Jim Flaherty, our minister of finance came out last week with the release of the federal budget. In it many changes and cutbacks to various programs and surprisingly to the mortgage industry, not a single change to the mortgage rules, but he did say he’s keeping an eye on it. This will give some consumers a sigh of relief as this tells us that he’s confident in our housing market and is letting the rule changes from the last few years take effect but it’ll fall on deaf ears for others as they struggle to keep their homes even in a growing economy such as ours.
Reviewing the changes in the past few years show us how dramatic those rules were to the industry and to the average Canadian.
The most evident part of the rule changes last year were to CMHC’s refinance portfolio. CMHC funded 40% less refinances last year than the year previous, due to CMHC dropping its loan-to-value to 85% of the value of the home from 90% and originally from 95%.
This rule continues to force thousands of Canadians to pay higher interest rates on debt that they used to be able to refinance and consolidate. This is actually going to force some out of their homes as they cannot move/switch or transfer their mortgage from a subprime lender (ie. Wells Fargo, Accredited Mortgage, MoneyConnect) to a new lender as their loan to value is too high, even though they’ve never been late on a mortgage payment. That small 5-10% loan-to-value, as witnessed from the front lines, can be truly detrimental to a family.
The government’s hope is that the refinance rules will encourage homeowners to borrow more responsibly, knowing that they can’t rely on home equity to bail themselves out. Unfortunately, even if you’ve taken the right steps and done all the right things the market and government rule changes can still decide your homeownership fate.
Canada has one of the strongest mortgage portfolios in the world as many large foreign institutions and investors are flocking to invest in our mortgage backed securities.
CMHC’s arrears rate is 0.42% (meaning those that are behind or are defaulting on mortgage payments) or about one in 210 mortgages, the average credit score is 723 which is trending upwards (credit scores range between 300-900, minimum of 620 to qualify for a CMHC mortgage) and that the average equity position for a CMHC insured mortgage is 32%. This is great news for Canada as a whole, but the rule changes were far sweeping and are affecting a deep and narrow amount of Canadians-those that are stuck due not only to market conditions but also to government rule changes.
From the front lines it’s nice to see a reprieve on mortgage rule changes for now but it’d be great if the government can actually step in to come up with a program that can actually help out Canadians’ that have done all the right things but just bought at the wrong time.
Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be contacted for questions and appointments at 403-343-1125 or emailed to firstname.lastname@example.org