More Speculation on HELOC LTVs

65-per-cent-HELOCsWe’re hearing from multiple sources that a 65% loan-to-value maximum is now a done deal for HELOCs.

The HELOC LTV limit is currently 80%.

Most (but not all) banks are reportedly supporting the measure. Although, bank execs are known to say different things in private than they do in front of regulators.

If the above is true, three major questions remain:

  1. Will OSFI’s 65% LTV limit be in addition to other mortgages on the property?
    • In other words, will OSFI allow readvanceable mortgages with, for example, a 15% LTV mortgage plus a 65% LTV secured credit line?
  2. Will OSFI allow grandfathering of existing HELOCs with 80% LTV limits? (Bank execs we spoke with doubt it will.)
  3. If existing 80% HELOC holders are not grandfathered, how long will OSFI permit before those LTVs must also be reduced to 65%?

As a reminder, these changes are targeted at federal financial institutions. They are not aimed at provincially regulated lenders who don’t accept funding from federally regulated institutions.

credit-unionIt will be interesting then to see if provincial regulators advise credit unions to follow the same OSFI guidelines. If not, many credit unions could keep 80% LTV HELOCs and gain a competitive advantage.

In speaking with two top credit union executives today, their position is that the risk data at their institutions clearly does not support 65% HELOCs as a broad-based rule. They feel loan-to-value should be risk-based so as not to penalize worthy low-risk borrowers.

OSFI knows full well (or should know) that only a segment of Canada’s 2.6 million HELOC holders warrant this LTV restriction. It will be an unfortunate example of blanket rule-making if/when this “guideline” takes effect.


Prior Story: HELOC LTVs Could Drop From 80% to 65%


Rob McLister, CMT

  1. Why stop with oppressive loan to values? Why doesn’t the government just set the maximum mortgage at $200,000? It’s headed this direction anyway. Pretty soon everyone will be using private lenders.

  2. What happens if someone has borrowed the full 80% of their property value already? Will they have to pay it down to 65% of the value?

  3. Hey Rob:
    Outstanding reporting as always! While I believe that you are bang on point where it comes to the federally regulated banks (i.e. This 65% MAX LTV HELOC is a “done deal”) – and it’s coming at us like a freight train, I’m not so sure that the Minister of Finance or his new regulator [OSFI] will have much sway over provincial regulators in this regard – for example, He hasn’t had much effect in attempts to consolidate provincial Securities Commissions – at least not so far…
    Therefore, I remain soundly optimistic that there may be a light at the end of tunnel for the proverbial “baby that is about to be flung out with the bath water” [by the Banks].
    By “baby”, I am of course referring to the $60Billion or so of 80% LTV HELOCs on the personal Balance Sheets of hundreds of thousands of well intentioned, fully qualified Canadian families. These honest, hard-working Taxpayers use a HELOC as the cornerstone of a well thought out retirement financial plan. Why should they suffer?
    Interesting times ahead…
    -Sandy

  4. Hi Donna
    No. Borrowers will never be forced to pay down to 65% LTV under these new “rules”.
    The worst case scenario is that they might be forced out of a HELOC into a standard amortizing mortgage at the same LTV. That could only happen if the rule was retroactive.
    Rob reports that some bankers indicate that this is possible…but there is no precedent for that in my recollection. When HELOCs went from 90% LTV to 80% LTV, all borrowers were good until the end of their mortgage contract (i.e. Renewal Date).
    -Sandy

  5. I would expect the Prov. regulators for C.U.’s to adopt any Federal changes. They nearly always follow suit!

  6. If the 80% LTV holders are not grandfathered, any idea how the ‘V’ is determined, i.e. would the assessed value of the property at the origination of the HELOC be applied, or would the property be re-appraised? If it has been 3 years since origination the property value may differ greatly from origination.

  7. 65% is too much of a leap all at once.
    I can’t understand why OSFI doesn’t ratchet the LTV ratio down a little more slowly (i.e., 5% at at a time and sit back to observe the consequences).
    As has been noted lately, the previous three sets of mortgage tightening guidelines have been gradually working their way through the credit markets effectively.
    You can kill an ant with a hand grenade, but it usually makes a hell of a mess.

