There’s a lot of chatter in the mortgage industry right now with government rule changes expectedly looming and CMHC nearing its legislative limit of $600 billion.
When media found out that CMHC was nearing its insurance limits the headlines made it seem like we’d never been here before. We’ve actually been here at least four times since 2003 and have raised it every time since. NOT raising it would essentially mean turning off the Canadian housing industry, one of Canada’s major economic indicators. The reason it is making headlines these days is because the world seems to have a stronger interest in the credit world.
At the end of 2007, CMHC had used up 99% of its limit of $350 billion and was raised to $450 billion in March of 2008 and later on to its current limit of $600 billion.
There are a lot of lenders out there that are currently eating up CMHC insurance by ‘bulk insuring’ large quantities or all of their mortgages even if it is not required under law.
The lenders are doing so to better protect their investments yet at the same time using up the government-imposed limits. Typically default mortgage insurance is only required for mortgages with less than 20% equity, despite that the current portfolio has almost three-quarters of its mortgages with more than 20% equity.
What we are hearing coming from the mortgage rumour mill is that it looks like the government is going to impose stricter rules when it comes to self-employed individuals and their stated income programs.
There have already been many changes to the programs over the past few years, but this side of the portfolio is still making up a very heavy amount of the mortgage delinquencies in our country. Apparently Minister Flaherty has had discussions with many lenders to change their programs internally so that he doesn’t have to force change, but my guess is that was just a starting point. For as many lenders that have already changed their programs, just as many haven’t.
I can only guess as to what the looming changes will be, but I hope that they do review their existing portfolio to see who is defaulting and tighten up on those types of programs. Every self-employed mortgage is different and can require much different underwriting rules to make it work. It’s unfortunate to see any mortgage program leave as it leaves thousands of Canadians unable to purchase a home, but that’s what makes homeownership special as it’s an earned privilege.
There’s no way to say for certain what’s coming but one can look at the changes within the industry itself and make an estimated guess. Finance Minister Jim Flaherty is making his budgetary announcement at the end of March and I expect to see some mortgage rule changes and an increase to the limit…but I think that the limit itself is going to come with some new set of rules in place and we could potentially see ‘bulk portfolio insurance’ going away, and this could mean some rate increases because lenders would have to offset their risk the only other way they could.
Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be contacted for appointments at 403-343-1125 or emailed to firstname.lastname@example.org.