Gov kills 40 year zero down mortgages
Looks like the Canadian government is starting to heed the US housing market lesson - the Federal Government will no longer guarantee 40 year or zero down mortgages. The new limit will be a 35 year maximum term and a minimum 5% down payment will be required on all new federally guaranteed mortgages.
The federal government will no longer guarantee 40-year or zero-down mortgages in an effort to avoid a housing crisis like the sub-prime mortgage meltdown experienced in the United States.
In an announcement released today, the government said government-backed mortgages would require a minimum down payment of five per cent and a maximum amortization period of 35 years. The borrower would have to have a consistent minimum credit score and there would be new loan documentation standards.
“Today’s announcement marks a responsible and measured approach by the Government to ensure Canada’s housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada,” a release issued by the federal Department of Finance said.
The new rules will take effect Oct. 15, 2008 to allow existing mortgage pre-approvals to be used or expire.
So get out there and get your 40 year zero down mortgage while you can, these things are destined to become collectors items! My guess is we’re about to find out how thin of a speculative margin has been driving the Vancouver real estate boom.
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July 9th, 2008 at 3:08 pm
July 9th, 2008 at 3:09 pm
This will be the death-knell of the market. As interest rates rise for existing owners, they won’t be able to rely on a refinance into a 40-year amortization as a backup plan.
Wow.
And 5% down– that’s amazing. Actually requiring people to have some skin in the game.
I think this will be like the equivalent in the US when, practically overnight, mortgage lenders stopped issuing subprime mortgages.
July 9th, 2008 at 3:15 pm
July 9th, 2008 at 3:16 pm
Wow… Every word is false. How can you be so consistently wrong?
I don’t think changing from 0% to 5% and 40 to 35 will have a huge impact but the market was stretched to the breaking point anyhow, it was already collapsing, this will just speed things up a little.
However, we are not “fiscally conservative”, especially in BC where the savings rate has been negative for years.
The market is not “Red hot” in fact it’s been in a slump since January.
Last time I checked “Robust” did not mean overpriced and unstable with ballooning listings and limp sales.
I don’t have a figure handy and I don’t know how you define “high” in terms of down payments but I suspect if you were to define it and we looked at the numbers you’d be way out there too.
July 9th, 2008 at 3:20 pm
July 9th, 2008 at 3:26 pm
I agree with you wholeheartedly!
The exclusive membership to the Best Place On Earth is expiring soon!
Everyone, get in while you still can!
Last chance to own the Piece of Paradise.
Only until October 15!
And to make it even more special it is my birthday!
OMG, gimme some more kool-aid!
July 9th, 2008 at 3:26 pm
Incidentally, from the G&M’s article on this issue, it also sounds like the government will tighten up rules on income documentation, so no more liar’s loans.
http://www.reportonbusiness.com/servlet … iness/home
July 9th, 2008 at 3:45 pm
Now that we’ve seen your ’stupid’ act show us your ‘got a brain in my head’ act.
Cute routine but not very original.
Every Tom, Dick and Harry is named John.
July 9th, 2008 at 3:50 pm
hint,that can be found between pink lips!
July 9th, 2008 at 3:54 pm
July 9th, 2008 at 3:55 pm
We’re done.
July 9th, 2008 at 4:03 pm
Here is clearly a bear reiterating all the realtor BS out there for the sake of some fun.
Noname
July 9th, 2008 at 4:12 pm
Noname
July 9th, 2008 at 4:20 pm
The markets are cooling without this legislation. Closing the doors after the horses, cows and piggies have all left the barn.
I really think they should have clawed back the amortization to 30 years. 35 years is still fiscal suicide, especially with a deflationary future. But I guess they’re trying to balance out the effect of the carnage when the overextended renew post Oct 15, with overdue fiscal prudence. I think the minimum down payment should be 10% as well. Typical watered down Canadian governance, when stronger, or at least adequate, measures are needed.
However, this can only hasten the crashection to sustainable fundamentals our hot RE market needs. Bring it on. Let’s rip that band-aid off instead of teasing it off one painful leg hair at a time.
