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Tagsecured line of credit

CMHC under OSFI control…. another kick in the rear to Canadians.

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.!


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.

Govt to cut Secured lines of credit to 65% loan to value…

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.

END RESULT

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…!

BIG BANKS need your help for higher profits!!

The more I think about it, the more fired up I get!   OSFI (Office of the Superintendent of Financial Institutions) has come out and said Bank profit margins are shrinking and the BIG Banks may start to loosen their credit lending policies in order to write more business and therefore earn more profit.

This statement just doesn’t make any sense…. let’s think about this for a minute… Take a look at Financial Post’s Biggest Companies ranked by profit in 2010.…let’s see where the Banks rank:

– #2 is RBC $5.2 billion

-#3 is TD Bank $4.6 billion

– #4 Bank of Nova Scotia $4.2 billion

– #9 Bank of Montreal  $2.9 billion

– #12 CIBC $2.4 billion

Five of the top twelve most profitable companies are Banks!!!  This doesn’t look like the Banks are hurting that badly, does it?  We should also not forget that the govt has made several changes to mortgage lending rules…It’s already harder to qualify for a mortgage and line of credit…  So what gives, OSFI??

Look, OSFI has spoken and we must not ignore this….I don’t like what they are saying and the logic they are trying to give us doesn’t make sense….But we can’t bury our head in the sand either… The Banks have too much power… We should prepare ourselves for changes… Make plans and adjust accordingly… Don’t wait for the Banks to act.

It’s clear to me that we could see some changes in lending policies…My guess is this will translate to some increased rates on your secured lines of credit, a possible review of your account, even a reduction in your limit… That’ right, the banks can even call your line of credit and ask you to repay it in full…!! They might ask you to lock into a fixed rate mortgage or get into an amortized repayment schedule instead of just paying interest only.

But it doesn’t end there… commercial accounts will also be under the magnifying glass, in my opinion.  Commercial loans and mortgages get reviewed annually by the Banks…This is why it’s very important to choose your commercial lender carefully… Not all Banks are alike… there are some institutions that offer commercial loans that are not callable…

Bottom line is to be aware, stay informed and act accordingly…. If you are not sure where you fit in with these possible changes, give me a call.. I’m happy to help.

Your mortgage is paid? Beware of mortgage fraudsters….

“You’ve worked hard all your life… your house is finally paid off.  You decide to it’s time to get a smaller house, maybe a condo or you just want travel.  Does this sound like someone you know?  You sell your home but discover that someone has registered a mortgage on your house without you knowing it.  Sound impossible?  Guess again… this is Mortgage Fraud and it’s happening now.”

I wrote that back in 2006.  Since then we have seen some provincial governments step in with laws to protect unsuspecting homeowners….  You can also purchase Title insurance to protect you as well.    But once you have been victimized by the crooks, you still need to make a claim and go through the hassle of clearing things up…. Who wants to go through making a claim? This takes time and can be a big paid in the rear. 

What if there was a way to make yourself less of a target?   The good news is there is a better way to protect yourself….. The criminals go after homes that have no mortgage.  This is PUBLIC information.  Anyone can find out if you have a mortgage just by going to the Land Registry Office and doing a search.   So what should you do?

The solution is to register a mortgage on your home.  This doesn’t mean you need to borrow money.  By getting a secured line of credit you will have a collateral mortgage registered.  The criminals will not know if you have a balance on that mortgage or if it’s $0.   And they will probably go searching for the next home that has no mortgage.

What makes this product unique is that it is available to both salaried and self-employed individuals that cannot prove their income.  If you don’t use it, it doesn’t cost you anything.  

Let me know if you would like more details about this.