TagOSFI

Posted May 31, 20135 Comments Mortgage News

Top Banking regulator stepping.. OSFI’s Julie Dickson leaving in 2014

Julie Dickson, the head of OSFI (Office of the Superintendent of Financial Institutions) will not be back when her term expires in July 2014. She’s decided to not to stick around after making more lending rule changes in 2012, than I have ever seen, during my entire 23 year career working in financial services. OSFI is a regulatory body that provides regulation and supervision to 152 Banks, Trust companies and other Lenders. In short, they are auditors. Here’s a link to the major changes made just last year including putting CMHC under OSFI control.. more on that later..

Some say her claim to fame is that she was in charge during the worst banking and mortgage crises in history. And that Canada came out of this global financial collapse way better than any other country. It’s true, we did come out of this very well compared with the rest of the world… But what does Ms. Dickson and OSFI have to do with it? For me, this had more to do with luck, govt intervention and Canadians being our normal conservative selves. We were a little slower to adapt to U.S. style lending policies… Ask any financial expert and they will tell you we were just a few years behind the U.S. with regards to their wild mortgage lending guidelines… Continue reading “Top Banking regulator stepping.. OSFI’s Julie Dickson leaving in 2014”

Posted September 13, 2012 Mortgage News

HELOC’s capped at 65% but some exceptions still apply..

Earlier this month marked the beginning of the end of 80% loan to value HELOCs. Several Banks and of the Financial Institutions began to cut back the maximum LTV from 80% to 65% as per OSFI’s regulations. But there are a few loopholes in the new rules….

The good news is that existing HELOC clients don’t have to worry.. these changes don’t apply to them. OSFI is allowing them to keep their HELOCs at 80%….
Only OSFI regulated Financial Institutions are affected… Provincially regulated FI’s aren’t affected… Credit Unions don’t fall under OSFI’s rule… there are still some Credit Unions offering HELOCs to 75% and even 80% loan to value.
Some of the Banks are still offering a combination of a HELOC and a mortgage of up to 80% ltv as long at you have at least 15% of your balance in an amortized payment schedule, and not interest only payments.

There is more good news… The BIG SIX BANKS can’t offer you an 80% LTV HELOC but the credit unions can… Maybe Canadians will start to seek other Lenders……They may finally discover that there much better options out there. Watch for the Credit Unions to take a chunk out of the BIG SIX BANK mortgage pie.

Not sure where you fit in? Call me for details.

Steve Garganis

416 224 0114

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 6, 2012 Mortgage News

OSFI announcement: HELOCs cut to 65%, partial re-qualifying for mortgages at renewal time..

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….

Steve