Govt to lower amortization, LTV on refis ... again

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The reprieve Canadian brokers thought they had is no longer, with the Finance head confirming he will now lower the maximum amortization on an insured mortgage to 25 years and cap refinances at 80 per cent of a home's value.

But there's more, Jim Flaherty said at a press conference in Ottawa Thursday: His government will set a $1-million cap on the value of homes eligible for government-backed insurance and will restrict all would-be borrowers from mortgage insurance if their maximum gross debt service ratio exceeds 39 per cent and their maximum total debt service ratio rests above 44 per cent.

All changes are set to take effect on July 9, 2012.

Mortgage industry leaders were quick to respond.

"I find it quite intriguing that we have a federal government that continues to impose limitations on Canadians as it relates to home ownership in a housing market that has been a benchmark for most other countries for the past 5 to 10 years," IMBA president Albert Collu told "While I respect the government’s role to keep a close watch on economic conditions this is the type of change that is unnecessary and unjustified.

"Reducing an amortization for a $300K mortgage at 3.29% from 30 years to 25 years is a difference of approximately $156. Perhaps the government should finds ways of increasing the liquidity of consumers by changing tax policies, which are imposing taxes on Canadians at every turn."

CAAMP is also registering concerns about the effects of a double whammy for consumers, considering the OSFI changes in the pipeline.

"Taken together, the Minster’s ... announcement Thursday and the OSFI final guidelines may have an effect of precipitating the housing downturn that the government desperately wants to avoid," CEO Jim Murphy told "Research shows people are paying down the mortgages, CMHC stats show refinancing are down 22 per cent overall. 

"Borrowers were getting the message. The government may be doing too much tinkering with the market."

The news, breaking, late Wednesday, promises to further cool a housing market already taken off the burner, with the number of sales and the price of those properties easing in many markets.

The changes around amortization mean homebuyers will likely qualify for less house.They currently can take out a CMHC-insured mortgage for 30 years, and existing mortgages with terms longer than 25 years won't be affected.

Existing homeowners, however, will be blocked from borrowing anything in excess of 80 per cent of the value of their homes and not the current 85 per cent they are allowed.

Mortgage brokers, in particular, have warned that such a move will act as a self-fulfilling prophecy, artificially creating a downturn in the value of Canadian homes and so destablizing the financial footing of homeowners.

Still, proponents of the dual move have suggested it as the only way to slow Canadian borrowing and keep people at risk from financial ruin if, in fact, they lose their jobs and the ability to meet payments.

The government appears to have accepted that argument, given the Central Bank, say analysts, has been effectively blocked from raising interest rates given the very real threat of global recession.

  • Paul Mangion on 2012-06-22 12:28:23 AM

    You gotta laugh at this. You will save Canadians 1,000's of dollars. I guess they don't realize alot of people refinance their house to pay high interest debt off. They restrict you from getting low interest loans and keep you with high interest debt and tell you they will save you money. Sounds like the only winner here is the banks. Why not cap how much non secured credit they can have then if a credit card company grants credit were it was not allowed it becomes un collectable. That would truly help Canadians!

  • Anne Perala on 2012-06-22 12:41:15 AM

    We have been on this road before, back in the day when 75% was conventional and that also applied to re-fi's. People had to sell their homes to cash in their equity, and that is when the government introduced hi-ratio refinancing to stop the buying & selling real estate madness for the purpose of using the equity. How ironic!

  • Lance H on 2012-06-22 12:42:14 AM

    Their only arguement is that folks would be in trouble should they lose their job. Well no kidding! That's a problem regardless of their ltv or amortization period. Such a false arguement suggests they don't have a "real" reason, hence one wonders why they're doing it?!?!?!