  8. I can imagine this can mean bad news to the home depots and other reno companies as I am sure that this is how home owners can affordably pay for renovations. Does anybody have stats on what people use their helocs for? I may have missed this post, and wonder if for the most part, whether it is usually squandered or for home improvements, investments, etc?

  9. Wow !! I’m flabbergasted at these knee jerk reactions of the federal government and the OSFI that are forced upon the banks. I honestly don’t think that Flaherty and his ¨Thinktank¨ in Ottawa have fully assessed the ramifications of these regulation changes. Most Canadians are in a ¨House rich, cash poor¨ situation. As many have reported on this discussion, where will people get their cash to pay for :renos,tuition,investments ?? If the govt doesn’t want a major part of the Canadian population to become a burden of the state in their old days, they shouldn’t cut off the valve on one of the few remaining cashable assets that Canadians have !! I totally agree with Sandy’s affirmation :
    Why should hard-working, well-qualified, tax paying Canadians suffer ??
    THIS IS NOT GOOD MY FRIENDS !!

  10. Here is my prediction:
    The gap between local credit unions and the big banks adopting the 65% LTV rule creates a flood of 80% HELOC applications for LOCAL brokers with credit union connections.
    Clear your desks people, we might not have long!

  11. Thanks Sandy,
    The provinces regulate institutions that are not as “system-critical.” They’re also under less international regulatory pressure. If provincial regulators use common sense and based their policy on risk data and sound underwriting practices, it’s possible that many CUs could be unaffected by this.
    On the other hand, there’s always a chance most provinces might assume that OSFI has done its homework, and just go with the flow.
    For consumers’ sake, hopefully the former scenario unfolds.

  12. Thanks for the heads up Rob.
    The devil is in the details on this one, I believe that 80% HELOCs are dead but there is a whole bunch of unwinding to do.
    How about all those HELOCs sold in second position behind a different institution’s first mortgage. Holy Moly, that will sure take some untangling. Who decides the loan to value on a 80% HELOC set up 3 years ago? New appraisal? Who pays?
    Fasten your seat belts.

  13. I think it is still smoke and mirrors. Banks make a ton of money on HELOC products and banks have alot of power. For alot of the population a large HELOC is bad for them. Makes them feel richer than they are. The whole thing does not really make sense. The bank will give me $50,000 unsecured and this is ok but it is not ok to take my house as security and give me the same $50,000?

  14. Maybe Canadian’s shouldn’t put themselves into such house-rich cash poor situations then? Ever hear of not putting all your eggs in one basket? Why should anyone be “entitled” to massive amounts of money that is not theirs? Especially when so much of this borrowed money in Canada (not HELOCs but CMHC mortgages) are supported by taxpayers?
    If you use up all your money paying for a house you can’t really afford, you should live with the consequences.
    Think of the future generations…all this obsession with debt and overpriced housing is making us a nation of debt slaves.

  15. Phasing it in would have been a great idea, if OSFI had started five years ago. But HELOCs were backed by the taxpayer back then, so there was no reason to bother.

  16. I think Manulife recently got in the business of selling fixed rate mortgages, perhaps they had a glimpse of the future from the Feds.

  17. ZOMG! Where did they get the money to pay for those things BEFORE HELOCs targeted at salaried consumers became popular? You don’t have to be very old to remember such a time.

  18. How does one tweak one variable in a complex, dynamic nonlinear system with hundreds of variables, and then “sit back to observe the consequences”?
    One need only look at the US, where debate rages over the stimulus package. Was it too small to do much good? Big enough, and things would have been far worse without it? Completely ineffective because it didn’t target structural unemployment and/or underwater homeowners? And that was a huge amount of money, not just a little tweak.
    Besides, phasing it in gradually just leads people to borrow before the deadlines, unless the rule also demands quick paydown of previous higher LTV HELOCs.

  19. Oh no…
    Typically I like to go online and rant about how I use my HELOC to fund investments, pay for renovations and generally contribute to the greater good…but in truth I go on $5000 vacations, lease a 5 series BMW for myself, a Benz SUV for wifey and my Rolex is an investment in myself after all…
    Besides…if I can’t refinance to 80% of my overvalued home I’ll just get an extra credit card or two. No big deal.
    *This post is sarcastic and intended to be light-hearted entertainment – do not go mad on the above fictional character*

  20. Go back further and ask where did you borrow money to buy houses before mortgages? You didn’t! You had rich land/property owners and everybody else either slaves to them or living in a primitive 1 room mud/sod shack on the prairies.

