Debt poll challenges OSFI proposals

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Canadians are using their extra cash to more quickly chip away at credit card and lines of credit debt, according to a new bank survey, backing up  broker concerns about the dangers of unsecured credit.

“Among Canadians with debt, 49 per cent have made at least one lump sum payment to their debt sometime in the last year,” according to CIBC’s latest consumer debt poll, released Monday.

And while 62 per cent of those making extra payments directed those funds to credit card balances, followed by 46 per cent for line of credit, only 22 per cent of respondents used that extra money to speed up the pace of mortgage repayment.

That kind of priority list backs up broker concerns about credit card debt and the challenge it poses Canadian households. They worry the federal banking regulator has erred in focusing on mortgage lending rules instead of tightening up underwriting standards for credit card lending.

Last week the Official Opposition joined mortgage broker associations in voicing concerns around key aspects of OSFI’s proposed guideline, specifically re-qualifying requirements for renewing mortgagors.

"We just need to make sure that people are protected in some of these temporary situations (where they may have lost a job),” said Peggy Nash, the federal NDP’s finance critic, “if they have a good credit record and have never had a problem making their payment."

OSFI has floated the idea of forcing mortgage-holders to re-qualify at renewal, although exactly what that involves remains unclear.

Broker, and their professional associations,were among the first to balk at the suggestion, arguing it could create the kind of market crisis the proposals aim to overt.

Nash appears to agree, with her party most worried Canadians temporarily out of work could possibly lose their homes. She’s asking the Harper government to back off.

OSFI has suggested it has little intention of backing down, Its manager of policy developing expressing concern about the country’s ability to meet a significant housing correction head on.

“Are the banks equipped to handle a 40 percent drop (in property values)?” writes Vlasios Melessanakis, the manager of policy development for the Office of the Superintendent of Financial Institutions, in an internal document responding to broker Rob McLister and an article posted to his website in March.

"Canada is not immune. Just because nothing happened in Canada in 2008 (a U.S.-centered crisis), does not mean that Canada is not vulnerable to a housing correction now.”


  • K. Darwin on 2012-05-29 2:26:23 AM

    I fail to see how re-qualifying Borrowers on renewal will protect us from a Canadian economic down turn in the housing market!? It seems to me that it will exacerbate the issue.

  • Christopher on 2012-05-29 2:28:34 AM

    It's absurd to think that after people retire they could lose their homes solely because their debt services are over limit, even if they only have a few years left on their mortgage.

  • BC Broker on 2012-05-29 2:50:16 AM

    Please... people need to stop and think before they start arguing stuff like this. Statistically speaking the average mortgage in Canada lasts for a term of less than 4 years before there is a refinance conducted. The majority of those change lenders or do a large advance of funds. That means that all of those people have to requalify for the money. This whole notion that it would collpase the market is totally ridiculas, the stats do not support that claim.

    This is the banks trying to secure easy business and client retention. They have successfully, with the help of CAAMP, managed to convince everyone that this would destroy our economy.

    Will some people be affected? Yes, there will be some... but that will be the minority of mortgage holders folks. Just as the 100% financing represented less than 3% of borrowers when it was available.

    Stop listening to the propoganda, and do some research... you might be surprised.

  • JG on 2012-06-02 4:00:20 AM

    Don't agree with BC Broker at all, don't know as there are really any stats on how many Canadians who are simply renewing are in a difficult financial situation - those applying for new funds may be just fine, but how many silent renewals are there in today's economy where the homeowners are in a situtation such as job loss or disability or self-employed where their income took a hit last year or .... and may not qualify at renewal July 1st. Maybe they would be fine by September 1 - oh wait, not if they are on probation at their new job!!

  • Phil McDowell on 2012-06-02 4:31:53 AM

    Real Estate is local- it requires rising values for cash out refinances. Those markets with flat or down markets will see more consumers in pain, but mortgage brokers and realtors will still "win" with ownership turnover. If implemented, brokers will also have a better chance of competing with the existing lender. The existing lender will have to ask for qualifying docs and not just compete with a pen stroke to beat the rate. Not convenient or cost saving for the consumer, but potentially offers brokering other opportunities.

  • Bob on 2012-06-02 7:13:13 AM

    I remember the last downturn when the value of my home went down from $213k to $175k and it was mortgage to the max. It was regrettable but I had no intention of walking away. I just continued making the pmts hoping that one day the value would return so I could contemplate using the increased equity to move up into a bigger home. This is or was my ‘home’ first and foremost, and perhaps politicians are forgetting that the majority of us value home ownership.

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