Some Lenders Implement New Rules Early

Saturday, July 7, 2012,  is the official deadline for submitting mortgage applications under the old high-ratio mortgage rules. Lenders and insurers are not open Sunday, July 8, so that day is a write-off.

Despite the July 7 deadline, a handful of lenders are implementing the new rules early.

First National (the country’s biggest non-bank lender) and Radius Financial will enforce the new rules starting July 3. ICICI Bank will start effective July 6.

We’ll probably hear more such announcements in the next few days.

One lender we spoke with explained that early adopters simply want to “ensure deals get approved prior to cutoff date.”

Mortgage-rule-deadline-“We all anticipate lots of deal flow,” he says. High-ratio “deals have to get approved by the insurer prior to July 9 (to qualify under the old rules).”

Insurers are allowing no exceptions to the deadlines.

If an application comes in too close to the cutoff, underwriters might not have enough time to review the file and submit it to the insurer.

In addition, insurers sometimes need a few days to get clarifications from lenders and clients, and/or manually appraise a property.

June is already the busiest time of year for closings. This pre-rule rush just adds to lender and insurer workloads.

As a result, if you want to be approved under the old guidelines, don’t waste time. Monday, July 2 is a holiday so get your completed application submitted to a lender by this Saturday, June 30 to have the widest selection of lender options and best chance at approval. (July 4 is the absolute latest we’d recommend.)

All three insurers and many lenders will be working Saturday, June 30 and July 7.


Rob McLister, CMT

  1. Funny, but before RRSP season, everybody extends their hours. Before THIS deadline, they’re slamming the teller windows shut early? Just a theory, but maybe nobody wants to be the last option available for all the marginal deals that inevitably get submitted at times like these.

  2. I also get the feeling that the DOF wanted these rules changed ASAP, and no lender wants to bite the hand that feeds them!
    In my mind, the more interesting question is which lenders will apply these rules conventionally, and when. This was a niche for some lenders last time the max Am was cut, so I guess we will just have to wait and see who stays, and who goes!

  3. The degree to which lenders leave these options available on conventional mortgages will show us exactly how risky the lenders think these options are.
    If there is in fact no significant risk attached to 30 year amortizations for qualified borrowers, then we will see the lenders continue to offer this option. The fact that most lenders moved their conventional offerings in synch with the CMHC restrictions the last few times tells me they are not comfortable with the risk if they have to bear it themselves.

  4. I would say I think this has less to do with risk assessment and more to do with profitability…
    Lenders who drop their maximum amortization would be able to bulk sale and potentially continue to back end insure their loans which create better lending margins.
    VS
    Those who do not drop to 25yrs may face higher funding costs. The question being how much market share to they stand to make and will it offset having smaller margins on their loans?
    If you were a bond investor in the future would you prefer a portfolio of MAX 25yr AMs knowing they are harder to qualify for and thus in definition be higher quality (in regard to better servicing ratio’s anyway)
    or a mix of up to 30yrs with the lender making the judgement call and individually some of the 30yr AMs might be very high quality or some just squeek in there?
    If it was truly about risk on conventional deals than each lender would keep 30 years and just qualify everyone as a 25yr AM…

  5. “The degree to which lenders leave these options available on conventional mortgages will show us exactly how risky the lenders think these options are.”
    That proves nothing of the sort.
    Some banks apply high-ratio amortizations to conventional mortgages to appear prudent and appease regulators. A number of other lenders will choose not adopt 30 year amortizations on conventional mortgages.
    Amortization is highly overrated from a risk perspective. It is much less correlated to default risk than things like down payment and credit score.

  6. You really think the Banks could manage it better? The banks tried to manage federally backed student loans a while back. It was a disaster!

  7. Banker, I think he meant that CMHC should also be a direct lender, not just an insurer.
    Tic tic, The problem with that is that you can insure 600B in loans without actually having 600b in money to lend.
    Just my 2c

  8. And the hits just keep on coming…We just turned the clock back 25+ years. Which is not totally bad. The best debt is not having any and maybe it will encourage people to save more. Maybe these changes will get rid of some creepy brokers who have no business being brokers and malign the industry, as well as underwriters who have no clue. Maybe it’s a good thing for the business.

  9. Banks are so stupid right?
    They’re so stupid that they fully utilized the insurance pipeline, forcing Flaherty’s hand, leaving the mono-lines to beat each other to death over NHA MBS and CMB allocations.
    That’s pretty stupid.

  10. I think this is semantics. In the end it is about risk. If funding costs are higher for a portfolio including 30 year ams, then clearly the lenders and investors have made the determination that the risk is higher.
    40% of new mortgages going for more than 25 year ams. There is no shortage of demand, at least at the same interest rates as 25 year. Who knows how many people would be willing to pay a premium for 30 years.

  11. Some banks apply high-ratio amortizations to conventional mortgages to appear prudent and appease regulators
    I highly doubt banks will put “appeasing regulators” before profit.
    Amortization is highly overrated from a risk perspective. It is much less correlated to default risk than things like down payment and credit score.
    So we always hear. But surely if it was true banks will continue to offer conventional 30 year amortizations. Clearly there is huge demand out there for amortizations longer than 25 years.

  12. Amortization matters so much less than loan to value and beacon score. That’s just common sense.
    Would you rather have a 25 year amortized borrower with a 600 beacon and 95% LTV or a 40 year amortized borrower with an 800 beacon and 80% LTV. There is no comparison.
    By the way, I read here that TD is keeping 30 year amortizations on conventional mortgage. Guess that shoot holes in your high risk hypothesis.

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