RRSP HBPBorrowing RRSP funds to buy a home would no longer be restricted to first-time buyers under a Liberal government, the party announced today.

Liberal leader Justin Trudeau has proposed that restrictions on the Home Buyers’ Plan (HBP) be loosened to allow greater access to the program for those facing challenging or unexpected circumstances.

“We will modernize the existing Home Buyers’ Plan so that it helps more Canadians finance the purchase of a home,” says the Liberal’s housing policy. “We will allow Canadians impacted by sudden and significant life changes, such as job relocation, the death of a spouse, marital breakdown, or a decision to accommodate an elderly family member, to access the program and use money from their Registered Retirement Savings Plan to buy a house without tax penalty.”

The plan would not change the maximum withdrawal limit of $25,000, however. Some call that a mistake as the HBP has failed to keep pace with rising home values. Since the HBP started in 1992, home prices have rocketed over 200%, while the withdrawal limit has risen just 25%. That’s the very reason Conservatives recently promised to raise it to $35,000.

“I think our proposal to extend the capacity to invest — to draw from your RRSPs…responsible amounts to help the cost of a new home — is something that will help Canadians in concrete ways,” he was quoted as saying. “The reality is that too many Canadians cannot afford to buy a house.”

Like the Conservatives, the Liberals are also promising to “undertake a review of escalating home prices in high-priced markets — like Vancouver and Toronto — to determine whether speculation is driving up the cost of housing, and survey the policy tools that could keep home ownership within reach for more Canadians.”


Hundreds of millions of dollars are lost to mortgage fraud each and every year. That cost and a recommendation from Ontario’s Minister of Finance has prompted the Financial Services Commission of Ontario (FSCO) to step up fraud prevention.

One of the regulator’s strategies in this fight is education. To meet that goal, FSCO recently issued a fraud prevention checklist developed in cooperation with industry stakeholders (see it here; see the FAQs here).

If you’re a mortgage agent, it should be required reading. Not only does it help protect your clients, your lenders and you as a mortgage professional, but it outlines some regulatory requirements that may surprise you.

When we read FSCO’s new fraud checklist, it sparked immediate questions. So we asked FSCO for guidance, which it helpfully provided in the feedback below.


CMT: Best practices aside, what are the actual regulations in Ontario that require mortgage agents or brokers to actively identify fraud in their mortgage dealings?

FSCO: Mortgage Brokerages: Standards of Practice Ontario Regulation 188/08 has a number of sections requiring brokerages to take actions to identify possible fraud:

  • Section 10 [speaks to] the duty to verify the customer’s identity;
  • Section 11 [speaks to] the duty to verify the other party’s identity;
  • Section 12 does not allow a brokerage to act for a borrower, lender or investor if the brokerage has reasonable grounds to believe the mortgage or its renewal is unlawful;
  • Section 13 requires a brokerage that has reason to doubt the borrower’s legal authority to mortgage a property to advise each prospective lender at the earliest opportunity;
  • Section 14 states that if a brokerage has reason to doubt the accuracy of information contained in a borrower’s mortgage application or in a document submitted in support of an application, the brokerage shall so advise each prospective lender at the earliest opportunity. The requirements in section 13 and 14 continue after the borrower enters into the mortgage agreement (after it is signed).

CMT: Your FAQs note that “regulations that are going into effect on January 1, 2016, which require that mortgage brokers, agents and administrators not ignore suspicions of fraud.” Do you have more details on that?

FSCO: Mortgage Brokerages: Standards of Practice Ontario Regulation 188/08, section 14.2, which will go into effect on January 1, 2016, states:

“14.2 A brokerage shall not act, or do anything or omit to do anything, in circumstances where the brokerage ought to know that by acting, doing the thing or omitting to do the thing, the brokerage is being used by a borrower, lender, investor or any other person to facilitate dishonesty, fraud, crime or illegal conduct.”

Mortgage Brokers and Agents: Standards of Practice Ontario Regulation 187/08, section 3.1, and Mortgage Administrators: Standards of Practice Ontario Regulation 189/08, section 10.1 have similar requirements for brokers and agents and administrators.

