One year later: Marking Flaherty’s mortgage rule changes

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CREA’s June numbers from 2012 revealed that there were 4.4 per cent fewer homes sold compared to 2011, with average home prices dipping 0.8 per cent during the same comparison period.
Industry economists, such as CAAMP’s Jim Dunning, predicted a year ago that the economy would take a hit in job creation, as housing and mortgage activities “account for more than 1.35 million direct and indirect jobs (about 8 per cent of total Canadian employment.”
The Toronto condo market took a direct hit, according to Shaun Hildebrand, a senior vice president of Urbanation and former market analyst with CMHC, as first-time homebuyers flocked to the condo market instead of buying, pushing average rents in the GTA to a record $1,856.
“For the first time in a long time, we’re seeing rent levels grow stronger than resale and new condo prices,” Hildebrand said. 
Numbers from Urbanation – a leading condo analysis firm – show that new condominium sales were down 55 per cent for the first quarter of this year, compared to 2012.
Paolo Di Petta, a mortgage broker with EQRON Mortgage Corporation, has seen lenders back off on some deals over the past year.
“In terms of the mainstream channel, lenders have been tightening up,” says Di Petta. “I saw a thread on LinkedIn the other day that was about how CMHC isn't approving deals as consistently as they used to. I've been hearing from other agents that those borderline deals that used to get approved without any question are often being declined.”
Flaherty’s move to tighten amortization rules was the finale of a continuing campaign to cool the housing market, as Ottawa acted three times to rein in the maximum mortgage term after the CMHC briefly started insuring mortgages with 40-year terms in 2006.
Flaherty brought the amortization limit down to 35 years, then 30, and now where it sits at 25 years.
Other rule changes included a cap on the maximum gross debt service ratio at 39 per cent, and the maximum total debt service ratio at 44 per cent for those looking to get CMHC insurance.
Refinancing restrictions have made once simple deals undoable today, says Butler.
“There is no question that a year down the road refinance business is far harder to execute, deals that would have been simple to do a 13 months ago cannot be done,” says Butler. “There is also clear evidence in our business that some first time home buyers find it challenging to get in the market.”
In addition, Flaherty limited CMHC insurance to homes priced less than $1 million.
Economists agree that GTA housing prices have leveled out, while Vancouver prices are down an average of 5 per cent, with the average Canadian housing price expected to drop only 2 or 3 per cent in the coming year.
For Di Petta, the tightening of the market has meant his services as a mortgage broker have placed him in higher demand.
“Being more on the non-institutional private lender side of the business, I've been getting a steady increase of business, especially from other brokers/agents interested in co-brokering,” he told “I provide a temporary solution for their clients and we put them on track to get approved with more traditional lenders. Those sorts of deals aren't always easy, but when they work, they're win-win. They're the reason I got into this business in the first place.”

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  • Russ Cameron Cameron Mortgages on 2013-07-09 10:31:28 AM

    I've been in this business for 33 yrs either as a banker or broker..this is the worst irresponsiblity I've seen with CMHC..they don't understand what being cautious means anyway the Fed's should stop agian and think credit card debt is where we need controls . A $50m visa acct at 19.9% unsecured or a secured mortgage of $200m at 3.5%.. where do we think the problems could arise?

  • M. Robertson on 2013-07-09 10:45:25 AM

    Mortgage brokers have this idea that the lenders should change their policies to suit the needs of the borrower and the broker. They try to justify the argument saying that it is unfair to consumers, etc. Give it a rest. It is the lenders money, not yours – you want to make the rules – open your wallet. The old saying applies – the guy who is lending the money gets to decide who can borrow it.

    Who do you think you are fooling Mr. Broker? We ALL know that the only reason why you do not like the rule changes is because it means that there is less money for YOU.

    5 year amortization change should not break a deal, if it does – then guess what – they can NOT afford that house! So they have two options – buy within their means, wait and save some more money, pay down your other debt, or get a job that pays you more. The same applies to debt service ratios. This is how it has been done since the advent of home ownership – if you do not like it – then change industries.

