Canada Mortgage and Housing Corporation CEO Evan Siddall’s recent letter to lenders urging them to avoid risky mortgages is a bit “extreme and alarmist,” according to former Royal Bank of Canada CEO Gord Nixon.
In a three-page letter dated Aug.10, Siddall warned excessive borrowing will worsen the economic pain triggered by the COVID-19 pandemic.
“I must say I was a little surprised. I don’t think I’ve ever seen or received a letter like that,” Nixon told BNN Bloomberg’s Amber Kanwar in a television interview Thursday.
“I think the intent and concern is certainly real,” he added, noting Siddall has been bearish on the Canadian housing market “for quite some time.”
In his letter, which came a little more than a month after CMHC tightened its underwriting standards, Siddall said there’s a “dark economic underbelly in this business that I want to expose.”
Nixon said that while Siddall’s concerns are valid, the Canadian mortgage market has always been a very responsible.
Despite continued signs of strength in the country’s hottest real estate markets, the CMHC has warned average prices could fall as much as 18 per cent from pre-pandemic levels.
“There’s obviously different views on the market,” Nixon said. “And CMHC competitors are certainly being more aggressive. And [Siddall is] raising a concern that if there is a significant downturn, it will have an impact on borrowers.”
Nixon said the unemployment rate, which is currently 10.9 per cent, is the most important factor when it comes to mortgage defaults and deferrals.
“I would say the letter was probably a little bit extreme and alarmist but having said that, who knows what the impact of COVID is going to be a year out from now,” he said.