TagMinister of Finance

Posted July 9, 20122 Comments Mortgage News

New Mortgage rules start today… but BMO study says Canadians pay their mortgages in 15 yrs!

The govt’s new mortgage rules go into effect today… well, actually, most Lenders put them into effect a week ago to ensure they had enough time to process applications already in the pipeline.

The new rules are supposed to help us pay our mortgage off faster, make it tougher to borrow money and slow the housing market which in turn will save us from a housing bubble. And this is also supposed to help lower our personal debt levels. It all sounds great, but the govt has not provided us with any real data to suggest that we need saving from ourselves.

In fact, a new BMO study shows that Canadians are paying off their mortgages in 15 years or less. Does that sound like a bunch of irresponsible borrowers? And there is a lot more data out there that shows over 20% of us are making lump sum payments… and even more are accelerating their payment schedules by increasing their minimum mortgage payments..

If the govt did make a mistake and used a sledgehammer to kill a fly, then let’s hope they will act just as quickly to adjust the rules if their policies were too strong… Let’s hope they will put some sort of review procedure in place to measure the impact of these changes….We already have some pretty tough standards when it comes to borrowing for a house…. maybe we should bring in some rules for Credit Cards or personal loans… seems like anyone with a pulse can get one of these….

Posted June 22, 20121 Comment Mortgage News

Part 2 of OSFI’s new mortgage underwriting rules announced

Hot topics this week are all the govt changes to mortgage lending… but before we get into the bad news, I thought I’d start with some positive news… Interest rates are still at all time lows…. if you have a mortgage or will be getting one soon, today’s rates are lower than ever before… That means more money in your pocket! We don’t seem to hear enough about that…

Okay, now for the update…Remember, these changes will affect ALL Federally regulated financial institutions….BUT they won’t affect MOST CREDIT UNIONS and other Lenders..

Yesterday we got a double whammy… First the Federal Department of Finance announced changes to CMHC insured mortgages.… And later that day, OSFI announced Part 2 of their changes to Residential Mortgage Underwriting Practices and Procedures, better known as RMUP… but I prefer RUMP because that’s exactly where most of us will be feeling the effects of these changes…

The timing of all this tightening puzzles most of us in the mortgage industry. Canada has been the envy of the world when it comes to our mortgage underwriting practices… The govt seems to be getting more into credit underwriting and procedures than ever before… And yet they have not given us any true data or reason for these changes….

Nevertheless, it’s important to keep up to date as these changes will affect us all. Part 1 of changes were announced earlier this month through a Draft update on June 6th.. And here are the details of the final changes which come into effect later this year… there is a lot of text in the final draft but we are only focusing on the changes that will have the greatest impact on us:

Credit checks should be done more often.. minimum credit scores should not solely relied up to determine a borrower’s credit worthiness.
Home Equity Lines of Credit will be limited to 65% loan to value, down from the current 80% loan to value. (still not sure if there will be any grandfathering of existing lines but my guess is no)
there is more wording with regards to Lender’s Senior Management having more minimum reporting… (this looked like make-work stuff to me as most Lenders have tons of reporting).
Cash-back mortgages are gone (no big deal here…. very few of these products were ever used by us ‘irresponsible Canadians’… )
Self-employed individuals will be required to provide and pass an ‘income reasonability’ test… (these already exist with most Lenders)
Lenders should use the 5 yr fixed contract rate or the Bank Posted rate when qualifying for Variable rate products…even conventional mortgages… (again, nothing new here.. most Lenders are doing this already….yawn)

Who can blame you if you if you’re having trouble keeping up with all these changes to mortgage rules and lending policies. We must question the purpose of these changes… little to no proof has been presented with regards to why the govt feels these changes are needed… and the timing may come back to bite them in the RUMP! Some experts are making the argument that the govt’s attempt to avert a major housing downturn, could actually be the cause of it…..let’s hope not.. only time will tell.

I question why the govt is so focused on the estimated $1trillion residential mortgage market, when we have little or no rules when it comes to the other $500billion of non-real estate debt such as credit cards, loans and lines of credit. Why is it okay to buy a car with $0 money down or okay to make NO payments for 6 months or 1 year, with interest rates of 8%, 18% and 28%, but if you want to buy or refinance your home, you better be prepared to jump through several hoops? Can you say, ‘I need to refocus my energy and efforts’?

THE GOOD NEWS

Mortgage Brokers will be much busier with these new changes. Your traditional Bank and ‘A’ Lender WILL NOT be able to provide the same financing as before…. BUT there are several other Lenders that are ready to fill the gap… including Credit Unions and other non-bank Lenders….. We could see the small Lenders grow with these changes… As always, feel free to contact me if you have any questions or need clarification.