  21. We have used our HELOC wisely and purchased investments and other real estate that is cash flow positive. We have multiple segments for each item which our accountant loves because it takes the gray area away if Revenue Canada were to audit us. It is clear what portion of our mtg is personal and what portion is used for other purposes. Easy interest tracking.
    We moved our mtg over to a credit union last fall. Their underwriting guidelines were way more stringent than any of the banks we deal and it was at 75% LTV.
    This will definitely affect the self employed as well. Interesting times ahead.
    We all will adjust like we have to other mortgage guidelines changes but what will the affect be on the economy as a whole. Time will tell.

  22. Breaking News…. the best job in Canada just became a Home Appraiser! They now can afford any house they want because they just tripled their yearly salary.

  23. I remember a time when a new mortgage product was offered, something called a variable rate mortgage. At maturity, we were required to collect the property assessment to ensure that the mortgage amount was within lending values. Many folks were caught as their payments were not covering principal and interest and were required to pay down the mortgage or refinance to an insured product (the interest capitalized into the time remaining in the ammortization and exceeded 25 years).
    Lines of credits secured by real estate are a loan product – on demand. The Lender can call this at any time or make adjustments to rates and terms. So these folks better make arrangements now to convert to a locked in rate before the Bank catches on and only offers posted rates for profitabiluty reasons. Also, the line of credit is also most likely insured by a loan life insurance policy, so check your premium amounts you are paying and go find private insurance- it will be 40-50% less than your Bank is charging you. Remember that loans are generally smaller amounts so the premimum is higher and the Bank is collecting huge revenue from this income stream. They will not be happy to have OSFI limit lines of credit to 65% and hurt their insurance revenue.

  24. Actually, the BOC said 1/2 is “used either
    for current consumption or to pay off other debt.” Consumption can include renovations which add value to a property.
    Here is more recent data. Those who took out equity were asked by CAAMP what they used the money for. Some people indicated more than one purpose. Based on the responses, it is estimated that:
    $17.25 billion (38%) would be used for renovation or home repair.
    $10.0 billion (22%) is for investments.
    $9.25 billion (20%) of the money would be used for debt consolidation or repayment.
    $7.5 billion (16%) would be used for purchases (including spending for education).
    $2.0 billion (4%) is for “other” purposes.
    http://www.caamp.org/meloncms/media/Spring%20Report%202012_ENG.pdf
    Regardless of the percentages, people that borrow responsibly deserve the right to withdraw and use their home equity any way they please. It is not the government’s job to tell prudent citizens how to spend their money.

  25. And you’re old enough to remember such a time? A creditor’s common law interest in the debtor’s land predates even the Magna Carta, whereas HELOCs marketed to wage earners in Canada goes back, what, ten years? Maybe we should let this HELOC experiment run another 900 years, as we haven’t really given it a chance.

  26. [P]eople that borrow responsibly deserve the right to withdraw and use their home equity any way they please. It is not the government’s job to tell prudent citizens how to spend their money.
    The government is telling prudent banks, with government insured deposits, how they can lend their money. You, as a homeowner, remain absolutely free to pledge your real estate as collateral to anyone you please, on any terms you see fit, subject only to usury laws, the statute of frauds et cetera.

  27. HELOC’s and Mortgages are interchangable in that they are both secured debt. The only real difference today is a good number of HELOC’s are interest only payments and of course, re-advancable. If OSFI institutes this rule, all that is going to happen is people are instead going to refinance up to 80% and pay off their HELOC’s.

