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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