Is this the most divisive broker topic?

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Debate heats up following one industry professional’s suggestions that tougher qualification rules are required.

Brokers took to the comments section of MortgageBrokerNews.ca to voice their opinions following a suggestion that qualification standards for five-year fixed rate mortgages should be more difficult.

“While I agree with Ross there is a fundamental risk in our distorted real estate marketplace; I don't see that it makes sense to lay it at the feet of qualifying a 5-year fixed rate mortgage at the contract rate,” Ron Butler of Verico Butler Mortgage wrote. “Interest rates have bounced around quite a bit in the last 30 years and Canadian homeowners have always found a way to manage all of those fluctuations.”

Clients taking a five-year mortgage rate can qualify at the contract rate. However, variable rate mortgages and fixed mortgages under five years typically require homebuyers to qualify at a higher “benchmark” rate.

The comments poured in after Calum Ross, a Toronto-based broker, made a sombre prediction about five-year qualifying rates last year.  

“100% there should be tougher standards for qualifying for a five-year fixed rate; I’m in awe that they haven’t done it,” Calum Ross, principal broker of Verico Calum Ross Mortgage, told MortgageBrokerNews.ca last week. “With the Big Short movie out and everyone saying Canada is immune (to a similar downturn); I’m going to say the five-year qualifying rate is a disaster waiting to happen."

While it was an unpopular opinion among many, several brokers agreed with Ross’ premise.

“The fact is that a person opting for a variable mortgage or for a term less than five years is expected to be able to afford a rate increase up to the benchmark of say 4.64%, for their own protection just in case,” Ad Lakhanpal, a broker with Mortgage Alliance, wrote in the comments section of MBN. “The same idea should apply to a person opting for a five-year term. This way, everyone including borrowers, banks and insurers are protected equally.”
  • Len Lane on 2016-03-22 12:15:09 PM

    It would mean that a discount rate brokerage would no longer have an advantage in the market as everyone would qualify with the same calculation. I can see why Ron would be a little excited about Calum's comment.

  • Ad Lakhanpal,Mortgage Broker on 2016-03-22 2:54:44 PM

    Good Point by Len Lane! Standard qualification criteria will close a loophole that the "deep discounters" have been taking advantage of.

  • Ron Butler on 2016-03-22 4:57:41 PM

    Actually no effect on me at all Len, I am discounting variable and short term rates that have to be qualified at the at the 4.64% rate 20 times a day.

  • Ryan on 2016-03-22 8:44:29 PM

    “100% there should be tougher standards for qualifying for a five-year fixed rate; I’m in awe that they haven’t done it,” Calum Ross, principal broker of Verico Calum Ross Mortgage, told MortgageBrokerNews.ca last week. “With the Big Short movie out and everyone saying Canada is immune (to a similar downturn); I’m going to say the five-year qualifying rate is a disaster waiting to happen."

    He can't just watch the Big Short movie and draw comparisons. Would prefer an analyst with something a bit more quantitative than just a mortgage broker.

  • John on 2016-03-23 12:48:47 AM

    @Lane That makes no sense. Rate discounts and borrowing cost are important. If broker A discounts an extra 10-20 bps over broker B, it makes a big difference to borrower but little difference in qualifying service ratios. The question is whether responsible borrowers should be treated like children and 'protected' from themselves unfairly in this manner. Variables hold extra risk so should have extra hedging requirements. The fixed rate does not. What's next, mandating minimum 10 year terms? Comparisons to the grossly irresponsible sub-prime lending practices in the US, is a tiresome and well debunked position.

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