  28. Great comment!! While I dont have 34 years of lending experience, I do have about 18 years in corporate lending. How often I see customers not really paying attention to the T&C (Terms and Conditions), including my dear colleagues.
    An LoC (unsecured) or HELOC (secured) is callable in full by bank at any time, and many people loose sight of that, when they think it is “My Equity” that they are taking out. Sorry to say this, it is not ‘your Equity’ but it is Bank’s cushion as a Senior Secured lender to the property. If the Bank wants to bring its cushion back to its ‘comfort’ level, they will call back the LOC/HELOC. If the mortgager wants to have their “Equity”, they need to sell the property and discharge the Senior Secured Lender to claim on their Equity.
    It is, therefore, important for borrowers to have a source of liquidity (for e.g., cash or liquid share investment) to be able to meet an eventuality. The 101 of Finance says, Long Term Debt should be used for purchasing LT Assets, and Short Term Loans to finance ST Assets. For weddings, vacations and Beemers, use equity (real).

  29. Bravo, that’s a clear reasoning on the relation between creditor, debtor, equity, LOC and debt. Mark Carney couldn’t have said it better.
    Matching the duration of debt and financing requirement is actually something the new OSFI regs will address.
    Tick, tock brokers.

  30. Wow, these are some great replies. Indeed people in the know have confirmed that, my gosh, we aren’t just entitled to as much debt as we think we deserve. How novel.
    Thanks for the great and informative posts!

  31. “Sorry to say this, it is not your Equity”
    This statement makes no sense. The difference between your property value and the debt secured against that property is your equity. Period.
    If the bank reduces your HELOC limit because it thinks you’re a risk, you simply get a mortgage instead. Big deal.
    Nobody should get excited by call-in provisions. Banks seldom call HELOCs if you’re paying as agreed.

  32. Talk about the entitlement generation! Now it is a “right” to withdraw home equity through debt?
    Um, I think they only “right” they have is to sell the home and bank the equity.

  33. This statement makes no sense. The difference between your property value and the debt secured against that property is your equity. Period.
    I can understand your emotions regarding your equity, which has been lately more a result of seemingly ever rising home values on paper, than actually paying down of debt. As I said earlier, it is your equity , when you sell the house, realize the true ‘value’ and extinguish the senior claim on the house. Until that time, be glad that the senior creditor is allowing you to re-lever the property. When market turns, banks are not afraid to pull in the risk.
    If the bank reduces your HELOC limit because it thinks you’re a risk, you simply get a mortgage instead. Big deal.
    Ask a borrower in US or an US bank if they will give a mortgage to a borrower if they deem him/her to be a risk on HELOC.
    Just a few summers ago, when HELOC was not a product that banks would offer, a concept of 2nd mortgage existed! Taking a 2nd mortgage was considered not a credit positive event. But here we are, banks looking to gain share of wallet, and market share, gave 2nd mortgage a newer sexier name, HELOC and even got rid of the any amortization. And people started using them as if it is their birth-right to be able to tap into that ‘equity’.
    Nobody should get excited by call-in provisions. Banks seldom call HELOCs if you’re paying as agreed.
    What more can I say ..a frog in a well can only think he is swimming in an ocean. For your own sake, just look around you in Iceland, Ireland, and good ol’ USA.
    In the end, as a corporate banker, I can only advise..dont ignore the fine print.. the banks put them there for a reason.
    Good luck!

  34. …Which is why they’re not interchangeable. If a bank has a book of mortgages, the risk and cash flows are much easier to model, and the book to hedge, than a comparable book of HELOCs (what’s the modified duration of a HELOC?). And from the borrower’s point of view, the whole “mortgage as an enforced savings plan for those otherwise not good at it” doesn’t work with HELOCs, either.

  35. If the bank reduces your HELOC limit because it thinks you’re a risk, you simply get a mortgage instead.
    From someone too dumb to see you as a risk, or someone who doesn’t care? Credit’s been so easy for so long that people apparently don’t remember hard credit conditions. Even during the ABCP crisis, people who were current on their subprime mortgages (right here in Canada, folks!) couldn’t get funded once their term was up.
    Maybe your HELOC gets called and you find the only counterparty willing to lend against your house is a hard money lender (look it up).

  36. For the record, I’m not in the industry, and I don’t really understand why this seems to be such an issue.
    So those loans will become amortized and get paid back.
    What’s the problem with that?

