Thursday’s speech by OSFI head, Julie Dickson, at the Toronto Board of Trade, indicates it’s a done deal. Secured lines of Credit will be capped to a maximum 65% of the value of your home. “…the guideline does set out some firm rules that all institutions will need to adhere to – specifically that home equity lines of credit – or HELOCS – can have a loan to value ratio no greater than 65%….”
WE’RE MAKING SOME CHANGES…. I MEAN, WE ARE PROPOSING SOME CHANGES…
It was only a few weeks ago that OSFI issued a Draft B-20 guideline, a guideline that is filled with radical changes to mortgage lending rules and policies. It was supposed to be up for discussion, with a May 1st deadline…. So much for discussion…. it appears the decision was made already according to Ms. Dickson’s speech today…. here’s a copy of that speech… April 5 2012 remarks by Julie Dickson.
90%, 80% AND NOW 65%???… WHEN DOES IT END?
Remember 2007? It was just a few years ago that CMHC was offering 100% loan to value, interest only payment mortgages. Back then it was good to borrow at these levels…. And HELOC’s could be had for up to 90% LTV. Over the past few years, the govt has tightened up mortgage rules in an attempt to reduce access to credit. Mortgages were amortized for 40 years, then cut back to 35 and now 30 years.. But now the govt believes they need to step in again and limit access to your equity by reducing the Loan to Value limit to just 65%…. I looked back to some historical lending policies and couldn’t find a time when the govt ever imposed a limit of just 65%. It is unheard of! And it’s going to have a big effect.
SO WHAT’S THE PROBLEM?
OSFI is finding a solution to a problem that doesn’t exist. I don’t think they realize that Banks have pushed borrowers into lines of credit for years now, as a way of providing easier access to the equity in their homes. Canadians aren’t buying new TVs or new cars or other luxury items… they are using the equity to improve their net worth by buying investments. Why is this a bad thing? Are our defaults up? NO! Then what is the problem….?
WHO WILL THIS AFFECT AND HOW?
If you are a self-employed person and ever tried to get a business loan from the Bank, then you know how difficult it can be to get an approval… but even if you do, the repayment terms and interest costs could be a hard stop. End result is that business idea could remain just that… an idea that never got launched. One of the more popular alternatives was to access cheap money by borrowing, against the equity in your home. Mortgages can be great but if you need to borrow, repay and borrow again, then a mortgage can have costly registration fees and penalties. But through a HELOC, the repayment terms are great and it’s also a much lower rate of interest than any business credit facility.
Borrowing to invest isn’t anything new. A HELOC allows you to access YOUR equity at preferred rates. How about buying a second home or a rental property? You could use the equity in your home to help with the purchase and HELOCs give a separate accounting which makes reporting to Revcan much easier.
How about borrowing for your child’s education? Are we going to force Canadians to refinance their mortgages in order access cheap money? I’m sure the BIG SIX Banks will love to see you break your mortgage and pay their infamous penalties.
Get ready, because you are about to see us pushed into higher interest, unsecured lines of credit (oh yeah, there wasn’t any mention of reviewing these lending policies… that’s because NONE exist!).
Which debt would you pay last…. a mortgage, a secured line of credit or a credit card or unsecured line of credit? Obviously, it’s the unsecured debts would be last on our list… we will always pay for the roof over our heads…. which is why the defaults are still very low and within very acceptable levels.
We are going to see many Canadians discouraged from investing.. they won’t want to go through the trouble of borrowing with a mortgage… Congratulations OSFI, you’ve made borrowing more expensive….you’ve made investing for our future tougher than it has to be.
The WINNERS… the BANK…. The LOSERS… you and me, the average Canadian…!