Pondering the recent slate of mortgage changes

There sure is a lot of heat going around the blogs regarding the big changes that Finance Minister Jim Flaherty enacted last Monday morning and will come into effect March 18th.

The Canadian Association of Accredited Mortgage Professionals (CAAMP) has issued a report stating that, “The vast majority of borrowers holding the highest risk mortgages have considerable room to absorb interest rate increases and that lenders and borrowers have been highly prudent in the mortgage market as evident with mortgage delinquencies at only 0.43%.” Meaning only 43 of every 10,000 prime borrowers are behind on their mortgage by 90 days or more this is or is one of the lowest default rates in the world.

They’ve said that a 0.43% arrears rate is just 25 basis points from the lowest default rate of the past 20 years, and hardly indicative of any excesses.

“Housing demand in Canada has been justified by the strength of the economy and the degree of mortgage risk does appear to be extremely small as Canadian lending criteria are already tight enough,” as quoted from the CAAMP report. The findings are based on data from 85,500 insured mortgages that funded in 2010, and were mostly high ratio purchases or refinances.

The toughest part is that the minority is affecting the majority and again has affected opportunities for the prudent Canadians that require the cash flow of the 35 year amortization and that Canadians have to find alternative measures to get access to their equity that they’ve built up in their homes until they’ve attained at least 15% of equity.

They made these changes without reporting what evidence they have that Canadians are being imprudent in their mortgage decisions, when the largest problem isn’t the mortgages, it’s their unsecured credit cards and line of credit debt.

But with less access to their own equity through low interest mortgage rates to pay off those higher interest rate (and highly profitable to the banks) loans there may be higher defaults on their mortgages because Canadians may not have access to those funds to get ahead.

If they only changed the qualifying criteria such as lowering debt servicing requirements and increasing credit score qualifications they could have mitigated the highest risk Canadians while still allowing those prudent ones to get access to the more qualified products such as a 35-year amortization.

The funny thing is you can still buy a home with essentially no money down on a cash back program, but if you run into some trouble, say you get sick and are off work and can’t pay your bills, or lose your job or even get divorced, then you’ll probably have to sell your house to get access to the equity you have in it and then buy another with only 5% down.

But if you require all of the cash from the sale you can send a thank you letter to Jim Flaherty for making you rent again.

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, via text at 403-391-2552 or by email at jturcotte@regionalmortgage.ca.