RBC on brokers' side?

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RBC is among the first to suggest the government might want to make those new rules temporary and not permanent, arguing they – coupled with rising interest rates – could scuttle the market.

“It’s hard to argue that they shouldn’t be doing something to slow this down,” David McKay, head of RBC’s domestic banking told reporters over the weekend. “But what is the longer term implication of all this in a higher rate environment? And do we pull back too tightly on the reins?”

Moreover, McKay is suggesting the government should consider making those new rules – amortization capped at 25 years for insured mortgages and LTV at 80 per cent – a short-term intervention. Otherwise, they could, in fact, damage the economy in the long run if kept in place beyond that, he said.

“This is not like turning a Ferrari,” the RBC exec said. “This is like a big ship. And it takes a while to turn. And sometimes if you over steer, you can’t re-steer the other way.”

While brokers have had a mixed reaction to the rule changes, the majority have argued that those amendments in consideration of others made as recently as last year cannot be successfully evaluated in the current low-interest rate environment.

This past March, a broker channel lender urged the government to adopt the same kind of analytical caution RBC is calling for.

“What we’ve been experiencing is an artificial market because of the low interest rates and irrational pricing,” Jason Kay, Merix’s VP of sales and corporate development, told MortgageBrokerNews.ca. “What the government needs to do is wait for the return of a more normalized rate environment to assess the impact of the changes already made, rather than introduce additional changes."

That didn’t happen, although McKay and brokers across the country are hoping the government will even consider reversing the latest changes when normal interest rates return to the market.

“Would we consider going back to a 30-year amortization when we are able to raise rates, to alleviate the strain on the consumer wallet, and balance growth in the economy?” McKay said. “That is obviously a long-term worry.”

  • Christopher on 2012-07-04 3:30:20 AM

    Is anything permanent in this industry? When I started the down payment was 10%, 25 year amortisation and the GDS/TDS was 32/40 PITH. In 2008 we could mortgage up to 100% with 40 year amortisations.

    Personally, I think a TDS of 38% would be the best, and the amortisation could be extended again. It's not so much about the equity or lenders would be asking for 75% down on a car purchase.

  • Angela Wong-Liao, Invis Inc on 2012-07-04 3:33:28 AM

    It is too early to assess the impact of the new mortgage rules effective on July 9, 2012. We have 25 years amortization till 2006, frankly, I do not understand the big issue about 25 years amortization returning to our industry. As a seasoned mortgage professional, I have seen interest rates much higher than our current interest rates in the 1980's, 1990's and 2000's, and first time home buyers were still buying, yes, the pricing was much lower than now and hopefully with the new rules, the real estate prices will adjust down, so that housing is becoming more affordable.

  • Paul Therien, CENTUM on 2012-07-05 6:36:29 AM

    If we want to stabilize the market and our industry making these rules temporary will only cause issues – too many to contemplate. Back and forth changes causes confusion with the consumer, and will only create larger ebbs and flows. The 25 year maximum amortization served our industry well for 60+ years, and there is no reason why it will not do the same for another 60.

    5 year difference in amortization does not make a huge difference in payment size, and ultimately is it not better to have the consumer build equity in their home faster… for all of us?

  • Faye Drope on 2012-07-07 3:12:28 AM

    Seems to me that the Feds should have come back with the old rule of calculating a payment for all credit cards and lines of credit regardless of their usage at the time. TDS was based on amount of credit available not only what was currently being used. This should have been the first change.

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