Federal budget cuts IMPP, standardizes prepayment disclosure

Federal budget cuts IMPP, standardizes prepayment disclosure

The latest federal budget included moves that will affect the mortgage industry, including new regulations to standardize mortgage prepayment disclosure and the elimination of the Insured Mortgage Purchase Program.

The government also said it will allow credit unions to operate as federal entities, which would give them national reach and is introducing legislation to set out a framework for covered bonds, a type of bond that remains on a banks' balance sheet and can be backed by assets like mortgages.

"If the use of covered mortgage bonds increases, it will create more liquidity and that should translate into cheaper funding for mortgages," said Martin Reid, president of Home Trust, adding that covered bonds are commonly used in Europe. "It would be one more tool in the arsenal along with the MBS (mortgage-backed securities) and CMB (Canada Mortgage Bond) programs."

As one of its measures toward greater consumer protection, the federal government said it would bring forward regulations to standardize how lenders disclose and calculate prepayment penalties to borrowers, which Reid said is a good way for lenders to increase transparency.

And, as speculated, the Insured Mortgage Purchase Program, in which CMHC bought insured mortgages from lenders to help them free up credit, is wrapping up.

"The need for that program has been diminishing quite significantly, so I don't think that was a big surprise," said Reid.


  • LB 2010-03-18 4:07:36 AM
    As I attempt to explain differences between IRD calculations and 3-months interest penalties I sometimes seem to arrive at a different result than what the lender comes up with. I have found that it is easier to ask for a discharge statement from the lender for information purposes only. This ensures the prepayment amount is accurate allowing the client to determine if they indeed want to break their mortgage contract. It is an extra step in the process of refinancing and it would be greatly appreciated to have a standard method of calculating prepayment penalties. This would be in the interest of all involved, from lenders to mortgage specialists to the clients.
    Post a reply
  • Ron Berry 2010-11-17 1:46:46 PM
    Hi - my daughter whom I hold written authority to act for, is being charged a $12k penalty to payout her $172k mtg with 25 months remaining at 5.94%. The IRD part I understand, but the RBC is trying to charge her with a 1.4% additional penalty representing the original 1.4% discount they received when they took out the mtg. This penalty portion is around $5k. This part is not right, but the bank claims it had the right to charge her for the discoubt for 25 months if I it understand correctly. Shelley is visually impaired and is required to move closer to work for mobility and safety reasons. Her family will be renting for the mid term. How can we dispute this horrendous penatly. Ron Berry Riverview NB E1B 4S6
    email> ronberry@nbnet.nb.ca. < tel 506-386-8876. Any sugggestions? Thanks.
    Post a reply