  • Derek Rowley on 2012-06-22 12:59:25 AM

    I personally have mixed feelings on this. However I strongly agree with Paul with regards to tghe high interest rate credit card debt. These products are virtually untouched and they are the problem - not mortgages. But the vanks obvously have the government in their back pocket. Last year I was late on 2 credit cards and late only and my first time and both my cards went from 9% & 12% to 27% & 29% only because I was a few days late. I see no legislatuon here to protect the consumer from being ripped off from the credit card companies
    Nothing in this industry surprises me any more.

    Cheers to all

  • Bill E D on 2012-06-22 1:17:56 AM

    Strongly agree Derek! If you want to help people's cash flows - reduce the usurious credit card interest rates and allow people a better chance to get those balances paid off instead of supporting double digit quarterly bank profit growth.

  • Been There on 2012-06-22 1:18:04 AM

    OUCH !!! They wanted to reign in the irrationally exuberant housing market....They just killed it ! First timer buyers just had their wings clipped. I see a hard landing 20% correction on the immediate horizon. This is going ot hurt folks.

  • John W on 2012-06-22 1:37:41 AM

    I don't see this as having much of an impact. We had maximum 25 yr amortizations and 32/ 40 GDS/TDS ratios along with max 75% on refi's not too long ago. The lenders loosened up to get more volume and now they are just turning back the clock. Over the years there have been so many changes to products and policies and my volume hasn't suffered at all. There will be an adjustment period and it will be back to business as usual. Who knows 3 yrs from now they could be doing 100% refi's. One thing I learned in this business is you never know what is going to happen. I never imagined Firstline leaving the market and I'm sure we will survive that no problem.

  • BC Broker on 2012-06-22 1:50:13 AM

    In regard to John's comment. Yes, you go back ten years ago and all we had was 25 year amortizations and 32/40 debt service ratios but this is when house prices were half of what they are now. People could afford that when the average house price was $300,000. I don't see people being able to afford that in a market where the average home price is $600,000. These moves will essentially kill an already cooling housing market and wipe out thousands upon thousands of dollars in home equity. It will also strictly reduce the number of first time home buyers getting in to the market. Well done Mr. Flaherty. You just created the housing bubble you didn't want to happen.

  • MortgagePro10 on 2012-06-22 2:04:37 AM

    The problem is that the mortgage and housing industry is not what is causing problems. It's consumer debt levels (credit cards, unsecured credit lines, consumer loans / leases) that puts the most strain on person's budget. And there are ZERO restrictions on people qualifying for these. ZERO. As long as someone is willing to accept the terms and double digit (some as high as 29.9%) interest rates, they can get approved.

    A person can qualify for a loan on brand new Escalade with little down and payments over $1000 far easier than they can for a home with similar payments. Which one of those contributes to a person's long term net worth? That's the problem right there. Govt is powerless to control that aspect of borrowing so they clamp down on a mortgage industry that has long been help as a benchmark for other world economies as stated by Mr. Collu above.

  • Bill Jones on 2012-06-22 2:07:01 AM

    Totally agree with BC Broker and most everyone here. Sounds like we're all on the same page. They created an inflated market through programs (zero down (even on rentals), 40 year amortizations, basement suite off-setting etc.) and then they take it ALL away. A lot of people are going to be left with mortgage well over teh value of there homes. The unsecured debt is a mjor issue - debt is debt and I'd prefer to be paying 3% as opposed to 27%. The fallout from this is going to be very interesting. And let's not forget those people who have their mortgages coming up for renewal - their current lender will be in TOTAL control due to the borrowers lack of options (Posted rate minus .25% anyone?) - UGH.

  • Terry on 2012-06-22 2:24:53 AM

    To keep people at risk of financial ruin! You have to wonder whose side Jim Flaherty is on here, the hommeowner or the credit card holders that are allowed to hand over those cards at interest rates as high as 29%. And, what gives the local banks that carry those credit cards the right to call a consumer that carried their credit card with an offer of an unsecure Line Of Credit with a limit of 15K, just because!!! Oh, here ya go, just like that. I was one of them. These are the only reasons why people are in financial ruin, the only reason. And just to add to this, consider having to requalify on a renewal. 1/2 those that have never, ever missed a mortgage payment now lose their homes because they may have gone from being an employee to starting up their own business, therefore cannot prove traditional income. Instead of crucifying good payers, why don't you make all those welfare takers that I pay taxes for to pay them as well. Take from the givers and and give to the dishonest lazy ass takers. This is what this country is coming to.

