In a nutshell, the Office of the Superintendent of Financial Institutions Canada (OFSI), is taking a firm stand on what is allowed and what is not in the world of Canadian mortgage underwriting.
Who is OFSI you ask? Well they are now (as of early 2012) the “primary regulator and supervisor of federally regulated deposit-taking institutions, insurance companies, and federally regulated private pension plans.”
This is actually code for “the bank boss”, and they are clamping down on banks ensuring that they are doing their due diligence with mortgage lending in Canada.
Effective July 9, 2012, or sooner as some banks have already announced, the following will be the new Insured Mortgage Guidelines for clients with less than 20% down payment wanting a “prime mortgage” or “best rates”:
- 30 year amortization changes downward to 25 years
- Refinances previously allowed to maximum of 85% will now reduce to 80% loan-to-value (LTV)
- Limit to the maximum gross debt service (GDS) and total debt service (TDS) to 39% and 44% respectively (Currently, GDS does not apply to qualified borrowers with credit scores of 680+)
- No longer allow mortgage insurance on properties worth over $1 million
So with all the changes, comes a price to many potential real estate buyers and sellers.
Buyers will feel the pinch with tighter lending guidelines and lowered amortization settings. While sellers will notice that there are less buyers available any longer and the ones that are out there have had to reduce their budgets.
The idea is to lower the risk to the Canadian taxpayers that fund Canada Mortgage and Housing (CMHC) and in turn this will force new buyers into socking more $$ away onto their principle and by default increasing their loan-to-value ratios.
There has been some speculation that the market is expected to dampen once these changes take place, but if not, there may be further “clamping down” to come.
Best advice I can give is, if you need a property to live in and you can qualify without breaking the bank, now is as good as ever with rates at their lowest in history! Who knows what the federal regulators will change next.
Personally I hope the $$ guys in the Government start to go after the credit card companies.
I believe that the unsecured debt is a far worse problem than ever and it needs stronger regulations to protect the consumer.
Questions I have for my readers…
- What are your thoughts on household debt?
- Do you feel that you have it under control or is it affecting your mental and physical health?
- Do you think the government should be cracking down on the mortgage industry?
I would love to hear back from you.
Until the next blog…