The new lending guidelines

Those new OSFI guidelines for CMHC mortgages are still ‘coming soon’, but the Vancouver Sun has an article up outlining the current state of the guidelines and predicting they will be announced in the next few weeks.

They’ve softened some since the first concepts floated out there by OSFI, but as a batch of changes that occur all at once they still stand to have a marked impact on the market.

Here’s the list of predicted new guidelines:

. Home Equity Line of Credit mortgages reduced from 80-per-cent financing to 65-per-cent financing.

. Lines of credit to be either amortized, or amortized after a specified period of time (no more never-never plans).

. More stringent income requirements for self-employed borrowers.

. All mortgages to be reviewed upon renewal (currently as long as payments are made, it is unlikely for a bank not to offer a renewal to a client).

. Funds from cashback mort-gages are not allowed as a source of down payment (currently only a handful of lenders allow this, but it does mean that “zero down” mortgages are technically avail-able, but with some restrictions.)

. Use of the five-year posted “benchmark” to qualify uninsured terms of one to four years and all variable terms (currently most lenders use a three-year posted or a lower rate to qualify uninsured mortgage.)

. More limits on underwriting exceptions (many recent applications don’t fit the ever shrinking “boxes” with the banks, which means fewer common-sense deals will get approved.)

. Home insurance to be included in debt-servicing ratios (it is currently not included.)

. More public disclosure of statistics pertaining to institutions’ mortgage practices.

. More accountability from management to ensure lenders are adhering to their underwriting guidelines.

If these changes are implemented I guess we’re going to find out how much of our real estate market is supported by those who are stretching beyond their means.

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rp1
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rp1

… and more toothless bluster from the powers that be. Thanks to more government guarantees (moral hazard) and lower interest rates for longer (financial repression), we’ve surpassed the United States:

http://www.doctorhousingbubble.com/wp-content/uploads/2012/06/US-vs-canadian-housing-prices.png

We’re closing in on Ireland’s peak now. After that is Spain. Go Canada!

patriotz
Member

Once listed at $429,000, Sechelt home picked up for $388,000

2010 – sold for $420,000
2011 – listed at $429,000 for 6 months, no sale
2012 – sold for $388,000

After all costs it looks like our proud owner took a >10% haircut.

registered
Member
registered

1 rp1 Says: “Go Canada!”

Machiavelli’s Three Stooges apparently intend to drag Canada deeper into catastrophe pending clarity on the next election. Kiss that social safety net goodbye, proles, they need the money for the banks.

pricedoutfornow
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pricedoutfornow

What do they mean, “amortize lines of credit, or amortize after a certain period”? I know dozens of people who have lines of credit they are basically living on-this is how they fund everything from car repairs to vacations to emergency household repairs. Some don’t even make any significant dent in the outstanding balance, it just carries on as a debt year after year after year (and often gets larger). Is this a real change that will happen? I think this would definitely hurt the economy, less consumer spending if people realized “s**t, I have to pay off my LOC within 5 years!”

asiaman
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asiaman

a little off the topic but an interesting read I thought id share
http://finance.yahoo.com/news/net-worth-implosion-not-just-095200189.html

Better get a 2nd LOC
Guest
Better get a 2nd LOC

If the LOC has to be amortized, does that mean it closes at zero (and you have to reapply) or does the term just restart when you ht $0 overnight and dig back in the next day?

bullwhip29
Guest
bullwhip29

A number of these proposed new guidelines will never see the light of day (ie. review of all mortgages upon renewal…yeah sure), while those that involve the implementation of “more stringent” requirements or limits will forever remain moving targets subject to the opinion or interpretation of those who reviewing a particular individual’s financial situation. In other words, not much will change. Perhaps the Vanc Sun and the mortgage broker who wrote this article already know this and are simply sandbagging people’s expectations in advance of better than expected news as it pertains to the new guidelines. Anyway, who knows what their real motivation is here in printing such a article? Maybe this is some sort of cry for help from two parties that clearly have a vested interest in keeping the party going.

jesse
Member

“However, the most important comments from the OSFI’s review of the feedback has been that they are likely to withdrawal the requirement to re-qualify at renewal, which has given many in the industry a sigh of relief”

Haha that was the biggest nothingburger clause of all. For those who actually paid attention, OSFI is requiring banks to periodically mark their assets to market which amounts to the same thing in terms of requalification of loans. OSFI just did an end-run around the mortgage industry, who were brilliantly distracted by screaming about the logistical morass of reQ on renewal.

/dev/null
Member
/dev/null

@jesse: Are you talking about the “All mortgages to be reviewed upon renewal” bit? So they’ll be forced to determine the true value of the underlying asset, and put that on their books? People won’t be forced to requalify if LTV changes but the banks can’t report fantasyland values?

Twisted Sister
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Twisted Sister

Yawn….

Another set of “mortgage changes” portrayed as damaging to the RE bubble…

Please see March 2011 “drastic” mortgage changes for a hint of how the new

A hint? No change….

It is pretty amusing watching us bears glom on to potential positive changes only to have our hopes dashed again and again…

Sometimes you just have to laugh instead of yelling or crying…

patriotz
Member

@jesse:
“For those who actually paid attention, OSFI is requiring banks to periodically mark their assets to market which amounts to the same thing in terms of requalification of loans.”

Not if the mortgage is insured. Remember it’s the mortgage which is the asset, not the collateral.

