Guide
Mortgage Rule Changes
With nearly a year having passed since the federal government instituted changes to the mortgage insurance rules, CMP spoke with CMHC about how those changes have played out in the mortgage insurance marketplace
“T
here’s no clear evidence of a housing bubble, but we’re taking proactive, prudent and cautious steps today to help prevent one.” With those words federal Finance Minister Jim Flaherty announced some changes to mortgage insurance rules which went into effect in April 2010. First, mortgage loans are income-tested against the five-year posted rate, rather than the old practice of using the three-year posted rate. Second, mortgage refinancing is now restricted to 90 per cent of the value of the home, down from 95 per cent. Third, buyers of non-owner occupied dwellings are required to provide a 20 per cent down payment. At the time, experts lauded the changes as prudent. “They will not dramatically impact housing; but, they will help to cool the market, temper speculation and reduce the risk to personal finances from the inevitable future rise in interest rates,” said Craig Alexander, deputy chief economist, with TD Bank Financial Group. Government mortgage insurance In order to promote home ownership, the Government of Canada provides financial guarantees for the provision of default insurance on qualifying high-leverage mortgages (that is, mortgage loans at 80 per cent or greater of the value of the property). The insurance is provided by the Canada Mortgage and Housing Corporation (CMHC), a crown corporation that has 100 per cent guarantee from the federal government on the insured mortgages, or private insurers that have a 90 per cent guarantee from the federal government. As one might expect, the federal guarantee comes with certain
conditions, which can be changed over time – such as in the amendments made last year. Pierre Serré, vice-president, insurance products and business development, CMHC, spoke to CMP about the changes and how they have affected the mortgage insurance landscape. He made the following comments: “CMHC supports the Government of Canada’s on-going efforts to maintain a strong Canadian housing market. CMHC aligned its product offerings with the revised government guarantee parameters and stopped offering insurance for mortgages falling outside the scope of the new parameters on April 19, 2010, the effective date of the revised government parameters. These steps were timely, targeted and measured, and helped to reinforce the importance of Canadians borrowing responsibly. The changes were positive steps towards ensuring homebuyers have the best possible conditions for homeownership success, which as an industry, we all have an interest in. In terms of the impact of those changes, we need to look at the broader picture and also recall that there were two other significant influences – moving to Harmonized Sales Tax (HST) in Ontario and BC July 1 and the widely anticipated increase in borrowing rates in June or July of this year (as a consequence of the Bank of Canada raising its rate). Now back to the mortgage insurance changes. Despite efforts from all players in the mortgage industry to ensure that the changes were explained to borrowers in the simplest and clearest terms, there was considerable confusion. So the confusion around the impact of the mortgage insurance changes, expected interest rate increases and the coming of HST in two provinces collectively brought forward demand for mortgage loan insurance applications into the first four months of 2010. We saw our volumes decrease by just over 20 per cent in the weeks post April 19. Since then the housing markets have cooled and largely reflect our expectations. The current environment has created a greater awareness of the need for the mortgage industry to continue to work together to support Canadians further in the areas of financial literacy.
Pierre Serré
mortgagebrokernews.ca
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