that real estate remains a sound investment, that financing options exist for virtually everyone (check the teaser ads which offer “No money down, stated income, 35 or 40-year amortization, or interest-only,* and that “we all need a place to live—why waste your money paying rent?”

Their saviour right now is the United States Federal Reserve Bank, which is committed to holding down interest rates for as long as it takes to create a solid economic recovery.

One thing is certain: we have entered into a world where a high percentage of personal wealth is tied up in property, and rising values have created a mania for home ownership that does not apply to other investments like RRSPs or non-registered holdings.

In the United States, lax lending rules extended home ownership loans to an enormous number of people with bad credit histories.

Many Canadians – the prudent ones – feel that, similarly, mortgage insurance offered through CMHC similarly encourages taking on too much debt and that CMHC is not adequately equipped to handle a mortgage meltdown of the kind experienced in the United States in 2009.

That being said, it’s obvious that it is not in the interest of either side to have a “Canadian version” of the US meltdown, which saw steep declines of 40 percent in home values - and even more in some jurisdictions.

Needless to say, these are separate topics worthy of further exploration.

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