  37. Hey Tomas:
    I’m surprised that the AIC unconditionally supports all proposed OSFI guidelines.
    Not a single suggestion to improve on them – other than non-FRFIs should follow suit – as you have noted.
    HELOCs aside, you have to ask yourself – How can more appraisals for consumers (e.g. at Renewal when not in default) possibly be to the benefit of the consumer as AIC President implies?
    It would be like CAAMP saying they support requalification of all borrowers at renewal because it creates the opportunity for a mortgage broker to originate a new mortgage at a non-conforming lender.
    At least CAAMP acknowledges that this can only be bad for the consumer. Shame on AIC.
    -Sandy

  38. The problem is that a lot of people use HELOC’s very wisely in coordination with other investments, rental properties, RRSP’s and generating tax savings.
    There are those who abuse them to buy fancy toys and live beyond their means… they use the equity in their home as an ATM to spend frivolously.
    Taking it from 80% to 65% as a blanket approach to all is way over stepping OSFI’s bounds.

  39. From someone too dumb to see you as a risk, or someone who doesn’t care?
    Hello? Earth to reason. Come in reason. We’re talking about AAA borrowers here.
    Banks do not grant revolving HELOCs to bad credit risks. If you don’t understand that then you are way over your head in this discussion.
    That goes for you too “patiently … waiting.” It’s a good thing you’re patient because you’re going to be waiting a long time. But don’t let that keep you from humouring us with inapplicable parallels between Canada and the United States.

  40. I know people who took equity out of their home to “invest” and took a big hit. You shouldn’t be able to gamble, er invest I mean money you don’t have

  41. So why not allow 100% LTV? Or 200%? What’s special about 80%? Clearly there is some level that is prudent to protect homeowners from themselves.

  42. Hi All,
    Big overlooked LTV issue here…
    In relation to property valuations in general and entitlement to equity some major points are missing and need to be discussed.
    The first: Costs to sell a home. I read a point earlier “The difference between your property value and the debt secured against that property is your equity”… This is incorrect and as mortgage planners we need to eduacate canadians about the reality of individual situationsnot make blanket assumptions like this.
    Costs: Real Estate fees = 6% on the 1st 100k and 3% on the balance + HST. on a $350,000 home this is: $15,120 net of HST = 4.32% of the value.
    Mortgage Penalty = IRD can be as high as 2.25% for the 2 years remaining or in our $350K home with an 75% LTV MTG = $262,500
    IRD could be = $11,500 representitive of: 3.3% of the value.
    So for some the available equity if prices stay stable is not Value minus debts it is (Value x 92.35%)- secured debts and any unsecured debts held by the lender that may have a collateral charge as by right of offset they can cover even unsecured debts under their security (check the fine print.
    The second: Capital gains tax. Payable on any non owner occupied realestate. Even though the sale price is high because of the inflated value from our recent rise in value’s the tax man gets his share of 50% of the appreciation at your marginal tax rate (45% for some) So again… less equity is yours than you think!
    Mean while some banks were offer secured lines of credit against rental properties with 80% LTV (peak prices I might add) and if you take into consideration only realestate fees and taxes you are underwater! (no penalty as secured lines of credit are generally fully open)
    Not meant to be offensive but just food for thought as these topics seem to be missing so far!

  43. Banks do not grant revolving HELOCs to bad credit risks.
    Not on Sundays, anyway. The rest of the week, they grant HELOCs to people for debt consolidation all day long. What do you call someone who runs up $20k+ in CC debt and then takes out a HELOC to pay it off? A bad risk, usually.
    Besides, even the good risks, based on the four C’s, don’t all remain good risks forever, and banks sometimes decide they want to get out of a line of business or geographic area. As others with decades of lending experience have pointed out on this very thread, demand loans can and do get called, or their terms changed, for a variety of reasons. If the borrower, for whatever reason, has liquidity problems or is no longer prime, things get sticky.

  44. Maybe an ignorant question, but what stops people from using an amortized loan, say a 5 year for a similar purpose?

  45. Your response is not worth my time in replying..
    Your screen name says its all ‘Reality’..Check is coming soon. I am Waiting .. Patiently.
    Good luck when you get a call from the bank and remember most provinces in Canada are full-recourse. Hope you are in the correct one.

