Mortgage brokers warn about new rules

Canadian mortgage brokers are freaking out about new refinancing rules proposed by the OSFI which has taken over responsibility for the CMHC. Reasonably enough, they’re asking for clarification about proposals to require banks to check income and current house value before refinancing.

Currently, when mortgages come up for renewal, banks tend to focus on the borrower’s payment history. They rarely appraise the property again and not all banks will check the borrower’s updated income level, Mr. Murphy said.

“CAAMP strongly recommends that this concept be clarified so that mortgages continue to be renewed at maturity without requalification,” the industry association said in a submission to the Office of the Superintendent of Financial Institutions (OSFI).

“If not, homeowners who have been in compliance may no longer qualify. This would result in a number of properties hitting the market at the same time and thereby driving down prices.”

Such a phenomenon could add further fuel to a real estate downturn if lower house prices and higher unemployment caused more people to lose their homes upon renewal, Mr. Murphy suggested.

Read the full article in the Globe and Mail.

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Anonymous
Guest

OSFI’s won’t be accepted by the government because they are risking their power base of homeowners who compose of 60% percent of the population in this country.Don’t worry of such minor huccup by those idiots.

jesse
Member
What CAAMP is calling out is that severe recessions or economic downturns can cause acute, but temporary, income distress and that can exacerbate a recession if the guidelines are strictly adhered to. I think there is credence to this, but as M- pointed out in the last thread this doesn’t negate the validity of the guideline, rather there need only be temporary flexibility in requalifying a loan if a borrower hits a rough patch. That is reasonable for acute events but is dangerous for chronic ones. That is, if someone qualifies at the start of a term and suffers a… Read more »
AG Sage
Member
Here are the proposed rules: http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/guidelines/sound/guidelines/b20_dft_e.pdf I really don’t think the new rules imply requalification for the renewal. They expect banks to reassess a borrowers position at renewal, but there are other reasons for doing so because it changes the bond, insurance and capital requirements of the bank based on the ongoing status of their portfolio. Under the old rules of an ever rising market, the bank could assume LTVs only go up and prime mortgages always remain prime forever. Falling market, falling employment, OSFI rightly realizes that will no longer be so. Simple example would be: 1, borrower puts… Read more »
jesse
Member

For regular commenters and posters here, it’s worth going over the Canadian mortgage primer document TD put out 2 years ago. Link through my post here:
http://housing-analysis.blogspot.ca/2012/05/canadian-mortgage-market-primer-and.html

Flip Flop
Member

Aren’t the banks well within their rights to do all of this stuff already? There’s nothing saying that a bank can’t check income and reappraise upon renewal, for a customer that had a spotless payment history, is there?

I wonder if this will have any immediate effect, as the banks take the OSFI’s proposal into consideration, and adjust their current policies on renewals.

jesse
Member

@AG Sage: “the OSFI just wants the bank to keep proper track of their portfolio”

They are almost certainly keeping proper track of their portfolio based on their own self interest. My bet is the reason the OSFI is suggesting this measure is because of gaps uncovered in their spot audits last year.

As I mentioned yesterday if the topic of discussion were business loans, the bank would almost certainly require the borrower to requalify on renewal.

Bull! Bull! Bull!
Guest

How’s the inventory? Same as May 2010?

chipshot
Guest

Anyone who thinks the banks won’t play nasty on the way down is clearly delusional. Once the higher ups put the pressure on to weed out those who have shaky employment and especially those found to have originally qualified with shaky employment and don’t meet the new specs, will be in for a major wake up call. You only need a 20% increase in listings to change the landscape of this market, we all know it’s sitting on the edge of a cliff waiting for the last nudge.

Stupid Landlords
Guest

@ Bull! Bull! Bull!

Yep. How are sales? Same as 2010?

chipshot
Guest

Speaking of delusional, this didn’t work out too well in the 80’s and 90’s when there were no HELOC’s. Someone is seriously off their meds.

“For instance, despite record high levels of household debt, DBRS argued that Canadian households have net worth that could withstand a property value decline of 40%.”

Read more: http://www.theprovince.com/business/Rising+mortgage+debt+rendering+Canadian+households+stretched+thin+DBRS/6672226/story.html#ixzz1vnsuVItt

patriotz
Member

@Flip Flop:
“Aren’t the banks well within their rights to do all of this stuff already?”

Of course. The outstanding principal becomes due and payable at renewal time and the banks have the right to ask for their money back.

But the banks want to keep getting interest rather than foreclosing. That’s what they made the loan for. Especially when the mortgage is insured and they don’t have to worry about getting the principal back anyway.