CMT: One of the suggestions is: “Verify driver’s licences with the Ministry of Transportation.” How does a broker do that? Is there a website that validates drivers’ licenses, or do brokers have to call the Ministry of Transportation (MTO)? And what info will the MTO disclose given privacy rules?

FSCOFSCO: There is a website: It states, “You can order a 3-year uncertified driver record for any driver with an Ontario driver’s licence.” MTO will provide “a 3-year uncertified driver’s record containing driver and licence details, and lists conviction information, any applicable demerit points, and suspensions.” This should enable brokerages to verify that the driver’s licence provided as identification is not a forgery.

CMT: Your guidelines say “FSCO will not consider a client’s signature on disclosure documents, on its own, as sufficient proof the client was adequately informed about the mortgage and its risks.” This means the broker must also make other verbal disclosures, correct? What other types of steps does this require a broker to take, by law (not just best practice)?

FSCO: FSCO expects the mortgage brokerage to ensure the client understands the information that is being disclosed so that the client can make an informed decision. Having a client sign a disclosure document that he or she has not read or does not fully understand does not fulfill this obligation. Ensuring that the client understands the mortgage product being offered is part of the brokerage’s duty to ensure the mortgage is suitable for the client. Section 24(1) of Regulation 188/08, Mortgage Brokerages: Standards of Practice requires that a brokerage ensure that mortgage products it presents to a client [are] suitable to the client, having regard for the client’s needs and circumstances. To do so, the mortgage broker or agent must document his or her assessment of the mortgage products available and then demonstrate how the recommended mortgage product, its structure, its features and its risks meets the client’s needs and circumstances.

FSCO: One thing that brokers might question is the expectation that they must ensure a client has read and fully understands a disclosure, assuming that the disclosure:

a)  Is written in clear English and is not misleading; and

b)  Has been signed by the client which, barring notice from the customer to the contrary, generally implies agreement and understanding of the terms.

FSCO: In addition to wanting mortgage brokers to ensure a client has read and fully understands the disclosure documents, we also want mortgage brokers to have a good sense that the products they’re selling are a good fit for the client. As a mortgage broker and client go over the disclosure documents, the broker should have a good idea whether the client can afford the mortgage products being sold. We don’t want a client to be put in a situation where he or she will fail, or be put in financial peril. We want brokers to be confident that the products they sell meet the needs and circumstances of the client.

Special thanks to FSCO and its Senior Communications Officer, Malon Edwards, for assistance with this story.


There’s another set of mortgage rules coming this summer. CMHC sent out a notice recently with implementation dates for three policies related to OSFI’s B-21 guideline.

We knew this stuff was coming but these rules could nonetheless make it harder to get low-ratio insured variable-rate mortgages, self-employed mortgages and 100% financing.

Here’s what’s happening:

  1. The qualifying interest rate for low-ratio variable and fixed terms of less than five years will officially become the Benchmark Qualifying Rate (currently 4.64%). This change only applies to transactionally insured mortgages, not bulk insured mortgages, says CMHC. Effective date: “As early as possible after June 30, 2015, and no later than December 31, 2015.”
  2. Lenders will officially be required to obtain “third-party verification” of income for all borrowers, “including substantiation of employment status and income history.” CMHC did away with “stated income” financing many moons ago, but the private insurers still offer a form of non-traditional income verification (see Genworth’s program and Canada Guaranty’s program). We don’t yet know if/how their programs might change. For CMHC’s part, this announcement “is simply [meant] to add additional clarity and re-affirm CMHC’s position,” spokesperson Charles Sauriol says. Effective date: June 30, 2015.
  3. Cash-back down payment mortgages will be eliminated unless the borrower can come up with 5% down on their own. Ever since OSFI’s Guideline B-20 killed these products at the banks, this type of 100% financing has only been offered by a small number of credit unions. Effective date: June 30, 2015.

With this last rule, you might be wondering why people can borrow their down payment from a 20%-interest credit card but not derive their down payment from lender-provided cash rebates.

“To differentiate the two—in other words, use of lender cash backs versus borrowed funds to satisfy minimum equity requirements—lender cash-back mortgages are typically associated with higher interest rates charged to the borrower,” says Sauriol. That “translates into a larger insured loan amount and in the event of a default, into potential additional risks for the mortgage insurer.”