  46. You obviously have no comprehension of bank underwriting. Yet you speak as an authority.
    I have never seen so much hearsay from one person. Do you really mean to tell us that just because “some” low risk home owners become high risks, that banks should tighten the spigot on everyone? First of all, how big is “some?” Give us your data!
    Truth is, you haven’t the foggiest idea. Without numbers, your sermons are nothing but verbal diarrhea.
    I am actually in a position to monitor loan performance, unlike yourself. HELOC defaults are measured in basis points pal, not percentage points. Qualified HELOC borrowers are nowhere near a risk hazard. No amount of your “I heard of someone who” tales will change that. Pick a different battle Garth.

  47. With an loan/mortgage you have to pay principal as well as interest. With a HELOC you only need to pay the interest. Why would you only want to pay interest? Here’s what I do with mine. Have a HELOC at prime. Pay 3% right now, interest only. Invested that money in subprime first mortgages with 1 year terms @ max 65% LTV, no seconds ever. Interest rates on these type of mortgages are from 8% to 12% and they are also interest only. I make 5% to 9% using the banks money. I do exactly the same thing as the bank does. Lend other peoples money and make money off the differentials. If I did the same with a loan a lot of that profit would be eaten up paying of the principal.

  48. @Raj
    This is what I don’t get…
    Shouldn’t the car loan to be amortized so that it’s actually paid down rather than just floating the debt until your house price rises and you can buy another car?
    @DaBull,
    Isn’t the profit that’s being “eaten by the principal” as you put it, just equity that you’re borrowing against in the first place and now paying back?
    With respect, it sounds to me like you guys just don’t want to pay back your loans and would rather float the interest so that you have more cash flow.

  49. How about setting a maximum for how much a house could be bought and sold for. This market is designed for the wealthy, and those who will inheret large sums of money from dead grandparents. When is this bubble going to pop!
    Steve

  50. Hi Steve,
    That idea was done with the Brampton zero lot lines (matchbox homes) and people used to get around the price caps by including certain fixed chattels that were used to bump up the sale price. Why not let the markets dictate where prices should go and set policies that minimize intrusive behaviour’s?

  51. Do you really mean to tell us that just because “some” low risk home owners become high risks, that banks should tighten the spigot on everyone?
    I don’t think that I’ve expressed that point of view anywhere, ever. Aggregate consumer indebtedness figures don’t lie, however, and the OSFI feels that if banks can’t be trusted to lend more selectively, it’s hammer time. I’ve personally been offered an 80% non-amortizing purchase-money HELOC with no other mortgage from a big 5 bank. Just yesterday, the FP reported that consumer debt continues to increase, the largest component last month was car loans, and this proves we’re responsible borrowers because — wait for it — if we can qualify for car loans, we must be good risks!*
    I am actually in a position to monitor loan performance, unlike yourself. HELOC defaults are measured in basis points pal, not percentage points.
    Of course they are — house prices are generally rising, and default rates trail price declines, as otherwise, all but the stupidest borrowers SELL THE HOUSE. Pointing to low default rates in a rising market just shows me that you aren’t old enough to have experienced a complete housing/credit cycle here, nor enlightened enough to have observed them elsewhere.
    * http://business.financialpost.com/2012/05/31/consumer-debt-on-the-rise-thanks-to-spike-in-car-loans/

  52. I don’t know if somebody who confuses profit with cash flow should be playing in that end of the pool, but good luck to you.

  53. Yes you’re right. We need to ban all borrowing that generates income because some “people” you know lost money. Let’s outlaw commercial loans, margin accounts, RRSP loans. End it all! Screw the economy. The “people” you know simply cannot be allowed to lose more money! We must guard them from their own stupidity at all costs.

  54. …and appraisers always get paid regardless what the value comes in at.
    not to mention, they’ll probably double dip on appraisal fees when the borrower is forced to find a new lender (who will require the appraisal be directed to them).

  55. Yes, tax wise it would be best to never ever pay principal. The principal is not tax deductible, interest is.

  56. This is an investment not a business.
    Profit
    A financial gain, esp. the difference between the amount earned and the amount spent in buying, operating, or producing something.
    Cash Flow
    The total amount of money being transferred into and out of a business, esp. as affecting liquidity.