July 9th, 2008 at 4:21 pm
July 9th, 2008 at 4:21 pm
“It’s the speculator!!”
“Yes, and I would have gotten away with it if it weren’t for you meddling feds!”
July 9th, 2008 at 4:22 pm
July 9th, 2008 at 4:41 pm
PS. These are some of the funniest comments posted. It’s bring’in tears to my eyes… removing the landing gear for a soft landing… If it weren’t for you meddling feds… LOL priceless.
July 9th, 2008 at 4:43 pm
One of a few godfathers of investment management - google him
“the most dangerous words in investing, this time it’s different. Over long periods of time, asset classes demonstrate a consistent set of return characteristics. Over shorter periods they may deviate from expectations, sometimes even by a wide margin, but over the long term historical returns, risk, and correlations are a reasonable guide to future values.”
July 9th, 2008 at 4:45 pm
Bencmark appreciation value over three year:
Detached 43.6% Attached 43.1% Appartments 48.5%
40/0 down start around 2005 it’s not clear whether buyers who used this product were paying some down payments because the amount to get rid of cmhc is equal to 20%.
If you look at the appreciation value over three year then those buyers had submit almost 20% equal to the size of their down payments every year without having to pay a penny from their pockets-if they did not pay otherwise that would increase their size of down payments,if those buyers still holding their units the size of their down payments are equal to 45% in last three year.
Now when the boom is cooling off so it’s not bad to ask the buyers to pay some of 5% down this same 5% could be equal to the remaining 5 year term so the term get back to 35 year.“this new provision is just (cool),(light),just cool light’n'easy ahahaha sprite or seven up”-smart move.
http://www.realtylink.org/hpi/rebgvhpis … YPE=buyers
July 9th, 2008 at 4:47 pm
July 9th, 2008 at 5:49 pm
July 9th, 2008 at 6:03 pm
July 9th, 2008 at 6:03 pm
July 9th, 2008 at 6:06 pm
What kind of people would hope for a 50 year mortgage?!?! If I “thought the trend would be even longer”, it would be a fear, not a hope.
July 9th, 2008 at 6:10 pm
July 9th, 2008 at 6:18 pm
…here’s the blockbuster - a max of 45% for a borrower’s debt-service ratio. This is not the best news in, say, Vancouver, where people have routinely been forking over 70% of their income for the privilege of living in a deflating bubble.
Doesn’t this practically eliminate the market in Vancouver overnight?
July 9th, 2008 at 6:26 pm
Anecdote: A friend of my gf’s boss bought a condo d/t investment property. He’s a foreign investor currently resides in the Caribbean. Here’s the timeline:
Bought for $630K - 2007 - Presale
Put it up for sale in March/08 for $800K - No bites
Reduced to $790K - no bites
Reduced again to $730K - still no bites
He’s probably spending $3K(+) per month on it while it sits on the market.
Another owner in same building delisted because he can’t compete with that price.
Oh, also the guy bought another presale in Yaletown. The H&H building… ring a bell? Yep, they are in receivership right now, trying to sell the remaining presales to get enough $ to complete it. He doesn’t know about that yet. Durr!
That’s the way speculation bounces!
July 9th, 2008 at 7:22 pm
Thanks for the laugh, John. We need a little humour to lighten things up. Sometimes we take ourselves too seriously. Looks like you caught a few people up! Well done!!
July 9th, 2008 at 7:26 pm
July 9th, 2008 at 7:29 pm
July 1-8, 2008 SFH average for Calgary is $452k+.
Difference roughly $52K.
June 2008 SFH average for Calgary is $473k+.
Difference roughly $32K from July 2007 peak.
These are big haircuts.
Coming to a city near you.
It will be interesting to see how the month of July ends in Calgary.
July 9th, 2008 at 7:38 pm
Well no they haven’t. The median income household has not been buying the median house with little or no DP.
July 9th, 2008 at 8:46 pm
That was last year and we were in a sellers market.