  • Terry on 2012-06-22 2:53:33 AM

    So, Is the insurer still able to add their large trailer fees on to that 80% refi to consumers that have traditional proof of income? Is this changing too?

  • Ad Lakhanpal, Mortgage Broker, Mortgage Alliance on 2012-06-22 3:17:23 AM

    This will cause a lot of problems. Some purchasers of new homes who were hoping to be approved under current rules will have to back out. Some people who can not renew because of various reasons may not find comparable financing.I see a significant reduction in eligible buyers in the market which will lead to price erosion and slowdown.People who can not refi to consolidate debt will have to sell their houses to access their equity and avoid bankruptcy.The changes are too much and too quickly for the market to adjust.

  • Kevin J. Power, President Power Mortgages Inc. on 2012-06-22 5:30:29 AM

    Another poor decision on the part of the Finance Minister. Mortgage debt is not the problem. Credit card and other revolving debt is the culprit. This change just removes the safety valve of a longer amortization mortgage absorbing higher interest rates on renewal. Banks and credit card companies win again by keeping the higher rate debt on their books.

  • Faye Drope on 2012-06-22 5:35:18 AM

    Bill Jones is right. I think we have years ahead of low mortgage rates so with that the Banksters pressured the government to act. This will surely bring back the .25% discount on renewals thereby increasing the share holders of the banks profits. Surely if this ends in a disaster they will come to us tax payers so we can then bail them out. I was listening to Micheal Levy on CKNW he as much as said that this is not to benefit the poor Canadian the mortgage debt in Canada is not the issue it is the other household debt that is the issue. I know you can listen to old news bits so go check it out he was on the Bill Good show 10 - 11am.

    I also agree with John W that this is not the end of the world. True but lets face it these changes are seriously not meant to help out our fellow Canadians in any way. Get a handle on the unsecured credit that would assist the people. This confirms my belief that the banks truly run our government.

  • Ad Lakhanpal, Mortgage Broker, Mortgage Alliance on 2012-06-22 6:23:25 AM

    I just received the final OSFI guidelines from CAAMP. OSFI seems to be on a power trip. They have the privilege of making rules for insured mortgages but they are now trying to influence (dictating) rules for conventional mortgages as well in terms of qualification,benchmark and GDS/TDS etc. Why not let free enterprise work for LTVs below 80%? They are also trying to push HELOCs down to 65%, which makes no sense at all. Equity in the house belongs to the owner. They should have no right to limit access to it. What if the person sells his house,will they say that he can keep only 65% of the proceeds and must invest the remaining safely for future needs??? How far will Big Brother go??

  • Paul Stapley - DLC Coastal Mortgages on 2012-06-22 7:18:45 AM

    This was not needed. What is needed is a crack down on Consumer Credit. High interest credit card debt is what gets consumers into trouble. There is no qualifying criteria for getting a credit card. The Federal Government should spend more time educating consumers on the hazards of consumer credit before making these drastic changes that will have an effect on home values across the country. There needs to be clear guidelines for qualifying for credit cards and loans of all types and not just mortgages.

  • R. Pearson on 2012-06-22 10:55:43 AM

    There's a big difference between credit card debt and most mortgage debt. The latter, through CMHC is explicitly backstopped by Canadian Taxpayers. If you truly want the government to stop meddling in mortgages, then perhaps CAAMP should be lobbying for CMHC to be privatized. Mortgage brokers have too much vested interested in cramming more credit down their clients' throats to be treated as a disinterested party.

