Natasha Shaw

By Natasha on Jul 18, 2012

More Changes!

Subsequent to article outlining Jim Flaherty’s changes, the Office of the Superintendent of Financial Institutions Canada (“OSFI”) have introduced more guidelines that have the compounded impact equivalent of a 1+% rate increase.

On a positive note, the final underwriting guidelines are a lot more reasonable than the original proposal, which included conditions such as:

1. Re-qualification on renewal
2. Inclusion of home insurance in total debt service calculations.
3. Limits on exceptions

                                       … Etc.

It’s not secret that a housing correction is necessary, but as Rob McLister stated, the latter could have resulted in a “policy-initiated free-fall…”

So in many ways, we’ve dodged the bullet. However, here are changes that did come through:

1. The maximum loan to value on a Home Equity Line of Credit will drop from 80 to 65%. This means that your home cannot be leveraged until 35% of it is paid down.
2. The qualifying rate for conventional mortgages (at least 20% down) is being toughened. This means that the lender will require you to qualify at the greater of the Bank of Canada five-year benchmark rate OR the contractual mortgage rate. Therefore, even if the current rate is 3.19 percent, if you are seeking fixed or variable terms less than five years you may have to qualify at (for example) 5.34%. Yikes!
3. Self-employed borrowers MUST provide income verification even if they are stating income. So… stated income essentially becomes eradicated!
4. Cash back is no longer considered part of the down payment.  (No more 100% financing!!)
5. Although these guidelines don’t have a HARD deadline of July 9th, expect to see changes being rolled out as early as this October or even prior. 

In his article, National Post’s John Greenwood stated:

1. Government may be doing too much tinkering (agreed)
2. …brokers not so happy (disagree)

Although the intention is accurate, a certain amount of malleability is required to keep the housing market fluid.

Unhappy brokers?  Maybe some.  I believe that there are still options. The trick in these new times is to be proactive. Seek the counsel of a mortgage professional now so that the right strategy can be put in place to accommodate/respond to regulatory constraints when that perfect property comes along. Speaking only for myself, I see this as an opportunity to build more robust and sustainable strategies for my clients.

Have questions? Call me at 403-667-2978 anytime for advice, strategy or guidance through these new rules!

McLister, R. (2012, June 21). Osfi toughens mortgage underwriting. Retrieved from http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2012/06/osfi-toughens-mortgage-underwriting.html

Greenwood, J. (2012, June 21). Osfi lays out finalized mortgage rules; brokers not so happy . Retrieved from http://business.financialpost.com/2012/06/21/osfi-lays-out-finalized-mortgage-rules-brokers-not-so-happy/