    OH and stop churning your books and enticing borrowers to refinance every time there is a blip in rate. You are NOT doing it for your customers, you are doing it to get more deals done and to make more money. I have seen several pieces of marketing of late from a lot of brokers (including ones on here that profess to be looking out for their clients interests only) that promote refinancing NOW before rates go up to lock in the lower rate – even if you have as much as 3.5 years remaining on your term. So extend the term by 1.5 years, pay a penalty, etc? If you think that is being a professional advisor you need to get your head out of the sand.

  • Russ Cameron on 2013-07-09 11:08:15 AM

    Wow! are u talking to me..I am a retired cautious banker I don't need the money I just love common sense..25 yrs is ok it has been most of my career....but did u figure out the two financial props I suggested ? the $200m mortgage is less costly,than a $50m credit card... that's common sense...u have to understand this first..ya and I don't need to money because I've been cautious about credit//Thanks Russ

  • Barbara Buote on 2013-07-09 11:11:52 AM

    Mr. or Ms. Roberston, you sound like you work in the PMO's office.

  • Layth Matthews, CEO RateMiser Mortgage Advisors on 2013-07-09 12:20:37 PM

    Personally, I think that if the Government wants to get out of the insurance business or some aspects of it, that's probably good.
    I even don't mind the shorter amortizations as it makes the business self-correcting, eventually. But I do dislike the imposition of the high qualifying rate for variable and short-term fixed rate mortgages right through one of the most dis-inflationary periods we've seen. That has been a huge tax on the middle class with nothing to show for it but swollen bank profits. Shortening the amortizations would have been enough.

  • Paolo Di Petta | on 2013-07-09 1:28:40 PM

    I'm going to have to agree with M. Robertson - There's different lenders with different appetites for different clients. Lenders need to manage risk accordingly, and they do that by assigning different interest rates to different tiers of the market (or by avoiding unprofitable market segments all together).

    This isn't uncommon practice in other industries - insurance companies do this all the time. If you're a young, inexperienced driver, you're going to pay more than an older, more experienced driver - they do risk assessment and their data indicates that older, more experienced drivers cost them less in claims. Everyone pays accordingly to their rating.

    And though the changes have made it harder or more expensive for some buyers to get into the market, it's really a blessing in disguise. It's a harsh reality, but maybe now isn't the time for marginal qualifiers to get into the market. They're probably better off saving up more of a down payment. Or waiting for home prices to come back down to more reasonable levels.

  • Beware of M. Robertson on 2013-07-09 1:52:22 PM

    I am not sure who M. Robertson is, but if you are a frequent reader of this newsletter, you will have by now picked up on M. Robertson's non stop rambling about how brokers are upset because their commissions are down due to the new rules. This person keeps changing their name all the time, and keeps on talking about brokers only worried about themselves and not the clients. It is obvious that M. Robertson has too much time on his hands, probably because he is unemployed or an unsuccessful paper pusher who just does not know how to run a business. Well, M. Robertson, as a broker and a business owner, of course I am concerned with practices which lower my income. The bite that is being taken out of our bottom line is due to a reduction of product that we are experiencing. As in any other business, if a supplier suddenly goes out of business or a cheaper and less effective product takes the place of the business' staple qualify product, the business will feel the pinch. However, the consumer who buys this product ultimately will also be affected by the shortage of supply, or lack of quality product. the broker world, we urge clients to refinance and switch their mortgages to lower rates not only so that we can make money, the math and product which we provide also saves the clients money!!!! When we urge clients to refinance, we do the math for them. This is what you are paying now, this is what you will be paying in the next 3 years, but if you refinance, this is what you will be paying. Look at that, you just saved $3,500.00, and I made $2,500.00. GREAT DEAL!!!!! The competition that is created on the market as a result also keeps rates in check for the consumer, as the consumer is now much more educated with respect to their choice. The more money brokers make, the more they can afford to provide the clients service that they can only dream about getting at the branch level. No bank or branch will ever hint to the client that refinancing or switching a mortgage early could save them money down the road. SO who loses here??????????? Both the broker and the client!!!!!!!!!!!!!!!!! So M. Robertson, go bury your head in your miserable imaginary life, and let the rest of us participate in this wonderful world of free trade, hard work, and economic prosperity. Let us take care of our clients, and reward ourselves for doing so. I have no issues with making well deserved money. We are not telling the banks what to do, we are telling the banks that they should continue on doing what has made them so much money over the years. I think you misunderstand. The people who lend the money, are NOT the ones who made the changes in the rules….they are just as interested in the old rules. GET YOUR FACTS STRAIGHT, and stop commenting on this site.

