Refi business drops 81 per cent

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While CMHC heralded its third quarter results Friday, it glossed over a whopping 81 per cent drop in refinances, leaving brokers to quantify the impact on their clients and their bottom lines.

“Purchase volumes increased approximately 11 per cent while refinance volumes were approximately 81 per cent lower compared to the same period in 2012,” according to the Crown corporation’s latest quarterly report. “The latest mortgage insurance parameter changes that took effect in July 2012 effectively eliminated refinancing at loan-to-value over 80 per cent.”

The CMHC data comes on the heels of CAAMP’s report, which failed to break down broker market share between originations and refinances.

As recently as 2011 the limit was 90 per cent; it was reduced that year to 85 per cent and in 2012 was reduced five more percentage points to 80 per cent.

And brokers are feeling the pinch.

“It is impacting our business; from what we see, in this area anyways, it has been at least 80 per cent lower,” Bob Smith, broker/owner for Verico K-W Mortgage told “We don’t have a full 12-month period to gauge it with yet, but it’s had a real impact.”

The problem, according to Smith, is that all clients are painted with the same brush and the rule applies to all. Even those who legitimately need to use the equity.

“The rule is designed to correct some of the habits people have fallen into in the past few years such as refinancing every few years and chewing up the equity,” Smith said. “Unfortunately, it squeezes out legitimate cases, such as those who need to consolidate due to losing a job or disability. The rule was too hard and fast with no exceptions.”

Another broker is recalling a real-life example involving a needy client who ended up having to sell his home following flood damage that required extensive renovations. Because of the refinance rules, he was unable to tap into the equity to bankroll that work.

“What people were doing was getting themselves out of trouble (by refinancing),” Mark Nelson of Dominion Lending Centres Harbourview told “I had a client (who had) to put renovations on credit cards because they couldn’t refinance and they eventually lost (his) house. It has hurt a lot of hard-working people.”

Of course, it has also had a negative impact on his business, as fewer and fewer clients are qualifying for mortgage refinancing.

“Five years ago you could have refinanced 90 per cent of the home and it has steadily gone down,” Nelson said. “(In my area) with property values declining and the loan to value limits it has cost myself more than 35 per cent in my business.”

  • Nick Bachusky on 2013-12-03 9:13:27 AM

    I was expecting as much. Major drop offs even in a steady market in Ottawa.

  • A Broker on 2013-12-03 2:47:10 PM

    So what are the agents, who can only do the most simple of deals, to do once purchases cool off. I see a big drop off of agents in the business.

  • John Van Driel on 2013-12-05 7:39:50 AM

    Alternative and second mortgage lending has become a larger part of our business. Establishing relationships with Realtors, with the view of financing more Purchases, is a must!!

  • Diane on 2013-12-05 10:00:22 AM

    @ John that is so true...there are always other options for us to exercise!

  • Cindy on 2013-12-05 10:33:16 AM

    We have experienced the same drop in business and I am now adding another revenue stream in order to be able to continue in the brokerage business. It will be an interesting 2014.

  • kac on 2013-12-06 11:51:41 AM

    Reality says that until mortgage rules lighten up a little the economy will still be at a stall,house prices will continue to drop and inventory on the market will continue to increase. Where people could once access some equity and get over a tough hurdle they are now no longer able to so the only way to get at their diminished equity is to sell their home which floods the market. Equity lenders and mic funds now only underwrite close to A clients at ltv's of 65% max unless you are in a PRIME area and are reluctant to lend unless there is a fool proof way of getting their money back within a year. Can't say i blame them. CMHC raked in 100's of billions of dollars in insurance premiums while the market was good and now wants to take their money and run. Now that's backing the country they helped get in this mess.

    Until there is a supply of money available to get at i fail to see how the cycle of a downward spiral can have an end.

  • Ryan on 2014-01-30 11:14:39 AM

    “I had a client (who had) to put renovations on credit cards because they couldn’t refinance and they eventually lost (his) house. It has hurt a lot of hard-working people.”

    Why couldn't this person just have waited on the renovations? Were they an emergency? Why put your livelihood at risk for a renovation?

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