Tag Archives: mortgage rules

New CMHC rules: How much impact?

At first glance the new CMHC rules sounds like a minor tweak rather than a major change, and it might be just that.

When the CMHC announced the change they specified that the products being eliminated made up less than 3% of their insured mortgage products by number of mortgages.  What we haven’t seen anywhere are numbers in mortgage value, and BOM pointed this out yesterday:

Read this:

“The Crown corporation has been offering insurance on second homes since 2005. It has been offering insurance to self-employed people without strong income validation since 2007.”

And then read this:

“CMHC says its second home program and its self-employed-without-third-party-income-validation programs combined account for less than 3 per cent of its insurance business volumes in term of the numbers of mortgages insured.”

CHMC has a pool of mortgages insured accumulated over the last 25 years. They have only offered the products they are cancelling for 7 to 9 years but they make up 3% of that pool. Simple math indicates over the last 7 years about 10% of mortgages would have been part of the program they are cancelling otherwise it could never reach 3% of the total pool which was already significant prior to the program starting.

So how much demand was there for insured mortgages on second homes and mortgages for the self employed without income verification?  The numbers may be higher than we first thought.

CMHC: One home is enough?

The CMHC has just ‘tightened’ their mortgage regulations again.

You might not have know that the CMHC would provide mortgage insurance on second homes, but they won’t anymore:

Canada Mortgage and Housing Corp. is cutting the types of mortgage insurance it offers, meaning the era of tighter rules for home buyers hasn’t come to an end.

The Crown corporation said late Friday it will stop insuring mortgages on second homes, effective May 30. Anyone who has an insured mortgage will no longer be able to act as a co-borrower on another mortgage that CMHC insures. In addition, it will stop offering mortgage insurance to self-employed people who don’t have standard documents to prove their income.

Gotta love that first sentence: The era of tighter rules hasn’t come to an end?  I guess by tighter rules they mean doing away with the most absurdist bubble policies in the form of zero down 40 year mortgages.

What’s next? Banks not being able to offload risk for mortgage lending?

Here’s the amazing bit for those just tuning in:

The Crown corporation has been offering insurance on second homes since 2005. It has been offering insurance to self-employed people without strong income validation since 2007.

Remember NINJA loans in the states?  Good thing we never had those here!

CREA cuts forecasts for 2012 and 2013

There’s less than half a month left in the year, so that’s a good time to revise forecasts. The CREA has revised their 2012 national sales forecast from an increase of 1.9% to a drop of 0.5%. I’m guessing they’ve also revised their forecast for 2008, 2009, 2010 and 2011.

Looking ahead they expect 2013 to see a sales drop of 2%, but here in BC they forecast both sales and prices to drop just by 0.3 percent.

“Annual sales in 2012 reflect a stronger profile before recent mortgage rule changes followed by weaker activity following their implementation,” said Gregory Klump, CREA’s chief economist.

“By contrast, forecast sales in 2013 reflect an improvement from levels this summer in the immediate wake of mortgage rule changes. Even so, sales in most provinces next year are expected to remain down from levels posted before the most recent changes to mortgage regulations.”

Finance Minister Jim Flaherty moved in July to tighten mortgage rules for the fourth time in as many years in order to discourage Canadians from taking on too much debt. Among the changes, Flaherty made mortgage payments more expensive by dropping the maximum amortization period to 25 years.

FFffffff! Is anybody else getting sick of the miopic talk of ‘tougher’ mortgage rules? Here’s a great point from Ben Rabidoux about how to put these mortgage rule ‘changes’ and Flahertys ‘tightening’ into historical perspective:

Before looking more at the implications of a mortgage rule change like the one being proposed, it may be helpful to provide a brief overview of the mortgage changes that have occured over the past few years:

  • In 1999, the National Housing Act and the Canada Mortgage and Housing Corporation Act were modified allowing for the introduction of a 5% down payment….a far cry from the minimum 25% of a few years earlier.
  • In 2003 CMHC decided to remove the price ceilings limitations. That is, it would insure any mortgage regardless of the cost of the home.
  • In 2005 and 2006, CMHC began insuring 30, then 35 year amortization mortgages.
  • In 2007, CMHC allowed people to purchase a home with no down payment and ammortize it over 40 years. This was changed back to a 5% down payment requirement and a maximum amortization length of 35 years in 2008 once the idiocy of this policy was blatantly obvious.

Here’s the point: CMHC has been in existence for almost 65 years. For the first 60 of those years, they never insured mortgages with amortizations greater than 25 years. Only in the past 5 years has this experiment been started. The 35 year ams that are now on the chopping block have been around only since 2006. So let’s understand that any move to shorten amortization lengths is NOT some new, revolutionary move, but rather a move back towards norms that are both long-standing and fiscally prudent.

Friday Free-for-all!

It’s the end of another work week and that means its time for another free-for-all post.  This is our regular end of the week news round-up and open topic discussion thread for the weekend.  Here are a few recent links to kick off the chat:

Why falling house prices aren’t bad
What impact from the new rules?
OSFI Credit Union loop-hole
Absurd property of the week
‘Just under a million’ price drops
Expert rips Mayors housing report
Fellow realtors complain to Keith Roy
What does Cameron Muir think?
Canada house prices not sustainable
Affordable housing needs replacement
Will we always have leaky condos?
We ain’t Paris

So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!

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