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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midnite toker
Member
midnite toker

@Phil: Yes Phil, I don’t get it explain for me.

jesse
Member

@Moe Szyslak: “I thought I read somewhere that most CMHC mortgages were 25 years but that is just a foggy recollection”

A large part of CMHC’s portfolio is of older vintage before amorts were raised, so that’s not much of a surprise.

Anonymous
Guest
Anonymous

Instead of changing the max amort period, I don’t know why they don’t simply reduce the % of income allowed to be put towards the monthly mortgage payment. This could have the same effect of reducing affordability and therefore prices, but would also ensure there is more household income left over each month to stimulate the rest of the economy.

N
Guest
N

Now I regret being so argumentative about what happened in 2008. Who cares what happened then. It’s 2012 and amortizations are going to 25 years. Life is good (or will be soon).

Anonymous
Guest
Anonymous

@Anonymous:

I doubt 100% of any given HELOC is used for a single purpose. I know you’d all like to imagine people taking out 85% of their equity and blowing it on a dozen lavish vacations, but it’s unlikely to be the case.

asalvari1
Guest
asalvari1

@midnite toker:

oh thats easy, just get few thousands out of the stash you keep to purchase a house when the prices fall.

Anonymous
Guest
Anonymous

@Dave:

HELOCs: basic living expenses (11 per cent), a vacation (11 per cent)

It looks like those HELOCs are being put to good use. Imagine 22% of HELOCs are for living expenses and vacations. How many HELOCs are out there? Those mortgages can’t be too far from foreclose.

Dave
Member

@Urbain:

On second thought, the survey doesn’t account for actual dollar percentages which is what we actually want to know. Obviously a HELOC used for a small business is going to be larger in dollars than say for a vacation.

Sure few people start small businesses, but when they do, it’s usually a significant amount.

Urbain
Member
Urbain

@Dave: Well, you did guess that a few times. Unfortunately, many of our fellow countrymen are playing home equity roulette rather than starting businesses and engaging in economy building. I guess they all thought someone else would do it.

N
Guest
N
@patriotz: Actually, it looks like you have got it wrong. My comment was in response to a comment, which was in response t, the following comment, which was clearly about Vancouver, not the US. I can understand you getting confused about what was being discussed. There are a lot of threads on this board. But it’s amazing that 20 people voted up your comment. Come on guys, start reading. “We don’t need a large section of owners to suddenly sell. We just need less people to suddenly realize now may not be a good time to buy and delay buying. That is what happened in 2008. Listings went up because buyers decided not to buy not because sellers flooded the market. Once less people decide not to buy and prices start falling even more people decide to hold off buying.… Read more »
Dave
Member

@Urbain:

I am surprised by those numbers. I would have guessed the percentage was much higher. The survey was reasonably sized as well.

Anonymous
Guest
Anonymous

@Anonymous: “Almost all of them are 30 year amorts”

There’s no advantage whatsoever in taking a shorter amortization. You’re better off with the longer amortization whilst making payments as if you were on the shorter schedule to take advantage of the payment flexibility it gives, providing your over-payment T&Cs allow.

Urbain
Member
Urbain

@Not much of a name…: Interesting. Kind of kills Dave’s little canard regarding people borrowing against their home equity to start businesses. No real wealth generation to see here. Move along.

Moe Szyslak
Guest
Moe Szyslak

@Anonymous:

“Almost all of them are 30 year amorts. With prepayment being allowed on most mortgages 30 year is the norm”

I’m not disputing what you say but can you point me to a source? Just wasted an eternity on the CMHC site and couldn’t find anything. I thought I read somewhere that most CMHC mortgages were 25 years but that is just a foggy recollection.

Phil
Guest
Phil

Haha, you people dont get it. The only people who will be able to buy now are new immigrants. You think that kid working at Costco will ever be able to buy?? Any high school parking lot within an hour drive of downtown will be 100% Mercedes instead of 90%. Have fun raising your kids in Langley, well those of you who dont want to live in a fricking CO-OP!

