Brokers: More mortgage rule changes may be necessary

Brokers: More mortgage rule changes may be necessary

Brokers: More mortgage rule changes may be necessary

A surprising number of brokers are echoing the sentiments of a leading bank economist, suggesting the government would and should  ratchet down mortgage rules yet again – but only if consumer debt levels creep back up and only if they’re phased in.

“I agree with RBC’s chief economist: If debt levels start increasing rapidly again, more changes to mortgage rules are inevitable,” David Larock, a mortgage agent with TMG The Mortgage Group in Toronto, told “The Bank of Canada won’t raise rates to slow borrowing if the broader economy still needs the stimulus – that could trigger a recession at the worst possible time.  Instead, Finance Minister Flaherty will tighten mortgage rules to reduce the risk of a credit bubble. If that happens, though, my hope is that these changes will be phased in over time.”

The comments follow those of RBC Chief Economist Craig Wright, delivered last week as part of a panel discussion on the increasingly iffy Canadian economy. With interest rate hikes now on hold for the foreseeable future, the government may again move to tighten mortgage rules in order to further cool the housing market, he suggested.

“As we go forward in an environment of lower rates for longer, we may see another round of mortgage rule tightening,” Wright said, on the heels of the Central Bank’s move last week to keep its key lending rate unchanged at 1 per cent.

That holding pattern means Canadians are very likely to see more regulatory changes, specifically further reduction in the 30-year amortization cap and/or an increase in the amount of mortgage insurance.

Either change threatens to further slow business for mortgage professionals, already grappling to maintain, let alone grow, originations. Refinances have also fallen, with CMHC pointing to a 40 per cent decline in the second quarter.

“I don’t believe that they’re going to do another tightening of the rules,” said Mark Goode, a high volume broker with Mortgage Architects in Orillia, Ont. “It would slow down the market even slower, and that would be ill-advised.”

But Larock and a growing number of industry insiders suggest another government clamp down if required would work for the long-term sustainability of the industry.

“To date, every time the federal government has made mortgage changes, mortgage brokers have shouted their disapproval form the roof tops,” said Larock. “Unfortunately, I think our collective response to the mortgage rule changes to date has left us, mortgage brokers, looking like a bunch of self-interested whiners who can’t appreciate the value of short-term pain for long-term gain. Any mortgage broker planning to still be in this business five years from now has to recognize that preventing a credit bubble is in their best interest. Furthermore, our collective response has made it easy for other stakeholders to dismiss our views and we have missed the opportunity to play a meaningful role in shaping the changes.”

Still, brokers are urging the government to focus on curbing the spread of unsecured credit, rather than narrowing in mortgages – what they term “good debt.”

That position may also be short-sighted, said Larock.

“Brokers who complain that changes to consumer borrowing rules should accompany mortgage changes don’t appreciate that the real estate market is far more important to the overall economy than unsecured consumer loans,” he told “Bluntly put, the real estate industry is an elephant and by proportion, consumer borrowing is a proverbial fly. Complaining that consumer borrowing is the real problem is just passing the buck.”

  • Kevin J. Power, President Power Mortgages Inc. 2011-09-13 2:43:01 AM
    It is time for the government to look at consumer borrowing in areas other than mortgages. We don't have a mortgage problem in Canada, we have a consumer debt load problem. This is being caused by the banks, credit card companies and other lenders, basing credit on beacon scores or other internal credit approval criteria. Lenders are in the business of building their book of business, so they offer interest only or extremely low payments on secured or unsecured lines of credit. There is no debt retirement programs being built into consumer credit and that is where consumers are getting into trouble. Consumer debt levels is where the real problem is on debt load.
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  • Chad 2011-09-13 2:44:16 AM
    Bluntly put, the real estate industry is an elephant and by proportion, consumer borrowing is a proverbial fly. Complaining that consumer borrowing is the real problem is just passing the buck.”

    I think that it is total bunk! When a client is paying 80% of his mortgage payment for a Car lease, or a 30% HSBC credit card. These monthly payments often far exceed that of the mortgage. Try regulating the Car industry who hide their profits in car loans. Hmm can't have that the unions will get upset due to lower car sales.

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  • Debra 2011-09-13 4:03:03 AM
    I agree they need to figure out a way to control consumer debt load. I think a better approach in the past would have been to add change the TDS/GDS ratios because the client is still putting the same amount out monthly by taking things to the maximum and still the more of less same amount going out each month just they just owe a lesser amounts on their mortgages.
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