“Overall, I feel very positive about the meeting. The minister was receptive to hearing some feedback and understands there are concerns in the mortgage industry,” Janet McKeough, a director with CMBA, told MortgageBrokerNews.ca. “In the short-term there is nothing that can be done about it but in the longer term he will be reviewing our recommendations as well as some others we have.”
The conversation was spurred by a letter sent by the Canadian Mortgage Broker Association.
“The overall goal of the new mortgage rules is to stress test borrowers to ensure that they can afford financing should interest rates rise,” the Canadian Mortgage Brokers Association wrote in its letter, addressed to Ministers Morneau and Duclos. “While the CMBA acknowledges that this is an important goal which ensures long term stability in the housing market, the new rules will have a profound impact on reducing competition in the mortgage market and raising mortgage costs for borrowers.”
The association argues the changes will impact millennial homebuyers the most and that industry consultation should have been conducted prior to rule implementation.
It also notes mortgage brokers fund approximately $70 billion annually, making them key stakeholders in any policy decisions that are being considered.
The association has put forward four recommendations. They appear, as published in the letter, below.
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Recommendation 1 and Exemption Request: Exempt all insured mortgages with terms greater than 7 years from the requirement to qualify borrowers at the Bank of Canada’s conventional five-year fixed posted rate, and permit qualification at the true contract rate associated with the term. Contract rates on a conventional 10 year term are already relatively close to the posted rate of 4.64, being approximately one per cent lower. There is also inherent stability in longer term mortgages, as borrowers do not experience fluctuations in mortgage payments as interest rates change. This means that stress testing borrowers of longer term mortgages is not necessary, and exempting them from the mortgage rules would help the government meet its mandates to make housing more affordable and strengthen the middle class.
The CMBA notes that Canada is unusual in its lack of availability of longer term mortgages in the mortgage market. By contrast, the majority of mortgages in the United States (and numerous other countries) are for terms of 15 or 30 years . Economic stability can be achieved by providing mortgage borrowers with a greater array of term options, including long term mortgages.
Recommendation 2: Permit first time home buyers to amortize insured mortgages over 30 years, instead of 25 years. A one-time exception to the 25-year amortization rule for first time home buyers would balance the need to make home ownership affordable with the need for Canada to have a stable economy. First time home buyers have the most significant challenge in affording housing, and may be just starting out in employment with more limited income to both save for a down payment or make monthly mortgage payments.
Recommendation 3: Modify the requirement of limiting amortizations on insured mortgages to 25 years, by enabling borrowers
with a loan to value ratio of 70% or less to amortize up to 30 years. Borrowers with loan to value ratios of 70% or less are low risk, and making them qualify with more stringent requirements serves a negligible benefit, and poses little risk to economic stability.
Recommendation 4: Exempt all insured mortgages with principal amounts of $499,000 or less from the requirement to qualify borrowers at the Bank of Canada’s conventional five-year fixed posted rate, and permit qualification at the true contract rate associated with a 5 year fixed term. Many lenders will only lend in rural or smaller urban areas of Canada using portfolio insured mortgages and as a result, the new rules will disproportionately impact home owners or potential borrowers hoping to acquire housing in smaller markets. This exemption would help ensure affordability in areas outside major city centers where escalating house prices are not an issue.
MBN
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