The new lending rules have all but done away with high-ratio refis, the CMHC reports confirming what many brokers have been saying for several months now.
“The new mortgage insurance parameters that took effect in July 2012 effectively eliminated the high-ratio refinance market,” according to the CMHC report. “Purchases of mortgage from new homeowners in the third quarter fell six per cent and homeowner refinance volumes were 22 per cent lower than in the same period of last year.”
At the end of Q3 this year, CMHC’s total insurance-in-force increased to $575.8 billion, nearly two per cent higher that at the end of 2011 and unchanged from Q2 of 2012.
The slide in the number of mortgages backed by the Crown corporation mirrors the drop of around 31 per cent for refis during the same quarter last year which saw brokers’ refinance business curtailed and caused some brokers to fret that the government was signalling a retreat from that segment of the mortgage industry.
In an effort to avert a debt crisis, the government reduced the maximum amortization for government-insured mortgages from 30 years to 25. The feds also reduced the amount of equity that can be borrowed against a home from 85 per cent to 80 per cent. Most mortgage professionals predicted the changes would precipitate a loss of high-ratio mortgages, especially for self-employed borrowers.
“You could say that high-ratio mortgages for BFS borrowers are all but gone,” said Michael Marini, a mortgage broker with Dominion Lending Centres in Toronto. “Some mono-lines that offered these mortgages in the past are staying away from such deals now.”
Many brokers believe default insurers have lost their appetite for high-ratio BFS deals due to concerns around exposure to fraud, market correction and the economic downturn.
With the addition of the new mortgage rules, Marini said many B lenders are now also becoming skittish around BFS clients.
“Agents are still able to get BFS clients their mortgage,” he said. “Before, you could easily send BFS clients to B lenders but today deals are taking because of stricter scrutiny.”