Saturday, May 11, 2013

Confirmation the rumours of banning 30-35 year mortgages true?

On Thursday we asked "Are 30 and 35 year mortgages about to be banned in Canada?", a question triggered by Garth Turner's reported inside information that federal Finance Minister Flaherty was about to implement this significant change.

This has caused quite the fervour in the real estate community, particularly given Turner's predictive track record.

The blog Canadian Mortgage Trends followed up on the rumour by contacting various banking sources. The Banks confirmed something was afoot. CMT then contacted the Department of Finance directly:
We've contacted the Department of Finance (DoF) for comment. Banking sources have confirmed reports of the DoF contemplating amortization guideline changes for conventional mortgages. But there's no confirmation on what, if any, moves will be made. Assuming the DoF acts on this issue, an alternative possibility is that conventional borrowers be made to qualify at a 25-year amortization, but still be allowed to set payments at a longer amortization.
CMT reports the Department of Finance responded:
"As a matter of course, the Department does not comment on what specific measures it may or may not be considering. However, we can confirm that no announcements from the Department of Finance related to uninsured mortgages are planned."
Given the indirect confirmation from banking sources, CMT ruminates:
Turner says the guidance would likely be sent directly from OSFI to the banks with less fanfare than a big public announcement. At least one bank we spoke with earlier is currently considering tightening conventional amortization rules. It's unclear if that is on the asking of OSFI or just an internal bank decision.
Clearly this unexpected turn of events has the real estate industry in a tither.

CMT speculates on the impact:
If true (with emphasis on the word "if"), this news could:

  • Increase monthly payments on new conventional mortgages by about $53 per $100,000 of mortgage, other things being equal. 
  • Potentially impact even smaller non-bank lenders (e.g., First National, Street Capital, MCAP,…). That’s because, as Turner adds:“Regulated financial institutions will also be prevented from buying any securities which are made up [of mortgages] with 30-year ams.” Virtually all non-deposit-taking lenders rely on securitization and/or selling mortgages directly to banks. 
  • Make provincially-regulated credit unions the only game in town for amortizations over 25 years. That would provide credit unions who keep long-amortization mortgages on their balance sheets with another advantage versus the banks. CUs already sidestep federal mortgage rules by offering HELOCs above the federal 65% loan-to-value (LTV) maximum, higher LTV stated income mortgages and mortgages with lower qualification rates.

As noted, none of the above has been confirmed. So the above should be considered speculation until it is. We’ll do more digging and report back.
It could be an interesting week.


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  1. The gap between insured and uninsured is significant. A bit of a surprise, but they likely have insight that we don't have, first they may not have been pleased with the results of OSFI's risk assessments, second they are likely not seeing sales slow down enough to stop prices from rising, third they may be preparing for rates to remain low for longer than they have stated in the past.

  2. Have family in the banking business. This is indeed coming, sooner than one may think....Garth is correct.


  3. Drove out to Sooke and parts this morning.Drive still sucks on the Sookeahalla.
    Builders still putting up stuff on the hillsides,condos and townhouses mostly.
    After I passed one brand new condo development I passed another one advertising"Luxury condos for rent nightly"!!!
    SO you build a condo development,only to try and rent them out nightly in SOOKE? How does that work?Well I don't think it does in the long run.What a mess out there.

  4. If this government's track record making unpleasant policy announcements is anything to go by, expect an announcement after 3 pm on Friday, after anything resembling a real reporter has left Toronto for the long weekend.

  5. Agree with anonymous above. I was at a banking dinner with a certain departing official as speaker in last two weeks who loudly told everyone not to tell anyone, but anyone could see , he said, that this country and others (ie the UK) had to make credit conditions tighter to control personal indebtedness. End of. Also, just cos I feel like sounding off, I'm so mad I feel like laughing - there are realtors trying to offload unbuilt lots in the gulf islands at the moment for more than the price of finished houses within 500 yards of the lot. Do they honestly believe anyone is that stupid???

  6. Yes anonym, no matter how stupid realtors are and how much they've convinced themselves their fairy tale profession is, they think there's a greater believer (fool ) than them out there. And this fairy tale housing market has proven them correct till now.