  • bob on 2012-06-23 4:34:23 AM

    this is the first time I have commented on this site, my grandson has shown it to me i am jsut an old man at a yung 87 so not realy much in here for me
    i have to say there is one thing that stands out for sure you mortagge broker types are a really whiney bunch of people all you ever do is complain seems to me that when i was a kid my dad worked really hard to buy our family home one that i still live in all you people do is get people into trouble borrow more money and try to get it for free or close to if you can like you have some right to all this stuff because a big fancy home fancy car and all that is so much more important that being healty and living a good life no you are all about spending more and more money and you sure dont want to work very hard for it either all you want is easy money and look what that has done to this country all this debt and people not able to live you do a fine job of blaming everyone else but you sure dont act like you should be responsble do you you never get people to borrow money do you oh no you are all angels you are full of crap if you ask me all you people and you big spending will be the death of this country one that I went to war to protect and worked my whole life for not to get rich but so that it would be a good place to live you people think it is your right to have all this stuff but it is me and mine that worked so hard to give you this country the way it is and you are ruining it with your greed you all make me sick and i am so sad for my great grandchildren and what you will leave behind for them i never tauchgt my kids to live like you and they do not thank god for one small miracle

  • Faye Drope on 2012-06-23 6:36:22 AM

    Yah, Bob my Dad paid $5500.00 for his first home. I guess only the rich should own a home.

  • Faye Drope on 2012-06-23 6:50:50 AM

    One more thing Bob, without us "Mortgage Brokers" the banks would be serving up their clients the same old dish. We offer value to clients, or at least I do. I take offense to your 2 cents. Right now you can walk into a bank and get an appointment for a mortgage which they allow you 30 minutes then they offer you posted mortgage rates at 5.34% (we can offer +/- 3.19%. We don't make the mortgage rules nor do we approve these mortgages. We are simply a conduite. I think your anger should be directed at Jim Flaherty as he is the one who created his mess to begin with. There I will get off my soap box. PS did you buy that home did you inherit it?

  • Terry on 2012-06-23 1:14:38 PM

    Bob, you are 87 and your words don't make sense here, maybe Alzheimers, not sure, and your grammar is all mumble. However, I am also from the old school and am a Mortgage Broker, and proud of it, as I spend hours day and night, including weekends when need be for clients. I lived the days where I was taught to work 2 jobs to make a living if I had to, and raised a family. We are here to help people mortgage a home of their own, instead of paying so much rent that pays someone else's mortgage. I don't live in a 1/2 million dollar home and I believe in saving for bad times that may come. All we are trying to say here is, that the Gov't is taking the wrong approach. He is changing mortgage rules, and using the excuse thatwe are all coming into financial ruin. But, Bob, the Gov't is putting us hard working class citizens into financial ruin by taking so much taxes from our hard earned money and putting them into their own high ife styles, including the pockets of losers, you know the ones that don't want to get up in the morning to a job. Flaherty is barking up the wrong tree.

  • Paul Therien, CENTUM on 2012-06-26 10:05:38 AM

    Bob's comments certainly are entertaining, for both the challenge of reading them, and the content. As much as I don't agree with 99% of what he is saying... the world is a very different place - for whatever the reason - there might be a valid point in there. I got out of it that the issue with financial literacy, or lack of it. Not with Bob per se, but just with consumer today. The buy now pay later mentality is good for businesses, not so much for the consumer who doesn't really get how to be smart about it.

    All that being said, the average income in Canada in 1960 was a mere 72.39/wk ($3764/yr), in 1940 it was 22.35/wk (1162.20) - average cost of a house was about 12 - 13K – the spread between income earned and the cost of a home is much larger in many centres today. Add in all of the other cost of living items, and well… it’s complicated. Do we have a younger generation that seems to love spending on credit? Yes we do. But then again, gas was only 2 cents a gallon (3.785 liters), and you could buy a tailored suit for about $10 – with gas at $1.40 a liter (5.30/gallon) and a cheap suit, off the rack, running close to $500.00 – well… things have changed - it is complicated.

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