Canada’s most visible proponent of stricter mortgage rules has announced he will be stepping down from his position as head of Canada’s national housing agency.
Siddall has served as the chief executive of the Canada Mortgage and Housing Corporation (CMHC) since 2014. He’ll depart at the end of this year.
During his tenure, Siddall championed several initiatives that reduced housing risk while also raising consumer borrowing costs and making mortgage approvals more difficult.
Examples of policy changes during his tenure included:
- The introduction of the stress test for insured mortgages in October 2016
- Siddall advocated for this change, despite the Department of Finance technically being responsible for it.
- The move significantly reduced the percentage of insured borrowers with high debt ratios.
- It also limited financing options for borrowers who would have easily qualified before the change, forcing many to rent for longer.
- The introduction of the stress test for uninsured mortgages in January 2018
- The net result was considerably fewer highly leveraged borrowers at federally-regulated lenders, more business for unregulated lender, more pressure on the rental market and less competition from non-bank competitors.
- Like the insured stress test, another agency implemented this rule (OSFI) but Siddall championed it.
- Multiple policies leading to higher securitization-related costs
- These changes incrementally reduced government exposure to a “black swan” event that could trigger mass defaults.
- They also significantly increased costs for non-bank competitors, making for a less competitive mortgage market, particularly for people with 75% to 80% loan-to-value or a 1- to 4-year low-ratio fixed mortgage.
- Higher default-insurance fees
- Same effects as above
- The removal of various mortgage types from insurance eligibility
- This eliminated ultra-low-cost government-backed financing for refinances, amortizations over 25 years, purchases over $1 million and single-unit rental properties.
In some cases Siddall didn’t directly pull the trigger on these policies, but his advice on them was factored very heavily by government regulators.
And Siddall was unapologetic about the tradeoffs of policies he supported, famously calling them "intended consequences." That included side effects of the stress test. It's enactment led many otherwise qualified consumers to seek riskier, higher-cost financing or be shut out from purchasing altogether. The stress test also depressed housing markets that were already weak. Siddall countered that it was needed to keep Canada’s housing market from overheating and to limit consumer debt loads from having adverse economic effects.
“If you want a crash in a real estate market, feeding debt is exactly the way to make it happen…I’m trying to preserve healthy markets,” he told the mortgage industry’s national conference in November.
Perhaps Siddall's biggest miss, however, was failing to promote effective supply-side housing policies. It's widely agreed that insufficient housing stock has been a critical cause of real estate overvaluation. CMHC unfortunately did far too little to address this problem for middle-class Canadians under Siddall's watch.
Not Many Fans in the Real Estate Industry
Siddall challenged the conventional role of the CMHC, which historically supported efforts that boosted homeownership. He proudly redirected the agency’s focus to satisfying Canadians’ housing “needs” rather than their wants.
Under his leadership, CMHC went from insuring 43% of outstanding residential mortgages in 2014, to just 29% in 2018, according to the agency’s annual report.
That didn’t win him many friends among real estate and financing professionals. Nor did his sometimes brash persona, which he displayed openly and actively via his Twitter account.
Case in point was his accusing Mortgage Professionals Canada CEO Paul Taylor of “bold” self-interested rhetoric and “reckless myopia” when the association called for tweaks to the stress test.
And in 2017, Conservative MP Ron Liepert called Siddall “arrogant” after the CMHC CEO suggested mortgage policy critics were merely self-interested.
Siddall might wear both as a badge of honour, but there's no telling how much respect it cost him with his biggest customers (lending professionals).
One area where his initiatives were an unquestioned success was data aggregation. Under his leadership, CMHC became a far more prolific producer of much-needed housing data, and this legacy deserves acclaim.
Possible Candidate for BoC Governor?
With Bank of Canada Governor Stephen Poloz ending his seven-year term in June, Siddall’s name has been floated as a potential—albeit longshot—candidate to replace him.
As a “defender of tighter mortgage rules,” Siddall’s skillset of “deflating asset-price bubbles and curbing the propensity of Canadian households to borrow has become almost as important as setting interest rates at the Bank of Canada,” according to a Financial Post column.
His past experience as a Goldman Sachs investment banker brings extensive experience with financial markets. It also evidences Siddall's uncommon intellect.
Siddall's biggest weakness for the top banker job might be his lack of macro-economic “technical skills.” Although critics might instead cite an inability to create consensus and productive dialog among key stakeholders.
Regardless of what you think of him, Siddall significantly impacted Canada's housing market for the better or worse. It might take until the turn of the next decade to figure out which.