Last week, the Office of the Superintendent of Financial Institutions Canada (OSFI), Canada's banking regulator was leaning on banks and other federally regulated lenders to review their underwriting tactics and recommended some changes. I expected to see a few changes outlined in the report since the government has tightened mortgage rules three times in the last three and a half years; I did not expect 18 pages of changes.
Canadian Mortgage Trends first reported this story last week and it created quite the buzz throughout the lending industry. Scare tactics much? Is OSFI overreacting? As CMT puts it, this would create a policy-initiated free fall. If even some of these proposals are put into place, it could change our business dramatically. Sure not all recommendations are poor, some are actually adhered by many lenders at the present moment.
Some of the items that OSFI is advocating are as follows:
-Cash Back Mortgages should not be considered part of the down payment
Currently you can apply cash back incentives offered by a few lenders and use those funds towards your
down payment.
-The 5 year posted rate (currently 5.24%) will be used to qualify those obtaining uninsured mortgages for variable and fixed terms from 1 - 4 years.
Many lenders currently qualify uninsured mortgages on the 3 year rates.
-Home insurance to be included with your debt service ratios (TDS)
-More scrutiny of non-bank lenders' underwriting practices
These recommendations are all in addition to the one's suggested by TD Economist Craig Alexander. He's made reference to increasing the minimum down payment from 5% to 7%, decreasing the maximum amortization to 25 years and qualifying all borrowers on insured and uninsured mortgages at 5.50%. I wouldn't be overly shocked if the last point is actually implemented sometime this year.
The Finance Minister Jim Flaherty had some humbling remarks about all of this buzz. His take on the recommendations are that the banks should ultimately control who they lend to and should not require 'babysitting.' I couldn't agree more. He reiterated that “The new housing market produces a lot of jobs in Canada so there’s a balance that needs to be addressed. I’d like the market to correct itself, quite frankly, if it can.”
I think all Canadians should be wary of their spending habits and monitor their finances closely. Would you agree with any of these changes and if so which one's would you be more inclined to see?
As always, I encourage you to contact me if you have any questions with your current mortgage or are looking for one. Please find me on facebook at Jason Nesseth | Mortgage Specialist | British Columbia and on twitter @jasonmortgages.
"Working with you for the life of your mortgage"
Jason Nesseth with TMG The Mortgage Group Canada Inc. If you have any questions or comments about this blog, please feel free to call Jason at 604.375.7375, email jason.n@mortgagegroup.com or visit his website at jasonnesseth.com
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Canadian Mortgage Trends
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