“We are concerned with the negative economic impact that these changes are having on housing activity in Canada. We are also very concerned with the additional costs that these changes will place on the Canadian middle class by way of higher interest rates and reduced purchasing power,” said a statement from Mortgage Professionals Canada (MPC).
The association represents over 11,500 members in the mortgage industry, including brokers, lenders, insurers, and industry service providers.
Last October, Finance Bill Morneau announced new housing measures aimed at protecting housing industry. These include standardizing lending criteria for high- and low-ratio mortgages, closing tax loopholes for capital gains exemptions on principal residence sales, and consulting with industry stakeholders to ensure risk is properly distributed.
“We have already seen banks increase their mortgage prime rates in part because of these changes, which will cost Canadians thousands more over the course of their mortgage term,” it said.
Among other things, MPC said Portfolio (“bulk”) insurance must now meet the same criteria as those that are high-ratio insured. Amortizations greater than 25 years, rental and investment properties, refinances, and homes with values greater than $1m can no longer be portfolio-insured, it explained.
“The reduction of portfolio mortgage insurance eligibility, in addition to the increase in premiums for this insurance due to OSFI's recent increased requirements for capital adequacy is disproportionately affecting the competitive positioning of small and mid-sized lenders. These changes are reducing mortgage competition and affordability for Canadian homeowners and would-be homeowners.”
The association made the following suggestions:
• a pause on government measures yet to be implemented, most specifically its proposed risk sharing provision
• that the government allow for refinances to be included in portfolio insurance
• the decoupling of the stress test rate from the posted Bank of Canada rate
• the Office of the Superintendent of Financial Institutions should require all mortgages to qualify at the stress test rate, not just insured mortgages for the sake of fair competition
MPC said the stress rate should be based on a market rate, either by looking at the Canadian ten-year bond yields or having the Bank of Canada set a rate that is independent of the average of the banks posted rates.
“The Canadian economy has seen only modest growth in 2016, especially for the middle class, and the housing sector is one of the few strong performers that has been driving this growth. We are concerned that these changes will hurt the economy as the Bank of Canada noted that the new rules that are being imposed will reduce growth in the Canadian economy, which will hurt the middle class,” the association said.
MBN
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