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Ok, I have sat on the sidelines long enough I need to comment on the government intervention we have seen this week.  In a nutshell I think it was probably the wrong thing to do at the wrong time.In order to really answer this question one would have to wonder what they are really trying to accomplish in the first place?  They said that they were trying to protect against a US style housing crash.  This is total garbage!  I could go on for pages showing how this is not even close to the case but suffice to say that the Canadian mortgage industry operates completely different then the US industry and the main reason that the US are going through what they are is due mainly to poor investment dealers pushing products that they should not have been to unsuspecting investors…period! So what is the real reason the government has stepped into what they admitted an industry that is managing itself quite well?  I am not sure right now but time will.Now let’s look a the changes they are making and the likely outcome… You could certainly see that the advent of 40 year amortizations fueled much of the recent boom Canada has had in the past couple of years.  One would only have to see that almost 40% of people have taken this option in the past year. Will it make a difference having to go to 35 years.  I have heard many people say that it won’t, and for the most part I agree.  However if you take the median family income in Canada, according to the last census, at $66,343 then at 40 year amortization, and assuming $3,000 per year for property taxes and heat then at a 40 year amortization the MAXIMUM that family can afford to buy is a $328,000 home.  Now at 35 years they can only afford $312,000, a difference of 5%.  Therefore I think that initially the removal of this popular feature will bring on a spike in sales financed by the non-banks that did not jump on this bandwagon last week and will hang in there until October as planned by the government.  Long term I think there is a better chance this feature being gone will contribute to a drop in average sales price as sellers will have to drop prices to keep affordability in play for those buyers who are on the “new” borderline.  I think it will also bring on a decline in demand, although not overly substantial, as some people feel they are “out of the market” due to affordability.Want some positive news?  I think that you will see some price reductions in mortgage insurance brought on by CMHC’s competitors as they need to find new ways to compete, as the “boutique” products brought to the market by AIG and PMI will now have to be shelved.  They will only be able to compete on price now.Now they may also be able to assist lenders who will have an appetite to securitize new ALT A or B products for those good borrowers with beacon scores of 580-619 that CMHC will not take.  This will bring back lenders like XCEED, Home Trust, and other alternative lenders to fill that niche.  Again that will only be if they can find investor for it.  My guess is they will be able to do it.Therefore the government putting in this restriction is the most mind boggling of all.  With our competitive market there will be someone who will cater to those GOOD people with beacons under 620 but unfortunately they will now have to pay more as most certainly their interest rates will be higher.  Thanks government.I think that bottom line governments (which includes CMHC really) should not ever be intervening in markets that are performing well.  Well functioning open markets with good competition will always self police themselves AND probably more importantly these same markets WILL ALWAYS find a way to “get around” the government intervention, but sadly this almost always result in a worse deal for the consumer, and good for the lender…Wait, maybe there is the reason?  It certainly would not be the first time that the banks did not whine to government to make things better for them.  You will see this if the banks all of a sudden start securitizing these “new” loans to get around the new policies for higher margin loans…again, let’s wait and see  

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