Thursday’s federal budget could have been a lot worse, say some brokers while others are anxious about any potential fallout for BFS clients and monolines.
“I’m happy about it,” says Sean Binkley, a mortgage broker with Your Home Team @ Dominion Lending Centres Alliance. “We’re very lucky Mr. Flaherty didn’t do a lot more.”
Finance Minister Jim Flaherty tightened controls on mortgage lending once again in Thursday’s budget, promising to further limit lender access to bulk mortgage insurance as a way of forcing them to keep more of their conventional mortgages – along with the requisite provisioning – on their books.
“With the financial crisis well behind us, the government is amending the rules for portfolio insurance to increase market discipline in residential lending and reduce taxpayer exposure to the housing sector,” the budget states.
For Binkley, it will mean some belt tightening.
“We’ve seen this before; there might be some tightening up, but this will be good for taxpayers and the banking system,” he points out. “Mr. Flaherty could have made 10 per cent the new norm for down payments, or raised the qualification requirements again.”
Mortgage insurance – backed up by the CMHC and intended for consumers with low down-payments to enter the housing market more easily – has become a tool for banks to more broadly manage their risks, with mortgages being the largest piece of their consumer lending businesses.
Ron Butler of Verico Butler Mortgage is waiting for the other shoe to fall before passing judgment on the budget.
“I’ve spoken to people across Canada, and we still trying to get a handle on what it all means,” Butler told MortgageBrokerNews.ca. “In theory, there is an extreme danger, as it could greatly change how monolines operate. I can’t imagine it happening, but who knows?”
One of the new rules will gradually limit the sale of insurance on low loan-to-value mortgages (those where the consumer has a higher downpayment or equity) to those that are being used in a CMHC securitization program, such as Canada Mortgage Bonds. That will prevent banks from insuring large low-ratio portfolios just to reduce their capital requirements.
And Ottawa plans to stop the use of any taxpayer-backed insured mortgage (even high ratio) as collateral in securities that aren’t sponsored by CMHC. Volumes of such private-sector asset-backed securities were larger before the financial crisis, government officials indicated. But the move will limit Ottawa’s potential exposure as banks seek cheaper ways to fund their mortgage portfolios.
“The conservative think tanks have been harping on this for years, pushing Ottawa to stop underwriting all insurance,” says Butler. “But we will always need CMHC. We wouldn’t have been able to get a mortgage back in 2008 when the recession hit without CMHC. No one wants to dismantle the CMHC.”
Ottawa said it intends to consult with the financial industry before implementing these new rules.
“Financial institutions will continue to have access to a broad array of financing options, including the recently implemented framework for covered bonds,” the budget states. The government said in that framework that it would not allow mortgages with government-backed insurance to be used in covered bonds.