Thursday, November 1, 2012

Changes to Canada's mortgage rules - November 1, 2012


Dominion Lending Centres Westcor - Calgary
    Today we received a reminder from our lenders about the changes to mortgage rules in Canada as of today. The major change that will affect people today is that if you want a line of credit , the maximum that you will be able to access is up to 65% of the value of your home. This is down from 80% yesterday. As Canadians grapple with high debts on credit cards and loans, this will remove one way for them to consolidate their debts. I suspect there will be more unsecured loans and more people driven into bankruptcy.
        The other big change is with conventional uninsured mortgages. As of today you will have to qualify at the bank's 5 year  benchmark rate intead of the lower rate for 1-4 year mortgages. This may make it difficult for investors and some home buyers.
 We will have to wait to see what the repercussions are from this latest change to the mortgage rules.
 If you want more information or to discuss these changes you can contact me here.
 I have included the whole notification below for you to read over yourself.
 
As I suspect you are aware, OSFI - the regulator of all Canadian Financial Institutions, has imposed underwriting guidelines for Residential Mortgages on all regulated lenders and CMHC.  These underwriting guidelines are known as B20 and have been created at the insistence of the Financial Stability Board, the financial oversight organization of all G20 nations.  The creation of these guidelines is a direct result of the financial crisis caused by poor American mortgage lending practices.

My purpose in writing this is to give you, our valued brokers, an overview of the components of B20 in general terms.  I will explain to you what it means to your lender partners - at least to Optimum Mortgage and secondly, what it means to you. 

Components of B20
The Guideline sets out what OSFI considers to be prudent residential mortgage underwriting standards.  A residential mortgage is considered to be a loan or any other product, like a HELOC, that is secured by a residential property - up to a four-unit dwelling. 

The Guideline sets 5 principles for sound residential mortgage underwriting:

1.       All lenders must have a policy outlining risk appetite, governance and over site mechanisms to ensure lenders follow their own policies;

2.       Lenders must confirm the borrower’s identity, background and demonstrated willingness to service debt obligations on a timely basis;

3.       Lenders must assess the borrower’s capacity to service their debt obligations on a timely basis;

4.       Lenders must be satisfied that the value of the property being financed has been confirmed by an independent third party; and,

5.       Lenders must stress test their book of business with unlikely, but plausible scenarios to determine the impact to their business.  Lenders are expected to impose a higher level of due-diligence on higher risk deals, conduct ongoing risk-assessments on the insurers they use and generally pay close attention to the risk attached to their residential mortgage portfolio.
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