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
Anonymous
4 years 1 month ago

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
4 years 1 month ago
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
4 years 1 month ago
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
4 years 1 month ago

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
Flip Flop
4 years 1 month ago

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
4 years 1 month ago

@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
Bull! Bull! Bull!
4 years 1 month ago

How’s the inventory? Same as May 2010?

chipshot
Guest
chipshot
4 years 1 month ago

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
Stupid Landlords
4 years 1 month ago

@ Bull! Bull! Bull!

Yep. How are sales? Same as 2010?

chipshot
Guest
chipshot
4 years 1 month ago

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
4 years 1 month ago

@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
Troll
4 years 1 month ago

@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
4 years 1 month ago
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
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fixie guy
4 years 1 month ago

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
Troll
4 years 1 month ago

@fixie guy:

Just more tainted politics…

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

jumpin in
Guest
jumpin in
4 years 1 month ago

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
space889
4 years 1 month ago

@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
Bull! Bull! Bull!
4 years 1 month ago

@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
fixie guy
4 years 1 month ago

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
suspectum
4 years 1 month ago

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
Chem Guy
4 years 1 month ago

@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
4 years 1 month ago

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
Bull! Bull! Bull!
4 years 1 month ago

@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...
4 years 1 month ago

@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
space889
4 years 1 month ago

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.

Bull! Bull! Bull!
Guest
Bull! Bull! Bull!
4 years 1 month ago
@Not much of a name…: Hi Not much of a name, That’s a really good point. Other than 2008 being the year of economic crisis, I see no reason why it can’t peak in (Sep/Oct) as it did in 2011. I suppose the point is that we can’t predict the future. On this blog we’ve seen people fail at predicting the future year, after year. Now, banks and major economists are warning about high prices and coming pull backs. They’ve been bullish until now – and right. I guess we’ll see if they are right again this year. If they… Read more »
M-
Member
4 years 1 month ago
@suspectum: Interesting find there, Suspectum. That seems to be the cheapest (or among the cheapest) non-strata SFHs in that area. Further to your questions of why-didn’t-they-knock-it-down-and-rebuild, my question is: “why is this completely-renovated/rebuilt house the cheapest one in the neighbourhood?” Seriously– shouldn’t crappy old houses be asking less money than an old house that’s been fully renovated? Renovations are neither cheap nor free, and should add at least *some* value to the property. But that doesn’t seem to be the case here. And if they were stripping it down to the studs, why did they leave such tiny windows– shouldn’t… Read more »
M-
Member
4 years 1 month ago

@Chem Guy: My only comment about the developer’s name is that it’s probably got that name because of its owners, rather than the target market. And keep in mind that the property was sold in 1996, so it wasn’t exactly aimed at the current crop of specuvestors (allegedly mainland Chinese, though I doubt that the China effect has nearly as big an influence as the media has led us to believe).

Not much of a name...
Member
Not much of a name...
4 years 1 month ago
@Bull! Bull! Bull!: I suppose the point is that we can’t predict the future. On this blog we’ve seen people fail at predicting the future year, after year. The sad part is that there are great number of people that are also making predictions about the future of RE simply by making a purchase with the expectation that prices will continue to rise at the rate they have over the last 10 years. I wish them well. If they are wrong just once, be it this year, the next or the one after that, it will not end well for… Read more »
yvr2zrh
Member
4 years 1 month ago
#23 – – That’s a good question. I was asking myself the same question. Right now, we are more on track with 2008 but should not see the same fall in sales in the fall which were caused by specific market shocks. So I went to the stats for the following. In 2010, listings in Jul-SEp were 44% below those of Apr-Jun. That is a seasonally large decrease. We typically do not have this and it was partly due to a large rush to the market post Olympics. We don’t have any special “rush” this year so we would expect… Read more »
Anonymous
Guest
Anonymous
4 years 1 month ago
@AG Sage: “Well, upon renewal, the owner who had been making their payments all along, couldn’t cough up 30k to bring the LTV back to 80% so, here, cover us for the whole thing” That got me thinking. Interesting how you don’t need MI if you have 20% DP, yet if you’re less than 20% DP, you need MI on the entire mortgage. Why wouldn’t you only need MI on the difference between your actual DP and 20%. Eg. If you by a $1mil house and you have a 5%, $50,000 DP, your CMHC insurance would be for $150,000 and… Read more »
Patiently Waiting
Member
Patiently Waiting
4 years 1 month ago

@suspectum: Take a look at the picture of the back of the house. They didn’t finish the project. So this is likely someone who went crazy updating the old homestead, and ran out of HELOC. Just some dumbass homoaner, not a spec developer.

Yalie
Guest
Yalie
4 years 1 month ago
@M-: According to the Judge’s ruling, not only was the case without merit, it was downright insulting. [30] Parties should not be discouraged from litigating legitimate actions. Here, the plaintiffs’ allegations were utterly and obviously without merit. I find the plaintiffs’ allegations of fraud against the defendants amount to reprehensible conduct that is worthy of rebuke. I am satisfied that an award of special costs is appropriate given the circumstances of this case. [31] This matter has already occupied considerable court resources. I thus find it appropriate to order payment of special costs by the plaintiffs to the defendant CMHC… Read more »
Anonymous
Guest
Anonymous
4 years 1 month ago

@M-: It was probably a grow-op, and the reason it was stripped down was probably due to moisture damage.

b5baxter
Member
4 years 1 month ago

@Bull! Bull! Bull!: My feeling is that the current climate is more like 2008 than 2010 and that we will see inventory continue to climb and peak later in the year. But I can’t say for sure. The next month should give us an indication.

