Banker: growing debt = tighter mortgage rules

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Irrepressible household debt has brokers and bankers more convinced that tighter mortgage rules are on the horizon. (Happy New Year?)

"I would say so,” Dave Larock, president of TMG The Mortgage Group Integrated Mortgage Planners, told “ I wrote in my blog on August 22, 2011, that ‘if ultra-low rates continue to push consumer debt levels higher, another round of mortgage rule changes is inevitable. You can bank on it.’”

He’s not alone, with top bankers now sounding the same tune following new national debt number released Tuesday.

Both mortgage and consumer credit debt spiked in the third quarter, increasing to $1 trillion and $448 billion, respectively, according to a StatsCan. Those individual debt levels increased even as personal disposable income remained unchanged.

That suggests yet more government intervention is needed to slow down mortgage borrowing,  Ed Clark, CEO at TD told reporters on Wednesday.

Brokers have roundly rejected the need for the federal government to place any more speed bumps in the way of Canadians looking to buy new or refinance old. This spring saw the maximum loan to value for insured refi drop to 85 per cent at the same time maximum amortizations fell to 30 years, from 35.

Additional tightening would likely come in the form of a further lowering of the amortization cap and/or an increase in the cost of mortgage insurance.

The federal government is advised to introduce any new changes over time, rather than in one fell swoop, said Larock. But make no mistake those changes – like those made over the last two years – may be best for the overall health of the housing market, he said.

“I know that many of my mortgage planning colleagues loudly decried all three rounds of mortgage changes as they happened,” he told “I don’t think it’s too much of a stretch to say that borrowing levels would be much higher if those three rounds of changes had not been made.”

  • S Ont Broker on 2011-12-16 4:34:15 AM

    All BS .. The government is putting a band aid on the errors they authorized when they opened up their doors to 100% financing and 40 year ams. Look atthe defaults - the majority is in this category ! Now they are changing their tune and making it much more difficult for Joe Blow to be happy. The government should be spending their time monitoring the credit card companies and stop dictating to us in the mortgage industries - deal with the flunkies !

  • Kevin J. Power, President Power Mortgages Inc. on 2011-12-16 4:35:34 AM

    How convenient for a banker to say that consumer debt is out of control. I only have one question. Who developed the products, combined with unrealistic credit limits, interest only payments designed to keep consumers in a constant state of debt. Also the same lenders who use Collateral Charge documents to protect their debt when a homeowner can no longer handle the debt load.

    Rather hypocritical position in my opinion, when the suggested course of action is to control mortgage debt.

  • Paul Therien on 2011-12-16 5:46:56 AM

    Mortgages are typically wealth building debt in that there is tangible equity in the asset being developed. The statistics for Canada are clear on this: 78% of homeowners in Canada have 25% or more equity in their homes, 16% have between 25% and 5% and only 6% have 5% or less equity in their home. 36% of home owners make supplementary payments on their mortgage each year, increasing their equity. Mortgage delinquency in Canada during the peak of the financial crises reached an all time high of 0.29% - that equals 11,459 TOTAL mortgages in arrears out of the over 3.8 Million outstanding. Take into consideration the unemployment rate increase, and the minor increase in mortgage delinquency is actually not a negative. We had a spike in unemployment, yet people were still making their mortgage payments.

    According to the Canadian Bankers Associations own statistics: Canadians with mortgages have significant equity in their home, averaging about 50 per cent of the home’s value and National mortgage-in-arrears numbers remain very low, at less than half of one per cent. So of the aprox. 1.5 trillion in debt, $460,000,000,000 is consumer debt (and growing). It also means that the remaining $994,000,000,000.00 in debt is backed by approximately $ 1,988,000,000,000.00 in assets not including investments, rrsp’s, etc. (using the banks own statistics of an average of 50% equity in the home for Canadians.)

    As of June 2011, Trans Union reported that the average Canadian owes $26,000 in consumer credit (not including Mortgage lending). To put this into perspective – a single person living in a major Canadian City is considered to be living at the poverty line if they earn $21,666 or less per annum. That is $4300 less than the amount of average debt. With the increasing division between rich and poor, and that it is the lower income group which tends to over extend on unsecured credit, we know who carries a significant portion of the burden.

    Accordingly, consumer proposals to resolve unsecured debt have increased by 38% year over year. The #1 reason for consumers to refinance their homes is to resolve unsecured debt. Of the 28.5 Billion in equity take outs in 2010, an estimated 15 Billion was to consolidate unsecured credit, that is more than twice the amounts taken for renovations and education costs combined.

    So tell me again… where is the issue?

  • Ted Evans - Verico Lending Logic Financial on 2011-12-16 7:52:58 AM

    They need to put more regulations on unsecured debts. ie: credit cards, personal loans, line of credits and etc.

  • AMP Broker on 2011-12-16 9:23:30 AM

    Governments telling us we borrow too much?
    They live on borrowed money. Make principal
    Repayments tax deductible and household
    debt will drop like a stone. They can help
    Canadians build wealth. What a concept!

  • Jesse on 2011-12-16 10:04:56 AM

    What's wrong with this guy anyways? Is he the only mortgage broker in the country that doesn't understand that high interest loans are the problem?

    Mortgage broker

  • really? on 2011-12-17 7:49:38 AM

    The TD CEO states they should trim am's?,,,aren't they the ones that give away 65% on a LOC with no income and no need to pay it down,,,ever,,,?

  • Vittorio on 2011-12-17 9:24:38 AM

    what the heck are the bank saying that we need more mortgage rules in order to control debt. where are they getting their numbers from? clients are not refinancing their house, because the new rules and the lower to loan to value ratio has made refinancing virtually impossible.

    the low rates are helping individual purchase new homes. My business has increased over 40% from last year and this was due to specifically purchases and trust me, it was not because the lender has made it easier. We(the brokers) are driving business, not the banks. we are coming up with new ideas, our new promotion that we introduced last month has been a great success, nobody is doing this, and most of the application that I see are from purchases not refinance. So Bank stop complaining, I know that you want to drive the brokers out of business, but it is not going to happen, we are here to stay

  • Angela Wong-Liao, Invis Inc. on 2011-12-17 1:25:12 PM

    As a seasoned mortgage professional and a former banker of a major Chartered Bank, I think the source of all evil in regards to Canada's high debt ratio is "Greed" and as a result of "Greed", banks/lenders have been very agressive at unsecured lendings over the past decade, ie: a university student with student visa can get an unsecured credit card with $5,000 limit,how and why? It is time for the banks/lenders to tighten up on their unsecured lendings, line of credits,credit cards, overdrafts, etc. I agree with Paul Therien, mortgage is wealth building and good debt plus it is secured, we all need a roof over our heads, it is a necessity not luxury. I understand that CMHC was created in 1947 because our government wanted Canadians to own their properties. I think our current mortgage guidelines are prudent and tight enough in Canada, our government and banks should focus on tightening the guidelines of unsecured debts, ie: line of credits, credit cards, overdrafts, etc instead of secured debts, ie: mortgages.

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