A complete overhaul of Mortgage Lending in Canada?

  FED GOVT KEEPS TALKING ABOUT TIGHTENING MORTGAGE LENDING POLICIES

But why?  Why does the govt believe there is a need for all this change?  That’s the question most industry insiders are asking.  Here are some facts with my thoughts mixed in….  tell me if you see some contradiction between the different branches of the govt or a lack of consistency:

• Surprise…we don’t have a mortgage default problem… Mortgage arrears in Canada are 0.38% as of January 2012.   In Ontario, the housing hot spot, arrears are only 0.28%.   These figures are very low by anyone’s standards.
• The average resale price dropped 0.5% nationally.  But resale prices in Toronto, are up around 7.3% in a year-over-year comparison.  But that trend is cooling according to The Canadian Real Estate Association.
• Inflation isn’t a problem… it’s hovering at 1.9%, well within acceptable levels.
• Housing affordability hasn’t really changed in 10 yrs according to the RBC housing affordability index and it actually improved in Q4 of 2011 (it’s probably even better this year as interest rates are even lower).
• Personal household debt is around 153% of income.  That’s a record high number, it’s true, but what are Canadians borrowing for?  Studies tell us it’s not for big screen TVs or trips to Bahamas…  We’re actually investing… in stocks, mutual funds, real estate here and in the U.S.  In fact, we are the biggest foreign buyers in Florida and we are also buying in Phoenix, Arizona in record numbers…. Is buying a second home a bad investment?
• Did you know that 1/3rd of Personal Debt is non-mortgage debt including high interest credit cards, loans and unsecured lines of credit…. yet, there is little to no regulation for these products…
• Speaking of credit cards… the arrears rate is just over 1.00%... that’s around triple what mortgage arrears are!  Why isn’t the govt clamping down on these credit products?
• Record-low interest rates were brought in to stimulate the economy.  Haven’t Canadians played their role to kick-start the economy?  Why does the govt want to punish homeowners now with tougher qualifying rules?  OSFI has even proposed you re-qualify for your mortgage at renewal time!!   How absurd is that?
• The Bank of Canada wants to raise rates to slow our personal debt growth…   but can’t for fear of slowing the economy…
• The Federal Minister of Finance, Flaherty, wants to tighten mortgage lending to slow the housing market and reduce the amount of mortgage debt we take on.
• The housing market accounts for up to 40% of this country’s GDP… all these changes will affect our economy.
• Business for Self mortgage programs have been eliminated by some banks and other Lenders… making borrowing more expensive for this segment of our population…. by the way, they are paying their mortgages just fine.. there is no evidence suggesting Business for Self borrowers have repayment problems…
• CMHC opted out of rental property mortgages last year in an attempt to slow real estate investment… so you must come up with 20% down or use equity from other sources for the down payment..

FED GOVT’S LATEST MOVE IS TO PUSH CMHC UNDER OSFI CONTROL

• OSFI will assume control over CMHC, the country’s national housing agency…. You will have an audit dept overseeing a social program… hmm, I wonder what will happen to CMHC??  The possibilities frighten me and should frighten most Canadians… (more on this later).
• Minister Flaherty made a comment that maybe the govt should consider selling CMHC…  say goodbye to a business that nets over $1billion a year.. $16billion since 2002.   Here’s an idea…why not split CMHC into 2 business… bulk insurance business and the traditional low down payment business… wouldn’t that keep the Canadian dream of home ownership alive and also satisfy the auditors, like OSFI??
• OSFI wants to limit Secured Lines of Credit to 65% loan to value from today’s 80% loan to value…  This one makes no sense and has received harsh criticism from Financial Experts…. scares me to think that it’s even gone from thought to paper to print… what other changes were they considering that didn’t make it to print??

MY SUMMARY OF IT ALL…

In short, the govt wants to keep the economy stable but they are going to make it harder for you and I to qualify for a mortgage….  Yet, there are no changes coming for the most expensive of debts… Credit cards, loans and unsecured lines of credit rules either don’t exist or will not change…  For some reason, the govt thinks it’s okay to borrow at 7% , 8% for unsecured lines of credit and pay 18% to 20% on credit cards, but please don’t borrow for a home, at 3% and 4%??

If we continue to make it harder for Canadians to get a mortgage, then we will have fewer home sales.. Fewer home sales will affect ALL HOME VALUES and slow the economy.  It’s really that simple…  this affects the biggest asset that most of us will own… our home!

Let’s hope the govt thinks like a carpenter… measure twice and cut once… !

If you’re a homeowner and aren’t sure how these and other changes might affect you, feel free to contact me anytime.   I’d be happy to help.