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:
“Last week the CEOs of the monster banks were given a clear message that 30-year mortgages need to be wiped away. Completely. In fact, they’ll be banned. That letter will go out next week, the result of a decision made jointly by the Department of Finance, OSFI (the bank regulator) and the Bank of Canada.”
This applies to mortgages that: (a) are from lenders subject to federal regulation, and (b) have 20% or more equity. Amortizations on prime mortgages with less than 20% equity are already capped at 25 years.
If true (with emphasis on the word “if”), this news could:
- Increase monthly payments on new conventional mortgages by about $53 per $100,000 of mortgage, other things being equal.*
- Potentially impact even smaller non-bank lenders (e.g., First National, Street Capital, MCAP,…). That’s because, as Turner adds:“Regulated financial institutions will also be prevented from buying any securities which are made up [of mortgages] with 30-year ams.”
Virtually all non-deposit-taking lenders rely on securitization and/or selling mortgages directly to banks.
- Make provincially-regulated credit unions the only game in town for amortizations over 25 years. That would provide credit unions who keep long-amortization mortgages on their balance sheets with another advantage versus the banks. CUs already sidestep federal mortgage rules by offering HELOCs above the federal 65% loan-to-value (LTV) maximum, higher LTV stated income mortgages and mortgages with lower qualification rates.
As noted, none of the above has been confirmed. So the above should be considered speculation until it is. We’ll do more digging and report back.
Update, May 10, 12:40 p.m. ET: We’ve contacted the Department of Finance (DoF) for comment. Banking sources have confirmed reports of the DoF contemplating amortization guideline changes for conventional mortgages. But there’s no confirmation on what, if any, moves will be made. Assuming the DoF acts on this issue, an alternative possibility is that conventional borrowers be made to qualify at a 25-year amortization, but still be allowed to set payments at a longer amortization.
Update, May 10, 10:21 p.m. ET: From the DoF: “As a matter of course, the
Department does not comment on what specific measures it may or may not be
considering. However, we can confirm that no announcements from the Department
of Finance related to uninsured mortgages are planned.” Turner says the guidance would likely be sent directly from OSFI to the banks with less fanfare than a big public announcement. At least one bank we spoke with earlier is currently considering tightening conventional amortization rules. It’s unclear if that is on the asking of OSFI or just an internal bank decision.
* Assumes a fixed rate of 2.89%, 20% or more equity and an amortization reduction from 30 years to 25 years.
Rob McLister, CMT