Mortgage Rates & Mortgage Broker News in Canada

OSFI Considering Mortgage Amortization Changes

Federal policy-makers are exploring additional mortgage rule tightening, CMT has confirmed.

A spokesperson from Canada’s banking regulator, The Office of the Superintendent of Financial Institutions Canada (OSFI), verified that it is looking at the issue of limiting amortizations to 25 years on conventional mortgages (those with 20%+ equity). Currently, those “low-ratio” mortgages can have amortizations up to 35 years.

Death Sentence for Extended Amortizations?

Housing commentator Garth Turner cites insider info that long-term amortizations are about to go extinct, at least where the federal government has jurisdiction.

In a blog post today, he writes:

More on the New Bulk Insurance Restrictions

Last week’s federal budget included few mortgage changes. One exception was a new proposal to restrict the use of default insurance on low-ratio mortgages (i.e., those with 20% or more equity).

The Department of Finance says it will gradually prohibit lenders from bulk insuring low-ratio mortgages unless those mortgages are part of a CMHC-backed securitization program.

In addition, the government said it eventually intends to prohibit insured mortgages from being used in any non-CMHC sponsored securitization program.

Here’s what this may mean to borrowers and lenders…

IRD Clarity Has Cometh

In March 2012, the Financial Consumer Agency of Canada (FCAC) announced improvements to the disclosure of mortgage prepayment charges.

Those improvements were designed to make life easier for people needing to assess the cost of an early refinance or mortgage termination.

The first set of enhancements arrived by last September. Among other things, they required banks to develop online educational material about IRD charges and online prepayment charge calculators.

The final measures came into force just this month. As a result, banks will now be providing:

Flaherty Talks Another Bank into Higher Rates

On Friday, Manulife Bank posted its lowest rate ever on a 5-year fixed mortgage, 2.89%. It lasted for four days.

When our big brothers at the Department of Finance (DoF) caught wind of it, they dialed up Manulife and swayed the bank into raising its rate back to 3.09%.

“We don’t want a race to the bottom on mortgage rates by our financial institutions…,” said Finance Minister Jim Flaherty, as quoted by Bloomberg. “I had one of my staff call (Manulife) and indicate my displeasure.”

CAAMP: Major Job Losses From Amortization Change

Killing 30-year amortizations on high-ratio insured mortgages was a move that some criticized and some applauded. But few could measure the potential side effects when the decision was made last July.

But now, Will Dunning, Chief Economist at the Canadian Association of Accredited Mortgage Professionals (CAAMP), has put out data that quantifies one of the risks. That risk is to employment.

In a recent report presented to Ottawa officials (and made available to CMT), Dunning concludes that a stunning 190,000 jobs will be lost between 2013-2015 due to the maximum amortization being cut from 30 to 25 years.

CMHC’s Insurance Volume Dives 37%. The Repercussions

The new mortgage insurance rules were intended to affect “less than 5% of new home purchasers.” That was Finance Minister Jim Flaherty's estimate from last June.

So far, he’s been pretty close to the mark. In the three months ending September 30, CMHC’s insured-purchase volumes are down 6%. (That drop isn’t due entirely to the rule changes, however.)

What Flaherty did not publicly predict was the extent to which high-ratio refinances, conventional securitized mortgages and smaller lenders would be impacted by Ottawa’s changes.

Factory Lending

Some of the new mortgage policies decreed by Ottawa are bad for credit unions and their customers.

That’s the gist of this report recently issued by Canada’s credit union system.

Among other things, the Credit Union Central of Canada (CUCC) says the federal government’s rules promote “commoditization” of mortgages and fail to allow for low-risk lending that falls outside of regulators’ defined guidelines. The paper—one of the more publicly critical essays on federal mortgage regulations—suggests Ottawa’s rules essentially result in “factory lending.”

CUCC floats some compelling ideas on a wide swath of mortgage topics. These are the highlights (our comments in italics):

Today is B-20 Day

No, B-20 Day is not some obscure holiday. It’s the day that banking regulator OSFI required most federally-regulated lenders to comply with its B-20 mortgage guidelines.

The effects of these guidelines are visible already. A host of lenders have announced stricter rules on things like conventional mortgage qualification, self-employed income verification, borrowed down payments and cash-back mortgages. Albeit, some implemented these changes well ahead of today.

In essence, it is now tougher for many borrowers to get mortgage financing.

The twist here is that OSFI regulates banks and trusts. Yet, even non-banks are impacted by all this.

Selling CMHC’s Insurance Arm - The Risks

Finance Minister Flaherty’s purported desire to privatize CMHC in “five or ten years” (as reported by the Globe) set off a storm of debate Monday. And it wouldn't be the first time he’s floated this balloon.

Even though the Department of Finance denied any immediate plans to sell off CMHC, pundits tussled over the idea's merits.

To avoid breaking into a dissertation on government-backed mortgage markets, we’ll defer this time to Scott Barlow who said it best in the Globe:

Mega Credit Unions Coming

Ottawa is letting credit unions break free from their provincial boundaries.