Steve Garganis

Posted June 21, 2012 Mortgage News

Fed govt tightens mortgage rules again… 4th time in 4 years.

The Harper govt and the Minister of Finance are making it even harder to qualify for a mortgage.. they are also cutting back on how much you can refinance your mortgage. With the 4th set of major rule changes in as many years, the govt is acting like a big brother, looking over your shoulder when it comes to borrowing on a mortgage. Yet, they don’t seem too concerned with Credit Card rules or unsecured lines of credit or other higher interest loans that are very easy to qualify for…

In fact, it’s common knowledge in credit and collections, that most defaults and losses occur on unsecured debts and credit cards. That’s really easy to understand… these debts carry 18% and 20% interest rates… they have little or no qualifying rules, and little or no security…. (we get in that in more detail further in this article).

So we must ask why the govt feels is necessary to impose so many changes and restrictions when it comes to borrowing for the roof over our heads?

THESE CHANGES ONLY AFFECT HI-RATIO MORTGAGES, FOR NOW…..OR THOSE MORTGAGES THAT ARE GREATER THAN 80% LOAN TO VALUE AND REQUIRE CMHC INSURANCE. (Although these changes are specifically for hi-ratio insured mortgages, we know that historically, Banks and other Lenders have followed these rules for all mortgages… even for those that are less than 80% loan to value…. No word yet, if and when, the Banks will embrace these changes and make them standard practice for all mortgages…:

The maximum amortization for insured mortgages or those with less than 20% down payment will be 25 years.
Refinancing your mortgage just got a little tougher… the govt has cut back the maximum loan to value from 85% to 80%. In other others, the govt is out of the insurance business when it comes to refinances sine you you can get a conventional mortgage up to 80% with no insurance.
Fixed the qualifying Gross Debt Service Ratio (GDSR) to 39% and the Total Debt Service Ratio (TDSR) to 44%… no real changes here since very few lenders allowed anyone to go above 35% on the GDSR…
Limit the maximum home value to $1million. This one will affect very few of use since most home buyers in this price range have adequate resources to qualify.

Here’s a link to the Department of Finance website which announces the changes in more detail with a little political spin to make you feel good about the changes.

THE GOVT HAS IT WRONG

One of my client’s is also an executive with a Major Cable provider. He encourages his staff to buy a home and get a mortgage. His motives are simple. If you own a house and have a mortgage, you will be motivated to work hard and perform. You have more to lose. This philosophy has served his staff well. He tells me that those with more financial responsibility are also the ones that perform best.

If the govt is really concerned that we are getting in over our heads, because of the low interest rates… and they are truly concerned that we are taking on too much mortgage debt… and they don’t want us to suffer from interest rate shock, if and when interest rates do rise, then why not just make qualifying for a mortgage more difficult? Why not make the qualifying rate as the Bank Posted rate for a 5 yr fixed rate product? Today, that rate would be 5.24%… that’s a full 2.00% higher than the contract rate of a 5 yr fixed rate mortgage… If you can qualify for a mortgage that is 2.00% higher, then isn’t your risk of interest rate shock less? Wouldn’t that solve the problem? By the way, we already have to qualify at Bank Posted if you take a Variable rate or a Fixed rate if the term is shorter than 5 yrs.

Not high enough? Make it Bank Posted plus 1.00%… That would resolve all concerns about interest rate shock… but it would also allow qualified borrowers to leverage and take advantage of these historical low rates…. There are a great number of articles lately, being written by those with huge exposure in the stock market or mutual funds or pension funds, that want to see more money diverted back into the stock markets to protect their investments…

I’m not interested in building a stock portfolio… I’m interested in building my own pension plan… my own investment and income stream… Real Estate is a proven winner. It’s where the richest of the rich, make their fortunes… Even today, you will see pro athletes, rock stars, movie stars, or other wealthy individuals buy real estate… That’s because it’s regarded as a safe, long term investment… We seem to be losing sight of that fact..

THE REAL IMPACT OF THESE CHANGES

The Fed govt wants us to believe they are looking out for our best interests… they have repeatedly said we aren’t managing our finances properly… we need big brother to watch over us….does anyone really believe this? Their actions aren’t helping us benefit from the lowest interest rates in history… and I have a problem with this… paying less interest is a good thing to me… paying less to own my home is a good thing…

The govt seems to be grouping all of us together… It’s like throwing out the bath water with baby….. their concerns are with a small percentage of us.. the data doesn’t back up their claims... the stats show our mortgage arrears are lower than ever.. affordability is as high as it’s ever been (yes, low interest rates are a huge reason why)….we are spending our money wisely, on investments, not just buying TVs or new cars…. and we are paying our mortgages off faster than ever before with a large percentage of us (we can thank low interest rates)… 23% of us are making more than the minimum payment… 19% of us are making lump sum payments towards our mortgage…. Does this sounds like a nation in trouble?

