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12 February 2010

Dave's Email: 02/12/10

For the last 2 weeks there have been discussions by Jim Flaherty and CMHC to consider making some significant changes to tighten up lending policies.

http://www.ctv.ca/generic/generated/static/business/article1463856.html

The following information was taken from the above link.

Ottawa weighs stricter mortgage rules

Tara Perkins and Boyd Erman

Ottawa is considering new rules that would force banks to use tougher criteria to evaluate mortgage borrowers, a move to ensure that consumers aren't taking on more debt than they can handle when they buy a home.

The key proposal under discussion would see the creation of new conditions the banks would have to follow when determining whether a customer can afford a mortgage, according to sources. Those rules would require banks to consider whether a person who takes out a variable-rate mortgage on a home can continue to make the payments if interest rates were to go up significantly.

Finance Minister Jim Flaherty is under pressure from a number of experts, including executives of major Canadian banks, to take action in the face of surprising strength in the country's housing market, which shows no signs of letting up. The fear is that many of the borrowers who are buying homes because of unusually low mortgage rates will struggle with their monthly payments when interest rates rise. That could have a dampening effect on the broader economy by prompting consumers to cut back their spending as they direct all their money toward their mortgages.

Senior bankers have privately urged government officials to increase the minimum down payment on homes from 5 per cent, or shorten the maximum time over which borrowers can spread out their payments, which is currently 35 years.

Mr. Flaherty and officials within the Finance Department and Canada Mortgage and Housing Corp. have been meeting with various players in the mortgage industry to consider options.

DON’T PANIC YET….

I think that ideally, they would like to cool down the real estate market, but fear that any significant intervention would “Burst the Housing Bubble”.

By implementing the doubling of the minimum down payment, from 5% – 10%, it would eliminate a significant portion of the 1st time home buyers.

I am seeing a lot ideas and speculation as to what people think they should do, however I read some stats about what the percentage of recent mortgages fell under the 5% down category.
  • About half of all new mortgage originations are for people buying a house with 5% or less.
  • About nine in ten new mortgages go to people with less than 10% down.
  • About two-thirds of all newly-minted mortgages have amortizations of more than 25 years. Most of those are 35-years.
  • And almost all of these borrowers are under 35 years old.

I don’t think we will see the removal of 5% down all together.

I recently read one possible solution was to create a tiered program:

From $0.00 to $500,000 still allow 5% down.

$500,000 to $1,000,000 Change to 10% Down

Over $1,000,000 Increase to 15% Down

This idea I like, and think it would satisfy the lenders concern about 95% financing on the “Mega” mortgages, but maintain the options for the first time homebuyers.


But it is not up to me; maybe someone should forward my email to Jim Flaherty.


Now keep in mind these are all speculations, but what my 20 years experience in the industry has shown, is that when rumors start, in our industry, some portion of the rumor often comes true.


So what I am trying to say is that we have clearly reached an apex with regards to mortgage lending….. Up until know the lenders were competing for market share by loosening policies. Stated Income, lower beacon score approvals, not requiring Notice of assessments for self employed individuals….. etc. Those days are done.


I am already seeing this today, with lenders reluctance to approve exceptions on files.
Rates are still holding steady, but best Variable is still Prime -.30% and the best 5 year fixed is 3.69% if we can close in 30 days.


If you have any possibility of requiring a mortgage now or in the near future, please give me a call. Don’t wait; your property could be approaching its maximum value, giving you options today that may not be there in the future.

“Equity to consolidate debts.”


“Equity to renovate your home”

“Equity to create a downpayment to be able to buy a new home.”

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