Insurers and banks in an uproar over new rules

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Canadian banks and mortgage insurers went up in arms over Finance Minister Bill Morneau’s announcement of new rules governing mortgage last week, fearing that the regulatory changes—intended to address the country’s overheated housing markets—will do more harm than good at this point.
Financial institutions warned that the rules will instead cause mortgage rates to balloon, which in turn might push consumers towards unregulated lenders, Bloomberg reported.
Among the most contentious portions of the announcement is the proposal for tighter “stress testing”, a move that the Canadian Bankers Association argued is unnecessary as all mortgages already pass through a “double-underwriting” process (that is, both insurer and lender underwriting in each transaction).
“The insurers will be hit twice as hard as anybody else,” according to Dan Eisner, founder and CEO of True North Mortgage in Calgary.
First National Financial Corp., which is the country’s leading non-bank mortgage lender, announced that to mitigate the risks brought by the new rules, it has postponed mortgages for rentals and self-employed professionals for the time being. It added that the regulatory changes will compel them to pass on the added costs to consumers.
“[Federal authorities] should consider potential unintended consequences such as disadvantaging monoline lenders from a competitive standpoint because those lenders are less able to deal with a risk sharing model than the big banks are,” Genworth MI Canada CEO Stuart Levings said.
The new risk-sharing model would also mandate lenders to pay deductibles in loans that have gone south, a stipulation that has baffled banks as Canadian mortgage delinquency rates are around 5 times lower than those in the United States.
“We don’t understand what a deductible is intended to achieve as a policy outcome,” Canadian Bankers Association vice president of finance, risk and prudential policy Darren Hannah said. “If it’s supposed to be something to improve the quality of underwriting, well the quality of underwriting is already very strong.”

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  • Tomas on 2016-10-12 9:22:27 AM

    Uh...I think this what the gov't intended?

  • LanceH on 2016-10-12 9:45:01 AM

    Another "unintended consequence" is the one that will happen when the Stress Test gets withdrawn later, by Morneau or the next Gov.
    All those thousands of ppl that were sidelined by the test will flood the market and create a situation similar or worse than we have now with lack of product.

  • LanceH on 2016-10-12 9:51:24 AM

    I think it's a little insane to write a country-wide policy in an attempt to deal with ONE district (Toronto). Not to mention, there are a number of things contributing to the problem that are in the domain of the Provincial or Municipal gov's. This is so typical of the Lefty politicians trying too hard to micro-manage everything. They still haven't learned that every solution comes with it's own unique set of problems, which they'll then try to "correct" with even MORE legislation, rather than backing off, or simply not doing it in the first place! And for a Gov that said it was going to be more consultative, they clearly haven't, or they never would've done this, as we see the entire industry come out against his policies that "sound good" but will wreak havoc. But that Socialism isn't it? It "sounds good". Maybe Morneau should read The Wealth of Nations and The Road to Serfdom!

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