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 MortgageBrokerNews.ca. “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 MortgageBrokerNews.ca. “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.”