Makaya
Member
Makaya
4 years 1 month ago

OK guys,

I told you about this article I wrote for LEAP last month (let me know if you want a copy). I got a call this morning from Radio Canada (in French) wanting to interview me about this article. I agreed and I just got off the interview. The journalist seemed a bit shocked at my predictions (-15-25% within 3 years, -55% within 10 years) and finished the interview by: I hope you’re not right…

I guess a few francophone in the lower mainland will be shocked as well…

Anonymous
Guest
Anonymous
4 years 1 month ago

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

You mastery of logic indicates Real Estate Sales would be a perfect career choice.

Anonymous
Guest
Anonymous
4 years 1 month ago

@Bull! Bull! Bull!: …..I suppose the point is that we can’t predict the future. On this blog we’ve seen people fail at predicting the future year, after year…..

So, if people who bought at the peak, when ‘everyone’ was bullish, see a loss, then did they fail to predict the future or where they just not thinking about it?

In any case, I’d rather be wrong year after year and save lots of $’s than be poor for the rest of my life.

By the way, have you closed any sales today?

Bull! Bull! Bull!
Guest
Bull! Bull! Bull!
4 years 1 month ago

@Anonymous: What’s with the attitude? Is this site a place where people can have intelligent discussions and exchange ideas and thereby benefit everyone?

Or is it a place for people to bitch about the Chinese and how they can’t keep up with the Joneses.

jumpin in
Guest
jumpin in
4 years 1 month ago

@Makaya
Thanks for doing it. The French radio has been so bullish lately…

Loser with the girls
Guest
Loser with the girls
4 years 1 month ago

@Makaya
you have been writing articles for LEAP if I understood you correctly?
I read few things from them and in my opinion they are very euro biased publication.
It like reading Christina Science Monitor for any objective analysis. You can’t find it.

Loser with the girls
Guest
Loser with the girls
4 years 1 month ago

it should be “Christian” a not “Christina”,.. i should not be drinking this early 🙂

Makaya
Member
Makaya
4 years 1 month ago
@Loser with the girls: “you have been writing articles for LEAP if I understood you correctly?” I’ve written one about RE in Canada last month, and I’ll write another one about the Canadian economy and politics in 2016 and beyond this autumn. “I read few things from them and in my opinion they are very euro biased publication.” If euro-based means “not in line with the major US/UK publications (FT, WSJ, Bloomberg, CNBC, etc.)”, then you’re right. They just provide their view from a different perspective. Their main argument is that the US-dominated/US$-centric world we’ve been living in for a… Read more »
M-
Member
4 years 1 month ago
@Anonymous: Regarding the Coquitlam house, as you mention, it’s possible that it was a grow-op, which required tearing the house down to the studs to make it habitable again. But that makes me wonder: if it was a grow-op, wouldn’t they have been better off to just knock the house down and sell the lot to a developer? I mean, it’s a 1964 house– without renos it wouldn’t have much residual value anyway. And no matter what you do to the house, you’ll have to disclose that its history. Now they’ve put a ton of money into renos, and it’s… Read more »
Loser with the girls
Guest
Loser with the girls
4 years 1 month ago

@Makaya
“(they are forecasting another one for 2013 ”

Do you have that article in hand?

“and I’ll write another one about the Canadian economy and politics in 2016 and beyond”

2016? why so far? we don’t know if we are going to be alive next year? 🙂

Arshes76
Guest
Arshes76
4 years 1 month ago

@ Anonymous

The whole idea ( or at least on them) for the 20% deposit is that the bigger the deposit the more money the buyer has vested in the property, and there less likely to walk if things go bad. The more equity the less likely you are to walk.

With the a 5% deposit the amount is small in comparison to the mortgage and the value of the house. If things go bad in the future they are more likely to walk.

EI: $5000 deposit lost or $100,000 mortgage hanging over your head (or more)

Makaya
Member
Makaya
4 years 1 month ago
@Loser with the girls: You can read more about it on their website. Below is an abstract of their latest issue: Debts: difficult to manage sovereign debt and deadly private debt… creditors painfully approach the day of reckoning and people an explosion of anger LEAP/E2020 announced it in 2008 and repeated it many times since. There was approximately 30 trillion USD of phantom assets in the world financial system of which about 15 trillion USD remains, which will mostly fly off by the end of 2012. The good news is that as from then, one can seriously contemplate the rebuilding… Read more »
Vansanity
Guest
Vansanity
4 years 1 month ago

New mortgage rule proposal: don’t allow people to borrow the minimum 5% down. The fuck were they thinking? It’s the same fuckin thing as 0 down. 100% of the cost of the home is borrowed money. Dumbasses! Even CAAMP agrees with that proposal.

Anonymous
Guest
Anonymous
4 years 1 month ago

@Arshes76:

“If things go bad in the future they are more likely to walk. ”

Why? Mortgages are full recourse in Canada.

Anonymous
Guest
Anonymous
4 years 1 month ago

@suspectum: “Why wouldn’t they have torn it down when everywhere else they demolish brandnew places to build “bigger, better, higher”?”

No idea, but you have to give them bonus points for using the word “pesky” in their listing.

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