The buyer was the one feeling the pressure to get in before it became more expensive.
Now this summer things are different.
We are clearly in a buyers market and sellers are being pressured to drop prices to make the sale. I think we could conceivably see sellers panic more than buyers this time and start to see some serious downward pressure on prices. We aren’t the only ones seeing prices drop and the market weaken. EVERYONE I talk to is seeing the same thing.
July 9th, 2008 at 9:08 pm
This will prevent a housing bubble from forming in Canada?
If only the Americans had mastered monetary policy as we have, they could have avoided the whole mess.
July 9th, 2008 at 9:21 pm
July 9th, 2008 at 9:25 pm
July 9th, 2008 at 9:33 pm
The bar will be closing on Oct 15.
July 9th, 2008 at 9:45 pm
more like scarfing down that bad burrito….
two exits! no waiting!
July 9th, 2008 at 9:51 pm
July 9th, 2008 at 10:35 pm
July 9th, 2008 at 11:34 pm
http://tinyurl.com/Van-East-Giveaway
July 10th, 2008 at 12:35 am
Would that be based on the hourly rate?
Craigslist has $1000/month and less for 2 bedrooms in that area.
July 10th, 2008 at 12:39 am
This might not have that much affect on the market if private insurers take up the slack. But at least taxpayers will no longer be on the hook for the riskiest loans.
July 10th, 2008 at 1:48 am
It’s my understanding from other posts that due to CMHC backstopping of private insurers, they are also precluded from insuring 0%/40y. And NFW are non-bank lenders going to loan 0%/40y without insurance or added security, whatever the rate. Not in BC anyway.
July 10th, 2008 at 7:07 am
That said, without these GF’s the market here will accelerate it’s declines in price and sales.
There really is no way that the MoF could change the lending standards any faster as this would cause an outright crash this minute, and I’m certain that they wish to avoid as much blame as possible. Further, we probably won’t see any further changes other than minor tweaks as those who do manage to keep their negative equity homes will have to bring cash to the bank when the mortgage is due in 5 years or so.
July 10th, 2008 at 7:27 am
July 10th, 2008 at 7:45 am
I think we’ve gone over this before, the banks don’t really care about the equity situation on insured mortgages because CMHC is holding the bag, not them. The insurance is good for the entire amortization period.
They just want their cash flow and they lose, not gain, if they don’t renew and force the property into foreclosure. I have never heard of it happening in previous busts.
What is likely to be the real problem is if interest rates are up at renewal time, the house has negative equity, and the owner can’t, or doesn’t want to, carry the increased payments. Also walkaways before renewal time as we are seeing in the US.
July 10th, 2008 at 8:01 am
Recently these insiders saw that the prices are flatlining, so they rushed to sell their properties at max price. Now after thay have cashed in, they deliberately reverse the mortgage market to hasten the decline in prices so that they can buy their properties back with discount.
July 10th, 2008 at 8:10 am
July 10th, 2008 at 8:19 am
The problem is this. Home prices had gone out of whack. Conventional wisdom states that when interest rate goes down, the PE ratio of stock should go up, which means prices should go up. But it didn’t. PE ratios of US major corporations in fact are at their 1994 lows. The economy is teetering on a brink of a recession and yet people still expect prices to keep going up. How logical is that?
There is price based on fundamentals and there is price based on expectation. Vancouver prices had been priced based on expectation rather than fundamentals and neither a 40/0 nor the new 35/5 will make any difference. When people want it, they will pay any price.
I think people here should stop calling us bears, because I’m sure many of us here have the ability to afford the 20% downpayment already.
In fact, having a 20% downpayment means that the buyer had planned to buy only at the right time. Why else would he or she save up the 20% in the first place. You can’t even see the cash these days. It’s in a bank somewhere. All you see are numbers on your computer screen — big deal and nothing to write home about.
I rather have a life, see my wife and kids or for others have fun with their friends and significant others.
The key is a plan. 35/5 or 40/0 means the person has absolutely NO PLAN whatsoever buying a house.