By Brandi Pierik
The Minister of Finance, Jim Flaherty, presented the 2014 federal budget last week but before you stifle a yawn and your eyes glaze over, we think you may find this interesting.
It is being called Stay the Course and even boring which is just fine by Flaherty.
Observers see the Conservative government working hard now so they can present a much flashier budget in 2015 which will coincide with the election.
Ah politics.
This week we will touch on many aspects of the budget and how it will affect Canadians but start with the one of particular interest to the mortgage broker world.
The broker channel can chalk up a win for monoline lenders following last week’s budget meeting, with Flaherty taking steps to arm ‘smaller banks’ with the tools to better compete with the big banks.
What is a monoline lender you ask?
A monoline lender is a lender that only offers mortgage products and generally does not have a physical branch that you as a consumer can do business in. Monoline lenders have been largely responsible for putting competition for the Big Five banks into the mortgage marketplace, exclusively through the broker channel.
What this means to you as a consumer is that your mortgage rates remain low. Competition is good for your pocketbook.
This budget will make it easier for new banks to enter the market while also improving access to Canada Mortgage and Housing Corporation (CMHC) programs for small mortgage lenders, reports the Financial Post.
The budget seeks to “Improve the ability of new entrants and smaller banks to compete,” while preserving the strength of the sector. Additionally, the Office of the Superintendent of Financial Institutions or O.S.F.I. has appointed a new representative to establish contact with those small banks and handle some of the issues they face competing with the Big Five banks.
O.S.F.I is the watchdog of the banking system in Canada. The changes to the mortgage rules over the last four years can be directly attributed to their mandate to keep the Canadian banking system as secure as possible.
For example:
*Mortgages have gone from 40-year amortizations to 25.
*Homeowners can only refinance to 80% of the home’s value.
* No more zero down mortgages.
We do not always like them but they do serve an important function.
In order to ensure this, the government has promised that the smaller banks will have easier access to funding from CMHC. Monoline lenders have typically had more stringent guidelines to follow to get access to CMHC insured loans. The new budget has promised to restructure the methods that CMHC uses to determine how their funds are allocated.
“I sure hope there’s more competition,” said Gregory Thomas, executive director of the Canadian Taxpayers Federation. “Canada could use one or two strong national credit unions.”
See we knew you would think it was interesting. Until next time!
Brandi Pierik is an accredited mortgage professional with DLC Regional Mortgage Group.