    The site administrator needs to remove this rambling idiot off the mailing list.

  • re: Beware of M. Robertson on 2013-07-09 2:25:13 PM

    You are obviously a broker who has felt the pinch due to the changed rules. But not all brokers have, some have seen a steady increase in the business they are doing and are growing. That is the sign of a good business model, growth in a slower period. All businesses should be built to succeed when it is tough, it is how you end up being around for the long haul. I do not agree with some of the comments made by M. Robertson as they paint all brokers with the same brush, however, reality tells us that the statements will be true of some people. If it is only about the money we make at the end of the day, we will fail in business. The most successful business people in the world have always said that if all you focus on is your bottom line, you will not succeed. When compensation and the lending rules changed dramatically in Australia our brethren there did not rail against the machine, they changed their business model and today are doing very well as a result.

    M. Robertson is correct about the changes in rules - these are just the old rules being brought back into play - rules that sustained our mortgage industry for over 60 years. Also, for the record, the bank executives were consulted before the rule changes were made. Or did you really think that the wealthiest and most powerful political lobby group in the country just sat back and didn’t say anything?

    Sure it is tougher for some people to buy homes now, but there is nothing wrong with that if it creates a balanced and sustainable marketplace. The hey days of 10 – 40% growth, rock bottom rates, and loose lending guidelines was not sustainable – you only have to look at the history of the marketplace in Canada to know that – it is a cycle, and we have been through this more than once in this country. History has taught us that if you make money available too cheap, with limited rules governing the borrowing of that money, it is a recipe for disaster.

  • Paul Therien - CENTUM on 2013-07-09 2:38:39 PM

    I’ve been pretty silent of late on the forums here, just observing – very different than my regular comments last year – I could not resist this time though.

    The change in rules are certainly causing some issues for many in the Mortgage Brokerage community, but as the last responder said (re: Beware of M. Robertson) there are many examples of brokers who are having very good years. I have many friends that are with other brands, independents, and of course in CENTUM who are having a really amazing year. They are focused on obtaining new customers because of the challenges new borrowers face and the solutions that a broker can offer.

    We have many issues at hand today that seem to be some hot button topics on this forum. Education, National Associations, Rates, Rule Changes, to name just a few. We need to come together and figure this stuff out if we want to build an industry that is sustainable, and profitable, for the long term. The broker community needs to work together, not just as a lobby group but also to the benefit of our industry and ultimately to the consumer.

  • re: re: Beware of M. Robertson on 2013-07-12 8:03:38 AM

    Actually sir, I have not felt the pinch. As I was saying, there are many things that a broker does to be successful, and refinancing and renewing their clients to save them money is one of them. I was just saying that M. Robertson keeps knocking brokers for being savvy and making money.

