Broker to goverment: Show first; tell later

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The government would need to furnish default statistics to justify any move to lower the loan-to-value cap for self-employeds seeking default insurance, said one leading Ontario broker, at the same time media reports suggest the feds are indeed moving in that direction.

“Not only would those stats be necessary to justify the decision to lower the cap to 85 per cent from 90 per cent, but those stats would have to show that defaults among self-employed individuals were higher at 90 per cent and not just at the 95 per cent they were a few years ago,” David Hetti, a veteran Invis agent in Oshawa, told “I think those numbers are necessary to show that the step needs to be taken.”

The analysis comes on the heels of media reports earlier this week suggesting the government is actively considering more targeted changes in its mortgage rules if, in fact, household debt levels don't abate.

Key among them are lowering the size of high-ratio mortgage any business-for-self borrower can access, but also using 100 per cent of condo unit’s fees to calculate loan eligibility.

The first would affect both brokers and their clients, with Hetti, conceding that he and other industry veteran have a vested interest in the government’s plans.

Still, the mortgage professional is arguing that the government must nonetheless make sure the changes around LTV caps are justified and would actually better protect lenders from default rates.

But any change might ultimately be a moot point, with Hetti and other brokers pointing to increasingly rigid bank underwriting on business-for-self applications and the scrutiny of stated income levels.

Also those clients, mortgage professionals among them, are increasingly opting for conventional mortgages as a way of avoiding high default insurance premiums. Still, even there, many lenders are requiring default insurance with LTVs above 70 per cent and not the 80 per cent for salaried workers.

  • Broker on 2012-02-01 5:20:57 AM

    The government should not allow the banks to bulk insure low ratio loans through CMHC. The benefits flow through to the banks and the self-employed pay the price as CMHC tries to slow its portfolio growth. Why is CAAMP silent on this? Most of its members are self employed!

  • Paul Therien on 2012-02-01 7:57:08 AM

    I still fail to understand how government or the banks for that matter, still do not understand that housing debts levels will increase...simply due to the fact that home values are increasing. Statistically we see government and banks comparing the level of mortgage debt to the 1990's, and there seems to be little effort to correlate that with the surge in home values in Canada in the past 20 years. The governments own statistics, the Banks, and CAAMP's all demonstrate that the average loan to value in Canada is still under 75%, with only 6% of homeowners having 5% or less equity in their home. Although I understand the motivation behind the governments actions, I believe that the qualifying guidelines, or lack of, for consumer credit needs to be examined... not just the debt on a wealth generating asset, such as a home.

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