New federal rules will spawn CUs with operations spanning from coast to coast, just like our major banks.

The regulations that permit this are currently up for a 30-day industry review.

Once those regulations come into force, mortgage customers can expect:

Canadians Deserve More Answers

Boris Bozic, CAAMP Chair and President/CEO of Merix Financial wrote this about the latest mortgage rule changes:

“…Stakeholders have every right to call out decision makers if there’s concerns that [mortgage rule changes] may have unintended consequences. We also have every right to ask decision makers to articulate, in a clear and cogent fashion, the rationale behind the decisions they made.”

As usual, Boris is practical and thoughtful in his commentary, and clearly right.

It makes you wonder, however. If people question policymakers, how much do they really listen?

Finance Minister Flaherty has been pulling puppet strings at will in the housing market. In doing so, he’s erased significant borrowing options and elevated short-to-medium-term housing risk, while providing only the skimpiest of details about his decision-making process.

20 Observations on the New Mortgage Rules

Three months ago, Finance Minister Jim Flaherty told banks to tighten lending on their own. Now he’s doing it for them.

The Department of Finance (DoF), in concert with OSFI, released a buffet of mortgage rules Thursday. By our count, there are eight salient changes that, when combined, will have a measurable impact on housing.

See: New Mortgage Rules and OSFI Guidelines [B-20] for rule summaries.

The motivation for these moves is captured in Flaherty's press briefing comment: "I have been listening to the market, and quite frankly I don't like what I hear.” Loose translation: The debt and housing train is in danger of running off the rails.

The DoF's solutions to this problem will influence our market for years to come. Below are 20 musings on the new mortgage rules, sprinkled with a few tips and predictions:

OSFI Toughens Mortgage Underwriting

OSFI’s final mortgage underwriting guidelines are out, sooner than expected.

There are significant changes on the way for a variety of borrowers. TD’s Chief Economist, Craig Alexander, told BNN that the impact of these guidelines is equivalent to “well over a percentage point (increase) in mortgage rates.”

However, these guidelines are less concerning than OSFI’s original draft (which proposed things like requalification on renewal). Moreover, in many ways this news isn’t as market-shaking as today’s Department of Finance announcement.

That said, here is what’s changing (Note: this applies to federally regulated lenders only):

New Mortgage Rules — Round 4

Since the credit crisis, the Department of Finance has been ready to clamp down on mortgage lending. It has handed down:

• 2008 mortgage rules
• 2010 mortgage rules
• 2011 mortgage rules

And now, Finance Minister, Jim Flaherty, has announced the fourth round of mortgage restrictions in four years.

Starting 18 days from now (July 9, 2012), those with less than 20% equity will no longer be able to get a prime mortgage with:

Home Capital’s MBS Strategy Could Set Precedent

International Financial Reporting Standards (IFRS) have raised the cost of mortgage lending for financial institutions.

That’s because IFRS now require that securitized mortgages (mortgages sold to investors) be held on the lender’s balance sheet. Prior to 2011, this wasn’t the case.

Having more mortgages on the balance sheet boosts a lender’s assets and raises its “asset-to-capital” ratio.

That’s a problem because asset ratios are capped by regulators. Keeping securitized mortgages on the books means that lenders have to put up more capital, or lend less—either of which hurt profitability.

This is “the major constraint” right now on Home Trust’s lending ability, said CFO Robert Blowes at parent company Home Capital’s Investor Day on Wednesday.

But Home Capital has a creative idea to alleviate this problem. It’s one that could be pioneering in Canada if approved by regulators.

New Mortgage Restrictions Approach

Many of OSFI’s proposed mortgage underwriting guidelines may be coming soon to a bank near you.

An OSFI spokesperson told us on Wednesday, “We are still aiming for a late June (or) early July release.”

CMHC’s Kinsley “Welcomes” OSFI Oversight

On Thursday, CMHC head Karen Kinsley spoke before a Senate committee about changes that will impact the nation’s largest mortgage insurer once Bill C-38 becomes law.

Those changes include:

• New supervision by Canada’s financial regulator, OSFI
• A revised mandate, and
• Changes to CMHC’s role in the covered bond market.

(For more on these issues, see: CMHC & Covered Bonds - The Impact.)

Regarding CMHC’s new watchdog (OSFI), Kinsley told senators:

The Semantics of “Bailout”

In The Big Banks’ Big Secret, the Canadian Centre for Policy Alternatives (CCPA) asserts that banks received $114 billion in financial support and guarantees at the peak of the financial crisis. What’s more, it claims the government tried to cover some of it up. 

Report author David Macdonald says that what Ottawa calls “liquidity support” was actually a bailout. It’s a story that’s become a game of semantics.

OSFI Comment Deadline Tomorrow

If you want to be heard on OSFI’s new lending restrictions, tomorrow is your last chance to submit feedback.

This could very well be the most commented-on OSFI proposal in years.

Here’s what you need to know: