The Office of The Superintendent of Financial Institutions (OSFI) announced some interim changes that will affect all mortgage borrowers and also those with Home Equity Lines of Credit (HELOC). Draft Bill B-20 was introduced March 19, 2012… and somehow, in less than 3 months, the govt has been able to review the short and long term effects of the biggest changes ever put forward before this country. Did they work efficiently or did they rush through this?
In the end, we saw 2 major changes announced that will affect all mortgage borrowers…. changes that I feel are completely uncalled for… To be blunt, I haven’t been able to find one piece of data or fact from OSFI or the govt to substantiate their call for change…. Let’s take a look at their changes…by the way, you can click here for the full version from OSFI’s website
1- Re-qualification at Renewal – “Current practice regarding residential mortgage renewals has served (Federally-regulated Financial Institutions) FRFIs well.” … “FRFIs, however, will be expected to refresh the borrowers’ credit metrics periodically (not necessarily at renewal) so that FRFIs can effectively evaluate their credit risk.” as per OSFI text.
Some good news here… I’m glad OSFI isn’t making us fully re-qualify for a mortgage at every renewal period… but obtaining a new credit report at the Lenders discretion should concern you… If you think it’s all about making your payments on time, guess again… Your overall credit balances, your credit availability, you balances in proportion to your available credit, how recent you obtained credit….. All these things are factored in a mortgage approval decision…. and let’s not forget your credit score… If your credit score goes down or if the Lender changes their policy (we’ve seen that happen many times over the past 4 years), then you could be in jeopardy of not qualifying for a renewal…
Life is never perfect…. we all hit some speed bumps…. the character of a person isn’t measured when times are tough, but rather how they handled that rough patch in their life… If you default on your mortgage, there are existing remedies in place for the Lender to collect their funds…..Do we really need to arm Lenders with a weapon that allows them to cancel or call your mortgage if they think you MIGHT not be able to make future payments?? Are we guilty until proven innocent? Thumbs down from me on this one…
2- Home Equity Lines of Credit (HELOCs) – “…the HELOC component of a mortgage be restricted to a maximum loan-to-value ratio of 65 per cent. HELOCs are inherently riskier products, given their revolving nature, persistence of debt balances and their ineligibility for mortgage insurance. However, HELOCs at or below an LTV ratio of 65 per cent will not be required to be amortized….” as per OSFI text.
We aren’t sure what this means… if you have a HELOC greater than 65% loan to value, will you need to amortized part of it? The wording in OSFI’s announcement shows me just how out of touch with reality they are…. HELOCs are riskier but they are already much harder to qualify for. Reality is that arrears or defaults are near all time lows…. Reality is that most HELOC borrowers use them for a large number of things… investments, home renos, business, etc…. The govt has not given us any data to back up their statements about higher risk… and industry stats show we are fine… It was only a few years ago when CMHC was offering insured HELOCs up to 90% loan to value…? We’ve gone from 90% to 65%…. Has the pendulum swung too far…?
These changes will come into effect soon…we’ll have to watch for the Final announcement on how they will be implemented… And because the govt is putting the responsiblity back on the Lenders, we will see different interpretations of these new rules…No two Lenders are alike.
So what’s next, we can’t buy investment properties? Oh yeah, CMHC stopped insuring rental properties last year…. almost forgot… BIG thumbs down from me on this move.
If you have a mortgage coming up for renewal or have a HELOC and aren’t sure how these changes will affect you, feel free to give me a contact me….