CMHC’s MOVE TO OSFI CONTROL WILL BE A KICK IN THE BUTT TO ALL CANADIAN HOMEOWNERS.
Is this what CMHC staff and Canadian homeowners are thinking?…. That’s right, it could be OSFI head, Julie Dickson on one end, and that’s you and I on the receiving end!
You’ve seen the headlines lately…. “OSFI proposes radical changes under Draft Bill B-20” which was up for discussion until May 1st. But weeks earlier, Julie Dickson, the head of OSFI made a surprise remark at speech in Toronto’s Board of Trade…(some were calling it an ‘oops’, or a ‘slip-up’ ) where she stated that the proposed HELOC changes were a done deal… this was on April 7th… well before the May 1st discussion deadline…
And more recently, we saw more questionable remarks from OSFI…. this time from Vlasios Melassanakis, Manager of Policy Development. “Are the banks equipped to handle a 40% drop (what occurred in Toronto market in early 1990’s)? Need to stress test to find out.” Is Melassanakis for real? 40% drop?? where is he getting that number from?? Absurd..! and unsubstantiated! That’s my response.
What’s going on here, you might ask??
Mortgage arrears are low, affordability is high, property values have declined or remained flat across the country except a few pockets including GTA… So why all these drastic changes?
I was contacted for my opinion by some business writers from our national media. We were trying to read the fine print… to understand what it all this meant…. and why it had to be done so quickly… Why do we have move CMHC, a Crown corporation that’s been around for over 50 yrs and making $billion profits for Canada…why do we need to move them under OSFI control?
The dust hasn’t settled yet, but here are some of the changes and my thoughts on what seems to be happening.
- introduce a limit on secured lines of credit to 65% of the value of your home… down from 80%… this move makes no sense… this will limit your ability to draw on the equity in your home to invest, access cheap money to run a business (the self-employed are an understated segment of the population that will really suffer), pay for your kids education, or just access funds for personal use… the govt wants to mandate this product for the first time in history… and by the way, it’s always been harder to qualify for these products than a regular mortgage.
- re-underwrite your mortgage at renewal... they propose to reapprove your income, credit, get a new property appraisal at time of renewal… regardless if you made all your payments on time… where’s the logic? what’s the point? Would any lender really tell someone their mortgage won’t be renewed even though they paid fine? Will they ask you to pay down your mortgage if a new appraisal says your house is worth less?
- they have even suggested they want to change our long running standard underwriting debt servicing ratios… these have been around for over 30 yrs and have served us well… why the change?
- OSFI is a regulatory body that provides regulation and supervision to 152 Banks, Trust companies and other Lenders. They are auditors…. Where is their motive to provide access to mortgage money for prospective homeowner? This move to push CMHC under OSFI is the biggest change in decades and it’s very risky given that Canada is looked upon as a stable country with a stable banking system… why would the govt make all these changes? and why now?
- let’s not forget some of the comments from Minister of Finance Flaherty.. he suggested CMHC may not even be necessary in the future… a bold statement.
POSSIBLE EFFECTS OF THESE CHANGES
It’s clear these changes will effect us all….. here are some of the early results of the changes:
- we have already been informed that CMHC has tightened their lending policies… there was an official communique released last month that stated, more applications will get referred to underwriters for full review….
- several banks have amended or cut their business for self mortgage programs… end result is higher cost to obtain funding… guess that’s good for who?? not the consumer…
- less access to the equity in your homes will mean less money towards investments… we have huge segment of our population that borrows to invest in stocks, properties, etc.. they will have less to access now…. resulting in less money in the economy.
- we may achieve a lower personal debt level… but will that help the economy?…
- less money flowing into the economy can’t be a good thing… if we wanted to slow things, the Bank of Canada would have raised their Target Rate long ago…. instead, it has remained unchanged since Sept 2010.
- there will be more..
We’ve heard that a review of CMHC by OSFI will be completed by June… but the results won’t be published… so we can only guess and speculate as to what changes these auditors at OSFI will be proposing…. We’ll be watching and reporting…..Let’s hope they don’t fix something that isn’t broken.
As always, if there is something you need help with, let me know… I’m happy to help.!
January is usually a tough financial month for most of us. Holiday bill payments, rrsp contributions, property tax bills and if you are self-employed, you probably have to make some sort of business tax or corporate tax payment. If December is the Holiday Season, then January feels like a hangover!
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