Brokers barking up the wrong tree

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I don't make a habit of agreeing with politicians, but this is the exception – the real estate market HAS been far too overheated in recent years. It's just not sustainable any longer. That may mean that some people brand me as a pessimist. But, quite the contrary, I'm optimistic that the market will return to more realistic and reasonable levels.

CAAMP, and the industry as whole, really needs to re-evaluate its mission in Ottawa in regards to getting the government to change course on its tighter mortgage rules. I don’t think it’ll be doing the broker industry justice if it pushes for a turnaround of the current lending policies. I don’t buy the arguments. For instance, homebuyers were shut out of the market due to skyrocketing home values brought about by low interest rates and previously lax mortgage rules. So, it's not the rule changes that locked people out of the market; it's that the prices are so out of control that a 20 per cent down payment seems so high.

Rather than calling for policies that will provide only short-term growth for the mortgage industry, CAAMP and brokers should be more proactive in educating consumers on how to avoid accumulating “irresponsible” debts. In essence, we had to rip off the Band-Aid. It was something that had to be done, whether or not it hurts.

Even the Bank of Canada concedes that rates are too low, at unsustainable levels, and that they have artificially inflated the economy and the housing market because of the easy access to money. As I said many times already: cheap, easy access to credit is a big stimulus that many people will take advantage of. That's why our debt-to-income ratio is at 164 per cent -- the highest ever, I might add.

Clearly there's a problem, and the mortgage rule change was the best option to slow debt growth without pushing people out of their homes. If you have a better solution, I'd like to hear it. I admit that a lax mortgage environment wasn’t the only reason for all of our issues, but it certainly was a big one.

Rates started falling in the late 90s and, if you check the Toronto Real Estate Board stats, you'll see that sales, which were already on an upswing, accelerated. Not to mention, if easy access to cheap borrowed money wasn't a major driver, then the rule changes wouldn't have had this effect.

Supply and demand IS important, but the fact is if people don't have the money, or access to credit, they simply can't afford it. Housing prices were getting out of control, and the fourth round of mortgage rule changes are helping to bring them more in line.

About the writer:
Paolo Di Petta, a mortgage agent in the Greater Toronto Area and Southern Ontario, specializes in private lending. Having completed the Ontario Real Estate Association pre-registration courses, he is now working towards a real estate salesperson license.

 

  • Jason B on 01/02/2013 8:05:20 AM

    While in theory it may sound like a good idea but the truth is people will not stop borrowing and they will find the next best option which is more than likely a private lender. Which are in most cases neither cheap nor forgiving so what has been fixed here? Again what is being done with unsecured debt? Why not keep the 85% refi but condition it to payout debts only and actually close the paid debts? At least that is an idea that actually starts to tackle the real issue here of consumer debt load...Just a thought...

  • Peter Browne on 01/02/2013 8:46:03 AM

    You have some good points Paolo, but I feel that the reason why mortgage lending regulations tightened up so much is that they're easier to change than credit card regulations would be to implement. The big banks as well as private issuers of consumer credit would fight new credit card regulations as toughly as they can but can't fight changing the regulations that were already in existence. In essence, I feel that some tightening up was required but they went too far.

  • CC on 02/02/2013 1:05:43 AM

    I feel you have over looked how these changes have effect the clients that already have purchase their 1st home when we were offering 30 & 40 year amortization's and now would like to move.
    As you may know clients that now want to port their current mortgage they now must qualify at the 5 years posted rate and with a amortization of 25 years , if they don't qualify they have to pay the full outrageous penalty to re qualify at the 5 year discounted rate.
    Another issues is for clients that have a insured mortgage they should be able to port the remaining amortization period that they had when they first took out the mortgage. They did pay the extra premium for this option before the changes.
    My vote is to bring back 35 year amortization and 85% refinance option as this will help homeowners keep their home when rates do increase, also remove the new policy where clients must qualify at the 5 year posted rate for client's that are already in a fixed rate term
    One option for the government to slow down the housing market is make it that all buyers have 10% down .
    CAAMP is not only working on behave of the broker intdusry but is also the voice of the consumer.

  • Paolo Di Petta | dipettamortgage.com on 02/02/2013 1:10:43 AM

    @Jason - The problem is that this isn't just a debt load issue. A lot of people have used the rapidly appreciating market to turn their home into an ATM. If we don't fix that problem, people will just keep rolling high interest unsecured debt into their mortgage.

    @Peter - You also have some good points, but the fact is going after the mortgage rules is the wrong approach. We (and I say as customers, not as Mortgage Agents/Brokers) need to go after the credit card companies and demand more. We should also invest more into financial literacy in the schools.


    The new mortgage rules will hurt some people, no doubt - but the longer we let it go, the more people will slip into debt, and the more people it will hurt. I'd argue these changes should have been made earlier. We shouldn't have ever had 40, 35, or 30-year amortizations to begin with.

    All the lax rules did was get people into the "monthly payment" mindset and give them access to more credit, which they've proven they simply can't manage responsibly.

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