Anonymous
Guest
Anonymous

@Best place on meth: “That means mortgages are going to be even harder to get, and that means less sales and higher inventory until prices fall significantly.”

Actually once prices fall significantly sales will still be slow and inventory will still be high. Look at the US as an example of what it looks like after prices have already fallen significantly. Real estate is done for a very long time.

Donald Trump
Guest
Donald Trump

Yeah..I get it..

That damn Luongo is like fur ball caught between (2) body orifices!!!!
No wonder ya can’t think straight !

No problemo…me and my connections will have him working at Spaghetti Factory as penance !

PS Sign Schneider ASAP…

Anonymous
Guest
Anonymous

@Moe Szyslak: “Feherty is making all these micro changes and none of them have been working, prices have only gone up since he started tightening the rules.”

What this proves is the Harper government wants people to take on less housing debt. If it doesn’t work then there will be more changes in the future until debt starts to contract. Once it contracts housing prices will follow. The Conservatives have a majority and many years left. It is clear by this and other policy changes what they intend to do.

Anonymous
Guest
Anonymous

@Makaya: “Here is a comment from “TheMtgWhisperer”…”

Lets buy the fact the Mortgage broker is actually concerned about his client paying too much interest on credit card debt. Once his client gets the credit cards paid off from his HELOC all he will do is rack up the credit cards again. He wont save any interest. He has proven by racking them in the first place he can’t manage a credit card. Offering someone more credit who already has too much debt is never going to help. Do these morons really not get it?

Anonymous
Guest
Anonymous

@Moe Szyslak: “Too little, too late.”

Yes too late for those who bought and too late to stop the damage to the economy but not too late for most around here.

“I suspect that there are not as many 30 year mortgages as we like to think”

Almost all of them are 30 year amorts. With prepayment being allowed on most mortgages 30 year is the norm even if you do want to pay it faster. What this impacts most is first time buyers. Almost all of them are maxing out and now they can afford 10% less than they could before.

Moe Szyslak
Guest
Moe Szyslak

Eh, I can’t really get that excited about the 30/25 year amort change. Too little, too late. Feherty is making all these micro changes and none of them have been working, prices have only gone up since he started tightening the rules. Besides, I suspect that there are not as many 30 year mortgages as we like to think. Anyone have the stats?

Wake me when they raise the DP to 20%.

Donald Trump
Guest
Donald Trump

OK:

you people in US North/51st state were warned…

Me and the NYC boys at Goldman Scrotums and JP Morgue’n are calling in the loans…

Yer 18 year old landlords will have to evict you from your basement suites…and/or yer first born.

(BTW: West End exempt..we “understand”)

Go KINGS Go !!!

Maverick
Guest
Maverick

@900kCrackHouse:

My wife and I were laughing about the same thing.

Vancouver prices go “plaid” and nobody cares at all.

But now that Toronto is overheating – stop the presses.

Doesn’t matter at all that the Van RE market has been crap all year.

BTW, if you don’t know what “plaid” means (and shame on you if you don’t), click below:

http://www.youtube.com/watch?v=mk7VWcuVOf0

pricedoutfornow
Guest
pricedoutfornow

@Makaya:

Re: building a future in Vancouver, I’ve just spent a couple nights filling out applications to live in co-ops in the COV. For me, and my $100k in savings, and my two kids, I think that this is a better way of “building a future in Vancouver” than entering into massive debt.

Yalie
Guest
Yalie

@Makaya:

And of course the irony is that these rules are actually going to lower the high prices this couple is complaining about. But of course they won’t see it that way, and instead will rush out and buy within the next few weeks believing that they’re buying “before it gets more expensive”.

I would like to say that dimwits like this deserve exactly what they’re about to get, except that I’ve known far too many otherwise brilliant people who literally lose their minds when it comes to housing. Psychology is a funny thing.