A look at the recent changes to the mortgage industry

Well, I hope that wasn’t the last of our summer days. September started off a little drearier than I had hoped as I was looking forward to a prolonged August, rather than a quick burst of October. Like the weather, the mortgage industry as of late has seen it’s fair of changes.

The most recent highly affecting change was March 18, 2011, whereas Jim Flaherty (your federal finance minister) changed the rules to refinancing. In CMHC’s second quarter financial report, it stated that refinancing is down by 40%. The largest rule change had to do with dropping the loan-to-value from 90% of the houses value down to 85% along with dropping the maximum amortization from 35 to 30 years and the effects have been huge, and to some Canadians likely devastating.

These rule changes have forced many Canadians, that otherwise could have refinanced their homes to get themselves out of trouble, to move toward higher interest rate subprime loans, and in some cases, even have to sell their family home. I have seen some people with high credit balances, but those usually in the most trouble that needed to refinance haven’t been because they bought too many TV’s it’s usually because of some major effect, like loss of job, illness to someone in the family or divorce. That small 5% change could mean the big difference between keeping or selling your home.

The government’s hope is that these rule changes would encourage homeowners to borrow more responsibly, knowing that they can’t rely on home equity to bail themselves out.

Overall, CMHC said its insured mortgage volumes were down 13% year over year. That’s 20% below the volumes it was expecting. The report states that the reasons were because of the refinancing/amortization rules, slower housing activity in Q2 and a drop in its market share, meaning Genworth and Canada Guaranty are actually putting a dent in CMHC’s stranglehold.

There are some other interesting facts and forecasts in the Q2 report:

-CMHC predicts that posted mortgage rates should remain relatively flat for most of 2011 before slightly increasing in 2012.

-Claims volumes (foreclosures) have been lower than expected.

-Average consumer credit score went up from an average of 720 to 723 vs. same time last year.

-CMHC’s arrears rate is 0.42%, while the industry average is 0.41%.

-Average amortization of a CMHC-insured mortgage went up to 24.6 years from 23.9 years in the same period of 2010.

-70% of CMHC-insured borrowers have beacon scores over 700.

This report essentially says that while the consumer’s credit is getting a little stronger, and that there are still a low amount of defaults, consumers are still taking out extended amortizations. The good news in the report is the forecast that interest rates should stay relatively low and not move much from where we are at right now. So even though change is inevitable, just like our Alberta weather, we have to embrace it or we won’t move forward no matter how short sighted some changes may seem to be.

Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and is accepting appointments at 403-343-1125, texted to 403-391-2552 or emailed to jturcotte@regionalmortgage.ca.

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