The govt changes are only doing 2 things here… they are pushing us into higher interest rate products such as unsecured lines of credit or credit cards… and they are making it harder for us to access the capital in our homes.. The HELOC limit from 80% to 65% loan to value was probably the most ridiculous change ever… No data was given to back up this move… It was already to tough to qualify for a HELOC… this was just unnecessary.

TALK ABOUT BAD TIMING

We need to question the timing of these changes… there really hasn’t been enough time to see what the true impact of all will be… If you’re one of those people that fully trust our govt’s decision, then I only need point you to 2002 when the govt prematurely raised rates, only to slow the economy and reduce them just months later… it was a huge miscalculation. We ended up lowering rates for several years to come…

By making it harder to qualify for a mortgage and by reducing how much we can leverage our homes for (HELOC’s to 65% maximum loan to value), we are taking money out of the market… out of the economy… I just don’t get it…

I for one, am fed up with all this negative news coming from the media.. the fear mongering has to end! I keep seeing prudent and responsible people wanting to enter the housing market. They want to invest in homes…..they don’t want to ride the stock market roller coaster. We should support this segment of the population, not punish them.

WATCH HERE FOR MORE DETAILS

We will keep you up to date with how this unfolds… and what options you will have in the future… My sources tell me that some Lenders are already coming up with some options to assist responsible borrowers with some new products…. stay tuned for more info..

As always, I welcome your inquiries… We’re here to help… Feel free to contact me anytime.

Steve Garganis

Posted May 14, 2012 Case study

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.

Posted April 26, 20122 Comments Mortgage News

OSFI will now oversee CMHC…. lookout Canada…!

Canada’s Minister of Finance, Flaherty, surprised many today by tabling a budget bill with a major legislation change. The bill would move Canada Mortgage and Housing Corporation (CMHC) under the control of the Office of the Superintendent of Financial Institutions (OSFI). This would also give the Minister of Finance even more control over CMHC. Here’s an article in the Globe and Mail.

So let’s think about the impact of this proposed legislative change… Over the past 4 years, we have seen numerous changes to CMHC lending policies…

Maximum amortization has dropped from 40 to 30 years.
interest-only payment mortgages came and went in 2 years.
100% loan to value or no money down mortgages came and went over a 2 year period….. you must now put at least 5% down payment.
rental property mortgages could be had for up to 100% loan to value and are now not being insured at all.
Business for self could get mortgages up to 95% for purchases but are now capped at 90% ltv.
You could Refinance your mortgage for up to 100% ltv and now it’s capped at 85% ltv.
Variable rate borrowers have to qualify at BIG SIX Bank posted 5 yr rate, compared with discounted 5 yr rate or 3 yr fixed rate. A clear move to force you into the higher 5 yr fixed rate…. supposedly it’s safer to be in a 5 yr fixed rate…(guess the govt has looked at any rate comparison charts for the last 20 yrs).
Secured lines of credit could be had for up to 90% ltv CMHC insured, then CMHC pulled out altogether leaving the max at 80% ltv and now OSFI wants to cut them back to 65% ltv (this move has everyone confused and puzzled).

Aren’t all these changes enough? How much tighter does the govt need to make it? And all these changes have come prior to Julie Dickson, head of OSFI, being involved…. What scares me and should scare you, is that OSFI has come out and stated they want to cap the amount of equity you can access in your home…. That’s right… OSFI wants to limit your secured line of credit to 65% loan to value. This proposed change is beyond my understanding. It’s so out of line that it defies any common sense. For the first time that I can remember, the govt is telling Lenders and Banks how much they can lend to you for uninsured loans. If you don’t like this, then stand and up and have your say… write to OSFI and tell them you don’t agree…

I can tell you that within my own base of clients, this will affect a great number of people… the professionals, the business for self, the investor that wants to borrow to invest… remember, these are everyday people that want to do better but will now be handicapped by your govt because they can’t access the equity in their homes.. It won’t stop them, it will just cost them more to borrow as they seek other, higher interest credit products…. (Banks will win yet again).

If OSFI does gain control over CMHC, then lookout… we can only imagine the possible changes that they are conceiving.