“In cases where funds are borrowed to satisfy minimum equity requirements, the borrowing is outside of the insured loan amount and is also factored in the total debt service ratio, and therefore taken into account for borrower qualification purposes.”

The end result is that the insurer incurs less severe losses on default (e.g., after five years, the loan balance being insured can be 3% to 4% less if the down payment was borrowed).

Unfortunately, borrowed down payments can also result in higher interest costs and/or payments for the homeowner, depending on what interest rate and amortization applies to the borrowed down payment. In cases where this makes it tougher for the borrower to debt service, that could theoretically increase the probability of default.

Sidebar: It appears none of these rules prevent a lender from offering an unsecured line of credit for the borrower’s down payment. It should be noted, however, that lenders scrutinize applications very carefully if someone is borrowing his/her down payment.

OSFI’s B-21 is Finalized: Update 2

On Thursday, the Office of the Superintendent of Financial Institutions (OSFI) announced its complete B-21 guidelines for underwriting insured mortgages. But it didn’t stop there. The banking regulator also tweaked some of its B-20 guidelines, rules that shook the mortgage market when they were initially released in summer 2012.

This time around, OSFI’s actions will have far less impact on the housing market. 


Oliver Meets With CAAMP

Finance Minister Joe Oliver met with the Canadian Association of Accredited Mortgage Professionals (CAAMP) on Friday. The meeting covered a range of mortgage hot-topics.

CAAMP President & CEO Jim Murphy tells CMT, “CAAMP’s key messages were to provide consumer choice, for example the need to support smaller lenders and monolines, a view that we have had enough regulatory changes and the economic importance of housing and real estate finance in terms of jobs and tax revenues.”


Collateral Pitfalls Disclosed

Collateral-MortgageBanks are improving their disclosures on the drawbacks of collateral charge mortgages.

Effective January 31, 2015, the Department of Finance says banks will start warning individual consumers about the implications of collateral charge mortgages “before entering into the mortgage loan agreement.”

The DoF says “consumers require sufficient information in order to more clearly understand the costs and consequences of a collateral charge mortgage relative to a conventional mortgage.”


Lenders’ Worries

Housing bubble conceptNot many lenders go on record forecasting a housing bubble, but what they say in private surveys is another matter.

FICO, a consumer analytics firm, released poll results on Tuesday that show just how concerned lenders are about housing overvaluation. But its data, which was picked up by multiple media outlets, featured responses primarily from U.S. respondents. The opinions of Canadian lenders, alone, haven’t been fully reported.

Today, however, we got our hands on Canadian-specific data, and it revealed some surprising expectations.


The Public MIC Advantage

Jeffrey D. Sherman, Special to CMT

Public or private. keyboardThe function of Canada’s securities regulation is to protect investors. To help investors make informed decisions, regulated public markets require broad access to information on exchange-listed companies.

In the June 9 article entitled “A Threat to Private Financing,” it was noted that Ontario has restrictions on the sale of securities. These limit many investors to buying only publicly traded Mortgage Investment Corporations (MICs), and not private MICs. This is sound regulatory policy.


A Few Last Tweaks by CMHC

CMHCLast week CMHC eliminated some more mortgage insurance offerings. Effective July 31, for example, it will no longer insure amortizations over 25-years or $1 million+ properties with low-ratio transactional insurance.  (More details here)

Canada’s largest insurer says this was a business decision. But most business decisions maximize profit and/or significantly reduce risk. These changes don’t necessarily do that, making it appear more like a political decision.


A Threat to Private Financing

Wayne Strandlund, Special to CMT

Borrower choice and the success of mortgage brokers is tied to the availability of a wide variety of mortgage funds. Apart from conventional insured and uninsured mortgages, there are Alt-A and B, 1st and 2nd mortgages available through the private mortgage market.

For years, Mortgage Investment Corporation (MIC) lenders have provided billions of dollars of this private alternative mortgage financing. But under proposed regulations, this opportunity for borrowers and brokers will be severely curtailed, causing measurable economic harm.