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Mortgage Broker News | 11 Mar 2019, 10:09 PM Agree 0
It's no secret that B-20 most disadvantages first-time buyers, many of whom have little choice but to purchase condos for which they have five years to close.
  • Jay | 12 Mar 2019, 11:51 AM Agree 0
    This is all nonsense. It did not disadvantage first timers. It was designed to apply downward pressure on idi0t real estate prices throughout. The stress test is doing what it was created for. The only way to help first timers is to depress the cost of real estate to equate 3 times average annual income = valuation fundamentals. Patience, first-timers. The opposite is to promote inflated values beneficiaries of which is the government (land transfer taxes), realtors, bankers, mortgage brokers, speculators, builders and everyone who has been feeding off real estate bubble. NOT THE GENERAL PUBLIC.
  • Curt | 12 Mar 2019, 12:18 PM Agree 0
    Nailed it Jay ;-)
  • Yiannis Andreou | 12 Mar 2019, 04:07 PM Agree 0
    It would be wise to keep in place the existing rules and in addition to those rules to ban Non-Residents from purchasing to bring the prices in line with incomes gradually. It would serve the market well in the long-run as current prices were affected by Non-Residents at the expense of local residents that do not have the same income and net worth. The current rules such as the Stress Test and 25-year amortization are good for the long-term viability of the Real Estate Market.
  • Cliff Ross | 12 Mar 2019, 04:43 PM Agree 0
    Complete self serving BS. B-20 does first time buyers a favour that will last the rest of their lives, and save them from unscrupulous realtors, bankers and mortgage brokers...not to mention keep our economy safer as this downturn gets rolling.
  • Sal Paradise | 12 Mar 2019, 05:12 PM Agree 0
    B-20 is designed to keep people from doing something stupid, such as getting in way over their heads in debt! You don't think the government needs to create laws to keep people from doing stupid things? Remember, we needed to create motorcycle helmet laws and automobile seatbelt laws!! Duh!!
  • Lol | 12 Mar 2019, 10:22 PM Agree 0
    @Jay, in the recent OSFI statement it was admitted that there was never an intention to cool the housing market, but only to improve underwriting standards. It was also mentioned that B20 can be reviewed if conditions are right for that.
    That statement was particularly targeted to president of CMHC and people like you, spreading NDP-style lie.

    Today Poloz became a complete hostage of B20, not being able to do anything. New housing starts is at 3 year low and its only beginning.
    Dumb people like you think that decreasing the purchasing power can create an affordability. Unfortunately for you, there is another way how prices can go up despite your stagnant income. That way happens when the increasing number of buyers are competing for same property to buy in supply shortage conditions. In such case, although average income is pretty low, statistically more people will be in the highest income bracket and will be able to afford the price.
  • Eric | 13 Mar 2019, 01:24 PM Agree 0
    As explained below by the OSFI, the stress test is necessary to ensure people can serve the debt they are acquiring. It is a prudent move that should have been implemented years ago, but better late than never.

    "Strong Mortgage Underwriting
    The first version of B-20 was issued in 2012. At that time, the role that weak mortgage underwriting had played in the global financial crisis was clear. While we did not see evidence of the extreme risk-taking that occurred elsewhere, OSFI chose to be proactive and to set out clear expectations for strong mortgage underwriting in Canadian banks.

    Some years later, in 2016, we reminded banks of our expectations in the form of an public letter, in the face of what we observed as escalating competition, historically low interest rates and rapidly increasing property values leading to some deterioration in underwriting practices.

    That reminder had some impact, but, in our judgement, not enough. The prevailing sentiment that house prices would only go up and interest rates would only go down was, in our view, contributing to an over reliance on collateral value and not enough scrutiny of a borrower’s ability to repay a loan, particularly if conditions were to change.

    Against a backdrop of record levels of consumer debt, this was a level of risk-taking that OSFI decided needed to be reigned in.

    That brings us to the changes to B-20 that came into effect in January of last year; the most significant of those being the stress test.

    The stress test requires a borrower be qualified for their mortgage with a buffer of affordability built in to ensure they can continue to pay their mortgage if conditions change. Those conditions could be a rise in interest rates that increase their payment obligation, or they could be a loss or reduction of income or an increase in other, non-mortgage expenses.

    The stress test is, quite simply, a safety buffer that ensures a borrower doesn’t stretch their borrowing capacity to its maximum, leaving no room to absorb unforeseen events. This is simply prudent. It’s prudent for the bank and it’s prudent for the borrower too."
  • Leigh Graham | 18 Mar 2019, 11:37 AM Agree 0
    Mortgage broker here. Jay - and others who agree - you're not necessarily wrong, nor do I believe your position is 'dumb' as others have pointed out. As one of the people called out in your comment, however, it's important to realize there is a different perspective.

    Homeownership is the single largest factor to establishing financial stability later in life, for the majority of Canadians. Inhibiting this unnaturally benefits no one.

    The challenge with the stress test at its current level is that is ignores the realities of smaller markets across the country, which naturally carry smaller incomes & earning potential. Think properties in the $150-200,000 range, and smaller as one heads east to the Maritimes. Suddenly, the average income in some areas can simply no longer 'afford' (keeping in mind what a homeowner can afford and what a bank thinks they can afford are rarely the same thing) to buy in those areas. These properties then either do not sell for extended periods of time (inhibiting a move-up buyer from purchasing their next home), or are purchased by investors which then plays into the expanded rental market (which is its own challenge at the moment in may parts of the country also). For this to make sense, we would have to agree that the concept of upgrading a home is a natural one for most families, as their numbers expand, kids grow up, need more space, etc. And for someone to buy their second home, that person needs someone else to buy their first home, and this is where the stress testing concept fails common sense.

    (To be clear, we would also have to agree that homeownership is not a right, which I expect we do).

    Nobody debates the benefits of OSFI's intentions; but their comment of 'prudent lending' standards has a series of holes, not the least of which is the lack of the same prudent behaviour in every other aspect of credit providing (think car loans). The government has rules to stop someone from taking on a $1000 mortgage payment, but no such rules against taking on a $1000 truck payment. The fact that the mortgage is secured on real estate is irrelevant; the stress test is a payment & qualification tool; the source of the loan is still a financial institution. So really, who's being protected? OSFI has been cagey at best and silent at worst about this particular shortcoming.

    The second consideration is existing underwriting standards (prior to stress testing), which were already some of the most stringent in the western world. The system already has parameters to ensure that people do not borrow beyond their means, and lenders make decisions every day about the risks of taking on a borrower who may lose their job, etc. These risks are not appeased by further limiting one's borrowing capacity.

    Lastly, stress testing completely ignores the positive aspects of what the future may hold; for example, the capacity for an income to increase, and early-life debt (think student loans) and also a mortgage balance to decrease. A stress test at a more moderate level could be just as effective. Toronto & Vancouver have a number of housing challenges, and stress testing is unlikely to solve any of them over time. The rest of the country is often in a very different situation, and OSFI has ignored this entirely.

    Leigh Graham
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