Earlier this week we saw a draft guidelines proposed by Brock Kruger from The Office of the Superintendent of Financial Institutions. Yes, more tightening of mortgage and secured real estate lending…… To put this in plain language, the proposal will affect almost everyone… it will change how mortgages and secured lines of credit are offered….. in shorty, I think this plan is trying put out a fire that doesn’t exist. There is no need for the changes.
Draft B-20 just goes too far….. they target mortgages but also Home Equity Lines of Credit (HELOC). Most of the media coverage on this has been somewhat neutral.. but finally we have seen one reporter question these proposed changes. This article by Peter Foster in the National Post was great… He questions why we need any more changes when our mortgage and banking system is the envy of the world…. There is no emergency, no arrears problem, nothing to indicate our mortgage lending policies are overly generous.
It should be noted that non-bank lenders will not be affected by this… leaving them as a potential winner if these guidelines become policy…
Here’s a link to the entire 18 page draft.
SUMMARY OF THE PROPOSED CHANGES:
–Cash back mortgages could disappear.. currently, one could get a mortgage for 95% of the purchase price at Bank posted rates and then get a 5% cashback. The cashback can be used as the down payment. ( I don’t see many reasons for applicants to buy with no money down so this isn’t a big issue for me)
-homes would have to be appraised at renewal time… this is just crazy… can you imagine if your property value dropped and the bank asked you to pay down your mortgage at renewal time or even worse, call in your mortgage? What’ s OSFI trying to do.. force everyone to take a 10 yer fixed rate mortgage? They have already made Variable Rate mortgages harder to qualify for…. what’s the matter, they don’t want us to pay less interest?
–HELOC’s would have to be amortized meaning NO MORE INTEREST ONLY PAYMENTS... this one will affect more households and business owners than the OSFI probably realizes… businesses use their homes to finance businesses… that’s been going on for decades… but they aren’t borrowing with no assets.. remember, they are putting up their homes as collateral.. if we start to make it even more difficult for self-employed to obtain financing, this will affect the economy almost immediately. But how about the 2nd or 3rd time buyer in their 30’s or 40’s that wants to tap into their equity for investments… ? Are we going to eliminate all interest only payment facilities?
-HELOC’s maximum would be reduced from 80% to 65% loan to value of your house…. and let’s not forget that just a few years ago we could have obtained up to 90% loan to value through CMHC insured products. Again, just another crazy idea and very radical change in just a few years… where is OSFI taking us?
–mortgages would require tighter debt servicing guidelines including fewer exception approvals by your lender…
Mr. Kruger, your intentions may be honorable, but you are not being practical or realistic. Why have you introduced these proposals? To reduce access to credit? To make it more difficult for Canadians to tap into their home equity? To make it tougher to buy a house? Whatever you think these changes might do, I can tell you, as a 22 year mortgage industry veteran and industry insider, that these proposed changes will just shrink our economy, force us to take longer fixed rate products resulting in even higher mortgage penalties for the Banks… It will force us to tap into our credit cards and unsecured, higher interest credit facilities.… It will force business owners to pay more for raising capital… it will discourage investors….
Give this one a rethink… you are searching for a solution to a problem that doesn’t exist.