Yalie
Guest
Yalie
@Twisted Sister: It is pretty amusing watching us bears glom on to potential positive changes only to have our hopes dashed again and again… I find it odd that a number of bears have been echoing comments like this a lot lately, when all the evidence suggests that we’ve finally reached the big tipping point we’ve been waiting for. Inventory is at 10-year highs, and has been for most of the year. Sales are at multi-year lows. Debt levels are at all-time highs. CMHC is close to its limit and refusing more and more MI applicants. Prices have stalled or dropped, and this is during prime buying season when prices usually rise. Interest rates can’t possibly get any lower. All this recent doubt reminds me of that scene near the end of Star Wars where the Death Star commander says… Read more »
Gresko MCGresko
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Gresko MCGresko

@patriotz:

Once listed at $429,000, Sechelt home picked up for $388,000

2010 – sold for $420,000
2011 – listed at $429,000 for 6 months, no sale
2012 – sold for $388,000

After all costs it looks like our proud owner took a >10% haircut.

==============================================================

Yeah and watch the new owner take a 10% haircut by Sept.2012

Sunshine Cost will be Telly Savalas country by Christmas.

Twisted Sister
Guest
Twisted Sister
Yalie @ “I find it odd that a number of bears have been echoing comments like this a lot lately, when all the evidence suggests that we’ve finally reached the big tipping point we’ve been waiting for.” _____________ Well, for some of us long time bears who completely sat out the market, we have had more opportunities to have our hopes dashed, and they have been dashed. The same logic of price to income ratios being skewed has been in place for many many years; the same levels of historically high homeownership rates have been in place for years (each year, that rate breaks a new historic high); each new government rule holds the promise of deflating the market only to see a “new” variable emerge (such as HAM – real or not) which re-inflates the market; we see the… Read more »
Absinthe
Member
Absinthe

@Better get a 2nd LOC: I’m interested in this answer, too. I moved all my revolving credit to LOC and was planning on shutting down my credit cards for good, but I actually want to keep open credit unmaxed and not-often-applied for so that my Beacon Score stays really good. Y’know, just in case some day I do want a mortgage for a reasonable price.

Irritating.

mac
Member
mac

@Yalie: How do you know that the CMHC is refusing more and more MI applicants?

mac
Member
mac

@Yalie: How do you know that the cap on the CMHC won’t be raised? I can foresee a 2008-type scenario where our gov’t would entertain the idea of a small increase. Maybe 30-50 billion more.

Yalie
Guest
Yalie
@Twisted Sister: This tipping point has been bandied around many times over the last 6 years…. I will believe it AFTER the trend in prices declines has been annualized and not before it….screw the tipping point…. Fair enough, I’ve been burned by my predictions of an imminent collapse for the past 4 years, only to be proven wrong. However, as the saying goes, “things that are unsustainable tend to stop.” The way I see it, each year that goes by is another year that the chances of the market going yet higher get smaller and smaller. Think of it this way: Imagine playing game of chance in which your chances of winning get smaller and smaller with each “win”. You have a 50-50 chance and you win. Then you have a 40% chance and you win again. Then a 30%… Read more »
Troll
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Troll

@Yalie:

Inventory is at 10-year highs, and has been for most of the year. Sales are at multi-year lows. Debt levels are at all-time highs.

Well this was roughly the same situation in May 2010 (check the numbers) and instead of being a ‘tipping point’ it continued to ratchet higher through 2011. I think the reality is that the resolution is not high enough to accurately call a ‘tipping point’ to the month based on the metrics tracked. As Twisted Sister says, the trends should be annualized before having any confidence that a ‘tipping point’ has passed.

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

@Troll: Looks like interest rates dropped during the year. I guess that may have helped things along.

http://www.bankofcanada.ca/rates/interest-rates/canadian-interest-rates/

Anonymous
Guest
Anonymous

@Yalie: your cracked crystal ball is broken in halved.

mosesupposes
Guest
mosesupposes
I’m increasingly convinced that the deflating balloon analogy that is often mocked may be accurate. While prices are not diving, the sales figures suggest the market is not healthy by any stretch. And if sales are dead during a period of historically low interest rates and a fairly stable economy, it’s hard to imagine would could cause them to pick up. On the other hand, I have doubts that anything is going to happen that would suddenly compel a large section of owners to sell. Interest rates may creep up but they’re not going to skyrocket. Unlike the US pre-crash, I doubt there are hordes of NINJA-type owners in Vancouver. So my guess is stagnation with fairly moderate drops that will eventually (and I stress eventually) culiminate in a 30% drop from peak. But this will take years and in… Read more »
Anonymous
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Anonymous

@Troll:

Also a 10-year high doesn’t mean that inventory is high enough in absolute terms to cause a crash.

Maverick
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Maverick

@mosesupposes:

It doesn’t matter if rates stay low. They’ve become irrelevant (unless they rise). This is because prices have moved up to maximize affordability at today’s rock bottom rates.

Even if rates stay here forever, prices can only hold if incomes move up (and thus improving affordability) – we know this won’t happen in today’s weak economy.

Because incomes won’t move up, we can be assured prices will come down, because even if rates stay low, the number of qualified borrowers will eventually run out, especially if lending is tightened.

Prices will not hold, and there will be no soft landing.

VMD
Member

@Troll:
Months of Inventory:

Month  2010  2012
July    7.3   ?
June    5.9   (~7?)
May     5.5   6.3
Apr     4.5   5.9
Mar     4.3   5.3

July was 2010’s peak MOI.
We have a chance of hitting 7 MOI by end of June

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