Brokers looking for 35-year amortizations on conventional mortgages for their clients have one less place to turn to with the announcement by the broker channel’s second-largest lender by market share that it is eliminating the product from its stable of offerings.
According to Karen Biernaski, Director, Marketing for First National Financial, the decision was made based on insufficient demand and internal challenges. The change is effective April 4 and brokers were notified on Monday by lender.
“The decision was based on demand,” she said. “We don’t see a lot of 35-year product coming through. The bulk our business really comes from the 30 and 25-year products.
“We decided to streamline our offerings.”
Because the product was conventional and needed to be insured, Biernaski said First National faced some challenges trying to communicate that consistently to brokers, which “caused some back-end problems for us.”
She said the decision had nothing to do with CMHC nearing its government mandated $600 billion ceiling, which has put some limits on lenders’ access to bulk insurance.
David Larock, a mortgage planner with TMG Integrated Mortgage Planners in Toronto is concerned by what he sees as the standardization of mortgage products.
“I understand OSFI’s concerns about keeping lending under control, but I am concerned that standardizing every mortgage feature and product will further commoditize our market and create less real choice for consumers,” he told MortgageBrokerNews. “The real risk in extended amortizations is when they are needed for qualification, not when they are used by well-qualified borrowers as a cash-management buffer.”
He says if OSFI regulates all points-of-difference out of the market, the big beneficiaries will be the major banks.
“I have great respect for OSFI and they deserve the lion’s share of the credit for the long-term stability of our financial system, but I hope that our regulator can see beyond alarmist media headlines and that it doesn’t strangle free market competition just to make life easier for the Big Five.”
The move comes after the federal government ignored calls from some economists and bank executives to reduce maximum amortizations, something brokers insist would unfairly tie of the hands of clients looking to maximize the bang for their buck.
“I would say that most clients opting for a 30-year are well able to qualify for a 25-year one,” said Peter Puzzo, a mortgage agent with Assured Mortgage in Woodbridge, Ont. “So the government removing that option would really only reduce their cash flow and force them to put money into a mortgage instead of investing in other areas. I’m not sure that would send a good message to consumers.”
“If we see the housing market surprise on the upside and debt growth surprise on the upside, then the government will likely take action to further tighten mortgage insurance rules,” TD Bank economist Craig Alexander said last month. “Quite frankly, if you can’t afford a mortgage at 25 years versus 30, then you probably shouldn’t be buying a house in the first place.”
Puzzo and many other industry veterans disagree, suggesting, 30+ -year amortizations are largely used to free up cash each month, money often better spent paying down higher-interest debt or channeled into high-yielding investments.
“It’s not a question of whether they can afford a shorter amortization,” he told MortgageBrokerNews.ca.