  • M Robertson Watcher on 2013-07-25 12:10:18 PM

    I can't imagine a clearer warninig to consumers than M Robertson's misguided comments. This individual obviously knows enough about debt ratios etc to be involved in the banking industry or be a minion for them in these forums. Shame on you, Everytime a consumer makes a wrong decision (including no decision) in this volatile market, they stand to lose more money. The banks win whatever consumer's lose (in higher interest payments). Of course suggesting a term extension while rates are at a bottom is a horrible thing to a bank, along with every other example of consumers protecting themselves. Who can't wait for inflated posted rates and risk premiums to reappear? Brokers? No. Brokers are the only guides consumers have to navigate through a growing number of traps designed to prevent fair practice and competitive rate shopping.. Collateral mortgages inhibiting transfers, removal of posted rate categories to inflate penalties etc etc etc. Everytime banks get trickier with policies, there's a new Class Action and CBC Marketplace expose filmed that barely skims the surface. I suppose $28 Billion was not enough profit for one year.. But it sure helps to fund mis-information efforts like M Robertson's. Like a pack of ravenous dogs they wait for rates to edge up and risk premiums to reappear. Why not? Every loan with any actual risk is insured and FULL RECOURSE. Canadians don't walk away from mortgages like our US cousins. We pay, rates go up we pay pay pay ..until we can't. Who benefits from the payments? Brokers? The best thing a consumer can do now from a bank's perspective is Nothing. The next best thing is take a short term mortgage that in many cases will lock them to that lender for rest of the mortgage life as rates float back up and shopping becomes a thing of the past. Any consumer not using a well experienced broker today should expect they will lose more money over the lfe of their mortgage in one way or another. It's not a simple matter of rate and term anymore, it's strategy and knowing where the land mines are within lenders' policies.

  • Re: M Robertson Watcher on 2013-07-25 12:48:26 PM

    I’m sorry… who has misguided information? Are you seriously saying that it is better for the consumers to continually refinance their debts and that mortgage brokers are the ONLY protection or recourse a consumer has? Since when does refinancing their mortgage every 2.3 years (as is the average in the mortgage broker industry), incurring a penalty and stretching out the amortization BETTER for consumers? So it is better to take longer to pay off their mortgage? It is BETTER to pay a penalty? It might be in some situations but to claim that refinancing every 2 years on average is good… that is naïve. YES lower rates are better, no sane person would argue against that – but the whole picture must make sense.

    A properly structured home ownership plan would be properly built to allow the consumer to pay off their debt faster, not to churn the mortgage every time there is a change in rate. As for “these volatile times” our real estate industry has leveled out because of the regulatory changes. It is more sustainable today than when home prices were increasing by as much as 30% in a year. Interest rates have been at rock bottom lows for YEARS and it is the rise in interest rates that will have the biggest impact on people’s ability to own homes, or have you forgotten so easily about the 80’s and 90’s? The average interest rate in Canada since 1971… is 9.64% - yes refinancing makes sense to get a lower rate. But try looking at the ACTUAL cost to the consumer to refinance every 2.3 years and extend the amortization and then tell me that they are really saving as much as is claimed.

    The rule changes are going back to the way they were before 2003 when the extended amortization and more aggressive debt service ratios were introduced. Prior to those rule changes Canada enjoyed a healthy and stable real estate market and there is no reason to think that will not continue with the rules reverting back to where they were before ‘03. Stated income programs did NOT EXIST once upon a time in the A lending world – if you did not want to prove your income you paid a higher rate – it was called risk pricing and was the norm for over 6 decades. They proved their income back then to get the A rates and there is absolutely no reason they should not be able to do it now.

    Mortgage and real estate is a cyclical market – the rules change, it happens. Always has, and probably always will. A good mortgage broker will review a clients total situation, and give them sound options that can balance the needs and wants of the consumer with the lending guidelines that are in place. The same applies to a bank employee.

    As for profits with the banks… they are in it to make money – have been for over 200 years, why would anyone believe that would ever change? If you really and truly have an issue with it you have options. Credit Unions are just one example.

    M. Robertson may not be right on all counts – on that I agree – and they are definitely not a broker fan. The comments do make you think however and they do make you ask questions. Your rant is no less informed however than their comments.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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