Alberta Credit Union regulator calls mortgage stress tests a ‘sensible approach’

Provincial credit union lending policies determined by arm’s length regulator – not province

Some politicians are calling for an end to the so-called mortgage stress test in Alberta as a way to combat slumping home sales. BRODIE THOMAS / LIVEWIRE

UCP leader Jason Kenney told the real estate industry last week that if elected, he would push back against the federal mortgage stress test, but whether or not a premier could influence such a policy remains unclear.

The idea is also being championed by Calgary councillor Goeorge Chahal. Both politicians say the stress test, which forces would-be home buyers to prove they could make their payments if interest rates rise, is unfair and unnecessary for Calgary’s slumping housing market.

Chahal’s motion to have the Mayor write a letter to the province asking for a review of the stress test passed at council on Monday.

Chahal noted that Calgary Credit Unions and the Alberta Treasury Board are not subject to those federal regulations, but nevertheless have similar policies.

Tim Wiles, president and CEO of the Credit Union Deposit Guarantee Corporation (CUDGC), confirmed that Alberta Credit Unions answer to a different regulator than the national banks.

Under the provincial Credit Union Act, his organization provides guidance and assistance to provincial credit unions, much like the CMHC does for federally regulated banks.

He said they have followed suit with the federal stress test policy because it was the right thing to do.

“We always look at both national and international best practices in terms of how to best help mitigate risks in the Alberta Credit Union system,” he said.

“In this case we looked at the guidance that the federal government released and it seemed to be a sensible approach. In fact, many of our credit unions were already following that guidance already on their own.”

Wiles noted that the CUDGC has a provincially-appointed board, and that the Credit Union Act spells out its jurisdiction.

“Some things are for the corporation to do, and some things for the minister and his department to do,” he said. “If the government thought that this direction we had gone was not appropriate, I guess we’d have a conversation about that and discuss the pros and cons of changes going forward.

“But we do have authority under the act to issue guidance to the Credit Union system as we see fit on safety and soundness. And that’s a responsibility that’s assigned to us under the act.”

Wiles said he feels they’ve acted prudently by following the federal regulator’s lead.

Not everyone agrees the move is so prudent. The idea being put forward by Kenney and Chahal is popular with Calgary’s home builders.

Brian Hahn, BILD CEO, said his organization – which represents homebuilders in the Calgary region – supports the motion by Chahal.

“Regardless of intent, the stress test imposed by the federal government last January has become an obstacle for prospective home buyers in our region in a time when data shows home buying interests remain very high,” said Hahn in an email to LiveWire.

Calgary economist Trevor Tombe said Kenney and Chahal are not the first to suggest that the stress test is a tool that the federal government brought in to cool housing markets in Toronto and Vancouver, but he said the policy has wider implications.

“We’ve seen a gradual and continual tightening of mortgage rules since the financial crisis, and that’s for obvious reasons,” he said. “Debt levels of homeowners matters. It matters not just for them as individuals, but it matters for the broader health of the banking system and for the economy as a whole. There is a role for governments to ensure homes are not over leveraged.”

He noted that it can’t really be called a regional policy, since mortgage rates in major cities across Canada are the same.

“It’s not like borrowing rates differ across region,” said Tombe. “It’s about asking: Can an individual afford mortgage payments under higher interest rate scenarios?”

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