Troll
Guest

@jesse:

They are almost certainly keeping proper track of their portfolio based on their own self interest.

What exactly is their self interest for insured mortgages? I think that’s what the OFSI stuff is getting at, forcing banks to be more prudent around loans where they don’t bear any risk. That said, I’d be very surprised if they push banks to foreclose on properties. Just scare-mongering at this point.

M-
Member
With regards to the CMHC-Class-Action person (the guy who was foreclosed on, had CMHC pursue him for the deficiency, and now wants to start a class-action lawsuit against CMHC), I thought that there had to be more to the story, so I looked into the guy a little deeper (the internet has an amazing wealth of information!) In 1996, he bought a new condo in Surrey for about $155K (plus CMHC fees). He put $7K down, and so had a mortgage of about $150K. He was foreclosed in 2001. Last year (2011), he sued CMHC and National Bank for fraud… Read more »
fixie guy
Guest

12 Troll Says: ” I think that’s what the OFSI stuff is getting at, forcing banks to be more prudent around loans where they don’t bear any risk.”

Banks are prudent and don’t make these loans without being backstopped. This is about making the government/CMHC more prudent in a manner that tries to avoid taking responsibility for creating this national financial train wreck. Just more tainted politics…

Troll
Guest

@fixie guy:

Just more tainted politics…

Well, I guess when all you have is a hammer, everything looks like tainted politics.

jumpin in
Guest

Examples of recent price changes in van East:
V947361
-$50,000

V946956
-$10,000

V932145
-$10,000

V920654
-$20,000

Owner are still dreaming…
On the positive side, it is the peak season and looks like a buyer’s market.

space889
Member

@jesse: What you say makes a lot of sense. However my experiences is that when there are rules, common sense and flexibility at the front lines tend to go out of the windows and the only tool that’s left for the front line workers and low/mid level decision makers is a big hammer. When you only have a hammer, every problem looks like a nail waiting to be nailed….

Bull! Bull! Bull!
Guest

@Stupid Landlords: I don’t know, you tell me. I assume sales are lower, otherwise you wouldn’t have posted that question.

But if inventory is the same as 2010 and sales are lower than 2010 then new listings must also be lower.

Isn’t inventory the stat that matters? Correct me if I’m wrong. Obviously, I don’t know as much about real estate and am not as wise as all of you.

fixie guy
Guest

15 Troll Says: “Well, I guess when all you have is a hammer, everything looks like tainted politics.”

Thx for another concise and detailed rebuff. Keeps the wit sharp. You haven’t compromised your debating standards one bit.

suspectum
Guest

Could anyone help me find out about this listing: it seems very odd to renovate a 50 year old house from the ground up in condo-crazy poco. When was this first listed? Has the price been reduced? How could I check on that? Why wouldn’t they have torn it down when everywhere else they demolish brandnew places to build “bigger, better, higher”?
2868 COAST MERIDIAN RD
Port Coquitlam

http://www.realtor.ca/PropertyDetails.aspx?&PropertyId=11939783&PidKey=-542343134

Chem Guy
Guest

@M-: Ha, I read the court document and couldn’t help laughing at the name of the developer “Triple 8”; wonder who they were hoping to cater to?

b5baxter
Member

New inventory graph:
http://vancouverpeak.com/groups/data-hounds/forum/topic/may-2012-daily-numbers/?topic_page=2&num=15#post-2417

Inventory is back into the 10 year record level territory – but just barely.

Over the last month the average daily increase was: 60
At this rate we will reach 19,000 in 6 days (May-30-12)
At this rate we will reach 20,000 in 23 days (Jun-16-12)
and 25,000 by September 8, 2012

Bull! Bull! Bull!
Guest

@b5baxter: Hi, thanks for posting that graph. Is there any reason to think that we won’t have the same fall off in inventory that was seen in 2010?

Not much of a name...
Member
Not much of a name...

@Bull! Bull! Bull!: Is there any reason why the inventory won’t track either 2011 or 2008 where inventory peaked in the fall (Sep/Oct)?

space889
Member

Oh yeah, on a side note, on last night’s Real Housewives of Vancouver, Jody was commenting that Mary shouldn’t be shopping at a private shopping event because she’s not ultra-wealthy. One reason/supporting fact? Mary lives in a rented condo! Yes, someone who lives in a rented condo cannot possibly be rich or worthy to attend a private shopping event. In response, another “housewife” Christina also admits to living in a rented condo.

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