Rates as of June 8th, 2012
BREAKING NEWS – OSFI’s New Mortgage Rules…
Office of the Superintendent of Financial Institutions Canada (OSFI) announces new rules for mortgages. We are not sure when they will take effect, but here is what we know so far…
RE-QUALIFICATION AT RENEWAL TIME:
Initially OSFI proposed that mortgage holders would need to be re-qualified at time of renewal.
Fortunately, this will not be implemented, providing the borrower remains in good standing and stays with their existing lender.
This was the No. 1 mortgage industry concern in OSFI’s draft guidelines. OSFI says lenders can rely largely on people’s “good payment” records at renewal, which “is one of the best indicators of credit worthiness.”
As mortgage brokers, we know it is very important for borrowers to remain in “good standing” with their lender, in other words, make all of your mortgage payments on time, including paying your property taxes on time. Managing debts responsibly will increase a borrower’s chances of obtaining attractive mortgage rates and terms at time of renewal or refinance. If a borrower is late with payments, this may cause their lender to view them as ‘higher risk’, and therefore charge higher rates at renewal and/or they may be declined for a refinance.
Borrowers experiencing or anticipating any future difficulties with their debt management may contact us at anytime for a CONFIDENTIAL, NO OBLIGATION, Mortgage Review. We are here for you anytime.
REDUCED LOAN TO VALUE ON HELOCS:
The maximum loan to value borrowers may obtain on a Home Equity Line of Credit will be cut from 80% to 65%. In other words if you own a home appraised at $1,000,000.00, currently borrowers can secure a line of credit up to $800,000.00 (80% of the value). With the new changes borrowers will be restricted to a maximum of $650,000.00 (65% of the value).
OSFI says, “HELOCs are inherently riskier products, given their revolving nature, persistence of debt balances and their ineligibility for mortgage insurance.”
This is not great news, for borrowers, who are responsible and may rely on their HELOC, for investing and leveraging their real estate portfolios etc. Also, many very qualified self employed borrowers may rely on their line of credit to capitalize their businesses, especially seasonal type businesses that continually borrow and repay their line of credit as needed. Mortgage lenders have always had a much tougher qualification process for HELOCS, and generally these borrowers are more sophisticated with high net worth to begin with.
PROPER COLLATERAL MANAGEMENT:
OSFI’s March 19 guidance states that “Proper collateral management for residential mortgages (at origination, renewal or refinancing) should include a comprehensive, on-site appraisal, unless there are appropriate circumstances that justify the use of alternative approaches.”
Mortgage applicants with a “relatively high loan to value ratio,” unique properties, or less liquid properties (e.g., rural homes), will now more likely need an appraisal by a human appraiser versus an automated valuation system.
We’re hearing more criticism lately about automated appraisals inflating values. This criticism may intensify if prices start to soften. Banks are increasingly opting for human appraisals to “protect themselves against mistakes” by automated valuation systems.
I think the challenge will be that, having an on-site appraisal done, may slow down the buying and refinance process.
Realtors and buyers need to be aware and allow more time for subject removals in the future.
WHAT ELSE IS HAPPENING?
Canada Mortgage and Housing Corporation will likely tighten up their policies, they released a statement last month that stated that more applications will get referred for a full review.
Several lenders have amended or canceled their business for self mortgage programs. SIDE NOTE: We as mortgage brokers have access to several attractive alternative options for self employed borrowers.
Despite uncertain global landscape, Canada managed to post the best two month employment gain in three decades during March and April of this year!
Since March, when OSFI presented these proposed policy changes, they have acted with impressive speed reviewing industry – leader’s comments, concerns and suggestions.
Moreover, it’s relatively rare for OSFI to release interim updates like this after a comment period. It underlines the economic importance of these changes. (Stakeholders greatly appreciate these updates, so hats off to OSFI for keeping everyone in the loop.)
The final version of these guidelines will come “in the near future,” according to this recent release. That likely means later this month or July.
Chana Fay Charach, AMP
President VERICO Synergy Mortgage Inc.
Source: OSFI, CAAMP, Canadian Mortgage Trends