Broker: Gov't has left the refi building

Broker: Gov't has left the refi building

New quarterly financials from CMHC are confirming the fears of many brokers, worried the government’s latest mortgage rule changes effectively signalled its exit from the refinance business, now down 40 per cent and expected to stay there.

“It’s a repeat of what we saw when the government increased the down payment requirements for CMHC insurance on rental properties,” Curtis Cannon, a sub-mortgage broker with TMG The Mortgage Group in Prince George, B.C. “By decreasing its maximum loan-to-value to 85 per cent from 90 per cent, the government is basically saying, ‘We’re out of the refinance business.’ That’s regrettable because CMHC seems to have forgotten what they’re there for – to put and help keep Canadians in their homes.”

This week the Crown corporation announced that its insurance activity for refis fell 40 per cent for the quarter ended June 30, compared to “pre-implementation levels.” Moreover, the report adds, that activity has “continued to remain around this level.”

That translates into bad news for broker clients, who through no fault of their own, need to pull equity out of their homes in order to cover debts racked up by a death in the family, divorce and/or illness, said Cannon, concerned the government has abdicated its responsibility to aid those Canadians in its move to keep consumers from “using their homes like an ATM.”

“I don’t think that the new refi rules are good, at least not across the board in that the difference between accessing a LTV of 85 instead of 90 per cent may force someone who is in a tough situation out of their home,” said Cannon.

His comments run counter to those of other brokers who embraced the rule changes around refinancing as a way to put an end to “habitual refinancers.”

“Among our team of six brokers, we’re seeing about  three to four clients a month who we would identify as habitual refinancers – meaning they typically have refinanced their credit card debt back into their mortgages every two years,” Bob Smith, broker/owner for Verico K-W Mortgage, told, shortly after the amendments. “But what we’re seeing now is that those clients are now finding that they can no longer do that.”

  • AB Mortgage Broker 2011-08-31 2:13:55 AM
    The change was at a time when the government could pretend like it was doing something to protect the consumer during an election time. If the government was serious about helping consumers, it would go after the predatory banks.

    This is what happens when the big banks lobby government. The government has zero backbone! The banks should handle their own retention issues, not lobby government to help them. Why tie the hands of the consumer?

    On with the mortgage revolution!!
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  • Math Doesn't Add Up 2011-08-31 2:19:06 AM
    We have a client who's house is valued at $200,000. CMHC now limits the refinance to 85% or $170,000. Assuming this is a 25 year amortization, CMHC will charge our client $2,550 (1.5%) for mortgage insurance. A year ago, this client would have qualified for 90%, or a mortgage for $180,000 which CMHC would have charged $3,600 in premiums. So for the additional 5% LTV, CMHC would have earned an additional $950. Technically, CMHC would have earned 1.5% on the first 85% and 9.5% on the last 5%. Where is the risk? The new risk is not far around the corner when homeowners are forced to sell their home to recapture equity. Hmmm... real estate bubble?
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  • Angela Wong-Liao - Invis Inc 2011-08-31 2:19:50 AM
    Despite the reduction in refinancing businesses for the mortgage channel, I am still a big supporter of the government's decision to tighten our mortgage rules. The habitual refinancers regarded their homes as an ATM versus a retirement insurance is very risky. In my opinion, Canada is able to avoid similar financial crisis from our American counterpart is because of our very strong and prudent government involvement, we should salute our current government policy instead of complaining.
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