James Loewen believes the government has catalyzed the very thing it is trying to prevent with the recent B-20 changes, and the irony isn’t lost on him.
Loewen says that many borrowers will be stuck in the private channel, and will have to walk away from their homes. The resulting supply surge in tandem with diminished demand—the result of a reduction in buying power, estimated to be around 20%—could imperil the housing market.
“It’s ironic because the government purports that they’re trying to prevent an economic crash, people walking away from their houses, but if you can’t qualify under these guidelines, which, definitively more people can’t, there will be more people walking away and selling their house,” said Loewen, broker and owner of Loewen Group Mortgages.
He added that B lenders got hit particularly hard because borrowers now have to qualify 2% above the prime rate. However, many won’t and will be forced into the private channel—a traditionally temporal solution that could have no end in sight for many borrowers.
“They will be inciting the very thing they’re trying to avoid, which is a collapse,” said Loewen. “If I couldn’t qualify at TD or Scotia
, I’d go to Home Trust
for a slightly higher rate than the best rate, but now I probably won’t qualify for that mortgage, so I‘ll have to go private. The risk private lenders are taking is much lower than even six months ago, and we can’t bundle up to 85% loan-to-value inside these government guidelines, so there might not be a solution at all for the client and they might be forced to sell.”
Loewen nevertheless remains steadfastly positive that the mortgage industry will rise to the challenges B-20 present. The new stress test is only the latest in a string of guideline updates, and Loewen, a 13-year industry veteran, says brokers and underwriters have always found ways to ensure market buoyancy.
On that front, nothing has changed, he says. The industry will simply change tack and adjust.
“I still strongly believe that our industry is not just going to fold,” said Loewen. “If anything, we’ll be in even more demand. We saw a shift from A-lending to B-lending to private lending. As problems arise, we just seek more solutions. The big message is ‘Don’t think you have to shut your doors and fire your staff.’ We just have to find some solutions, hunker down and become even more valuable.
“When a door shuts, a window opens.”
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