  57. Like Island advisor, I think we are over looking some of the most important points. Namely, what are people who already have HELOC’s at 80% LTV going to do, and why don’t we know already? There are so many un answered questions, it doesn’t seem fair to be making these sort of fundamental changes with no notice to the consumer.
    Just thinking abut it for a minute, lots of questions come to mind:
    -Is the current lender going to amortize the LOC?
    -What about any available balance?
    -Will clients have to re-qualify to pay out the HELOC?
    -What if the 1st mortgage holder is not the holder of the HELOC?
    -what if an appraisal no longer supports a lending value sufficient to combine the 1st and the HELOC?
    -What if the client no longer income qualifies for a consolidation mortgage?
    More to the point, why have all these questions not been answered already? If I had an 80% LTV HELOC that was utilized, I think I might be a little worried.
    Oh well, at least I know a great mortgage advisor! :-)

  58. Rob,
    We all know housing prices are too high and will come down.
    The government is trying to close the door after the horses have gone.
    To put debt (provincial, like Ont.) in some sort perspective, in Florida the debt is $17,000 per person in Ont. it is $20,000 per person!
    Brian

  59. …as usual, the gov’t is shifting the burden of accountability on the consumers when it should really rest on the greedy bankers.
    Seriously…these policy makers are so out of touch with reality that they are 4 years late into the game.
    When a self inflicted slow down happens…what will change again to win market share? Yup…u got it…policies and rates!

  60. Just because someone puts their car (or anything else) on their HELOC doesn’t mean they are not amortizing it. You don’t have to make the minimum payment. If you can save interest by putting big ticket items on your HELOC, it is very rational to do so.

  61. @Mark
    You’re damn right it’s a right. Home equity belongs to the home owner. People who qualify for a mortgage and pay on time have the right to borrow against their equity anyhow they please. Ottawa should have nothing to say about it. If you don’t like free markets, move to Cuba where ideas like yours belong.
    @RalphCramdown
    Notice I said “prudent citizens.” Low risk borrowers are no threat to the bank or economy. Insured deposits are irrelevant in this case.

  62. This is probably a good move but I don’t understand why the federal government won’t cap maximum amortizations at 25% and go back to what it was before. Doing so will two things: (a) will make it harder for new borrowers to qualify for mortgages and thereby potentially getting into trouble and (b) make it harder for existing borrowers to qualify at renewal or, at a minimum, if they apply for additional funds to be advanced (believe you call this an “equity take-out”). This would, in turn, help to reduce home prices in some markets which are artificially inflated by quite a bit.
    I’d also go a step further and require 20% down with CMHC/Genworth/Canada Guaranty mortgage insurance. Another thing that would be beneficial would be for the government to perhaps sell CHMC, or spin it out in an IPO, which would allow them to get out of guaranteeing the private mortgage insurers up to 90%.
    Cheers,
    Doug

  63. Doug,
    The government’s job is not to knock down home prices or “make it harder for new borrowers to qualify.” Its job is to create a safe market by minimizing risky borrowing.
    Risk is not measured by amortization or down payment alone. I could have a 5% down payment but be 10 times less likely to default than you with your 20% down payment.
    The moral is, be careful when generalizing. If you come here advocating wholesale policy changes, you better understand mortgage underwriting and bring data to support your position. Otherwise it’s just empty uninformed opinion.

  64. I could have a 5% down payment but be 10 times less likely to default than you with your 20% down payment.
    And the bank would still be ten times more likely to take a loss on the 5%er, all other things being equal.
    Quit beating up on the new guy; most posters here don’t bring data or understand mortgage underwriting. Me, I just learned yesterday that big Canadian banks are offloading appraisal risk by buying ‘insurance’ from some outfit in California. But I guess everyone else here already knew that.

  65. And the bank would still be ten times more likely to take a loss on the 5%er, all other things being equal.
    10X more likely?? What kind of new-age math are you using exactly? If I have only 5% down but don’t default, the bank takes a loss. The point is, down payment by itself doesn’t predict arrears.
    About Doug’s comment, it’s not personal. I just hate when people come here proposing radical changes with no analysis of the true risks, no understanding of mortgage lending and no consideration for the consequences of what they propose. It wastes everyone’s time, new guy or not.

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