Broker: ‘Habitual refinancers’ facing forced listings

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There's strong indication new mortgage rules have begun to cull the number of “habitual refinancers” said one 20-year veteran of the broker industry, suggesting a spike in the number of forced listings should soon follow.

“Among our team of six brokers, we’re seeing about  three to four clients a month who we would identify as habitual refinancers – meaning they typically have refinanced their credit card debt back into their mortgages every two years,” Bob Smith, broker/owner for Verico K-W Mortgage, told MortgageBrokerNews.ca. “But what we’re seeing now is that those clients are now finding that they can no longer do that.”

For that group, frustration is setting in as they watch their disposable income shrink and are forced to use more of their income to service debt. Compounding that discomfort, said Smith, is “each transaction has added to their principal with an increased insurance premium, which has whittled away at their equity. It means that with a forced listing, they will have little or no equity available to downsize after legal and selling expenses.”

Smith is one for the first brokers to identify a phenomenon many saw coming when the Central Bank announced it would lower the loan-to-value ceiling on refinances to 85 per cent from 90, among other key changes.

The move took effect on March 18, exactly 11 months after Ottawa made another clawback of five percentage points, dropping the maximum LTV from 95 per cent to 90.

Finance Minister Jim Flaherty has rationalized the narrower constraints for CMHC-insured mortgages as the best way of discouraging Canadians from using their homes as ATMs. Smith largely agrees. He’s not alone, although some brokers are concerned the policy change has placed undue pressure on homeowners now vulnerable to losing their homes.

“I don’t think that the new refi rules are good, at least not across the board in that the difference between accessing a LTV of 85 instead of 90 per cent may force someone who is in a tough situation through no fault of their own out of their home,” said Curtis Cannon, a sub-mortgage broker with TMG The Mortgage Group in Prince George, B.C.

Cannon would have liked to see the government afford insurers some level of discretion, making exceptions to the rule in deserving cases such as spousal buyout and injury or death.

“What may have been more effective as for the government to place limits on credit card interest and force the credit card companies to do better underwriting to minimize default,” Cannon told MortgageBrokerNews.ca.

Still, Smith is convinced brokers will see more forced listings across most markets, even in his relatively buoyant Kitchener-Waterloo.

“I’ve lived through five recessions,” he told MortgageBrokerNews.ca. “The one in the early 90s was the worst, this time around, at least, interest rates were low.”

  • LA on 2011-06-02 2:32:23 AM

    35 yr am down to 30 yr am has done absolutely nothing to address the problem, The problem is the consumer debt that is coming afterwards, how about regulating that?!! This is negatively affecting low income responsible perspective home buyers from getting in to the market due to qualifying. What is next, 25 yr am, that will not fix what the problem is either, how about making consumers qualify for that debt and not punish the other 75% of responsible people.

  • James in Whitby on 2011-06-03 12:56:53 AM

    The unfortunate part for some "habitual refinancers" is that they will not change their habit. Their next "fix" will be personal loans supplied by their branch lender. No equity in the home and a huge personal debt load to match. Credit cards racked up again shortly thereafter and then down to the payday loan shop. Thanks again Minister Flaherty for leaving out a boost to credit education in your measures to attack increasing personal debt load. Didn't somebody once say its better to teach a man to fish ... ?

  • Eric Putnam on 2011-06-03 12:59:08 AM

    Unfortunately at Debt Coach Canada we have seen hundreds who have used their home as a "piggy bank" to refinance too many times and then kept on spending on SAME cards or others unsecured debts as they did not have a real financial plan or education to implement one. Combining a refinance to consolidate debt is often a viable solution to achieve the consumer goals when combined with financial coaching from a professional and realisitic goals and spending habits by the consumer.

  • Wayne Campbell AMP, Invis - Prince George on 2011-07-03 8:14:12 AM

    The real problem is not the home or the mortgage. It's people getting way over their head with credit card debt, long before they realize the hole they are in. Requiring minimum payments to be 10% of the balance would solve the problem.

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