Hot markets compensate for tougher refi rules

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Exceptionally strong value gains across much of the country helped limit the Ouch! factor for many brokers grappling with CMHC rule changes on refis, with the Crown corporation suggesting that segment of its book has begun to bounce back.

“The effect of lowering the LTV on refinances last March has really had a negligible effect on my business,” Catherine Evel, owner of Dominion Lending Centres Homestead Financial told MortgageBrokerNews.ca. “I think the value escalation we’ve seen in Southern Ontario in terms of home prices has helped to make the limit the negative effects of reducing the maximum LTV to 85 per cent.”

The analysis may help explain the latest CMHC numbers.

”At year-end … homeowner refinance volumes were running at approximately 22 per cent below the levels experienced prior to the implementation of the changes,” reads the CMHC wrap-up of activities in 2011, released Tuesday.

The figure is considerably lower than the 40 per cent drop-off in homeowner refis in the three months immediately following March 2011 changes, which lowered the maximum LTV to 85 per cent from the more generous 90.

Still, unlike that 40 per cent slip, the new year-end figure released this week reflects all refi activity, both before and after the mortgage rule changes. The report does not provide a specific figure on refis after the LTV changes.

Even without those specifics brokers, including Evel, say clients are still doing the math, with many finding it makes since to go ahead with a refi. In some cases, value gains on their properties have compensated for the lower LTV cap, allowing them to take out more money for debt consolidation and renovations.

But brokers continue to have concerns about the government’s move to limit refi opportunities and the effects that’s likely to have on clients desperate to draw equity out of their homes.

There are those who through no fault of their own, need to pull equity out of their homes in order to cover debts racked up by a death in the family, divorce and/or illness, said Curtis Cannon, a sub-mortgage broker in Prince George, B.C.
Cannon, concerned the government has abdicated its responsibility to aid those Canadians in its move.

“I don’t think that the new refi rules are good, at least not across the board in that the difference between accessing a LTV of 85 instead of 90 per cent may force someone who is in a tough situation out of their home,” he said.
 

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