21 Jan

Finance Minister Listens Carefully to Mortgage Brokering Industry Concerns


Posted by: Tony Passalacqua


A Report from our President, Gary Mauris:

As most of you know, I was invited to attend the 2011 Pre-Budget Consultation chaired by Finance Minister Jim Flaherty in Regina on Wednesday, 19 January 2011.


Participants included 17 hand-picked Canadians representing a leadership position in their respective industries.


The day consisted of:

  • An overview by Minister Flaherty of Canada’s past performance and outlook for 2011 and beyond
  • A break-out discussion into four groups to solicit ideas and suggestions on cost-neutral or non-spending steps the government can take in the next Federal Budget to help create jobs and promote economic growth
  • Feedback on whether the government is on track for a balanced budget by 2015-2016, or if this too ambitious or unrealistic
  • Suggestions on ways that the federal government can be more efficient and effective
  • Suggestions on what Canadians’ priorities should be for the short and long term to encourage private sector growth, and leadership in the economy

A plenary session followed with Minister Flaherty and the finance department. Each participant spoke about their specific industry, and provided feedback and discussion.


There was also a Federal Finance Briefing on Canada’s Recent Economic Performance presented by Deputy Minister Michael Horgan.



With strong policy support, an economic recovery is continuing.


Economic activity in Canada is back to pre-recession levels (the best performance in the G7).

Canada’s solid economic recovery has supported a recovery in the labour market (since July 2009, employment has increased by more than 460,000 jobs, more than offsetting all of the jobs lost during the recession).


Real GDP Growth is expected to remain moderate in the near term. Canada is expected to have the strongest average growth in the G7 over 2010 and 2011 (IMF Forecast).


The Global recovery is expected to be modest led by emerging economies, particularly Asia. Canada has had the highest growth in real income Per Capita for G7 countries (1999-2009).


Although we have many positives, Global recovery remains fragile.


Risks to the Global Outlook

Uncertain strength of private demand in advanced economies, particularly in the US.


High sovereign debt levels in some European Countries.


Global imbalances and implications for the Canadian Dollar.


Fiscal Situation and Outlook

Canada is on track to return to a balanced budget by 2015-2016 (current federal deficit is $55 billion).


My Position on Behalf of the Mortgage Industry & Dominion Lending Centres

I articulated our views to the Minister privately, at the roundtable discussions, and then wrapped up with a very passionate overview of our industry’s perspective to the entire group. This created great discussion, feedback and support from many other participants including questions and dialogue from Minister Flaherty.


My main points included:

  • Our industry is sincerely grateful, and the Minister’s office along with Bank of Canada’s Governor Mark Carney should be congratulated on their swift prudent actions, including emergency mortgage pricing, when the global debt crisis began. Their actions were significant in helping Canadians avoid the housing collapse that our US neighbours experienced.
  • Although we support and encourage household fiscal responsibility, we think a sweeping policy change like the one we saw earlier this week wasn’t necessary. Mortgage default in Canada is the lowest in the world. Rather than pairing back the amortization term from 35 to 30 years, they should have made the borrower qualify based on payments for a 30-year amortization and kept the maximum amortization at 35. Qualification and purchasing power just dropped significantly, especially affecting first-time homebuyers, making it more difficult for our most valuable assets, young adults and young families, to experience homeownership and participate in our real estate sector.
  • I spoke about the changes regarding refinancing up to 85% loan to value. One of the most effective ways that we as mortgage professionals can eliminate high-interest, unsecured consumer debt and over extension is to retire this debt by refinancing at today’s low interest rates, sometimes saving the consumer hundreds of dollars per month in throw away interest. This policy is going to force many homeowners who are experiencing job loss, illness, separation, divorce or urgent unforeseen family crisis into having to sell their homes to gain access to their very own equity. Just under two years ago, we could refinance up to 95%. On a $300,000 home, that’s a difference of $30,000 homeowners can no longer access. Having access to that money could be the difference between getting through the tough times or spiralling into much more dire straits, including having to quickly sell their home at a discount, and finding themselves in a much more serious situation.
  • I spoke about the unlevel playing field between our Canadian insurers, specifically about the unlevel playing field enjoyed by CMHC. We discussed the need for the government to support our insurers equally. This benefits the consumer, and supports consumer choice and fair play.
  • My most passionate plea was for the government to have a very hard look at unsecured debt and specifically the credit card issuers. Canadians’ biggest financial struggles, their over extension and record debt levels are not due to their mortgages (again, we have the lowest mortgage default in the world). They are due to easy access to high-interest credit cards and other unsecured debt. How is it that my very own son, who is 19, attends second-year University, does not have a job and was issued two separate credit cards on his own? One of them had an initial credit limit of $500 and is now at $3,500 in just over a year. The feedback from all the participants in the consultation was remarkable. Several very high-profile participants expressed similar stories and recognized this as a very serious pressing issue for Canadians. I explained that we have very strict qualifications for mortgages, including TDS and GDS ratios to ensure that consumers have the financial wherewithal to make the payments, and similar qualifications based on the credit card limits should apply. The Minister took notes, asked for suggestions on how to implement and recognized it as a more important issue than he had initially considered. We did have discussions and I commended them on taking the first step, and a very valuable one at that, by putting the length required to pay off your credit card based on making the minimum payments.

The day was incredibly interesting, and I truly felt that these sessions were much more than a ceremonial photo opportunity, and that the Minister’s office was truly listening and valued the panel’s feedback. I will continue to stand up for what I believe in and speak for what is right, not what is popular, politically correct or the easiest point of view. Our industry is under assault, and Canadians are the ones who are most affected. We need to bind together, regardless of our companies or our competitors, and speak with a common voice and stand up so that we can continue delivering choice, value, options and trusted advice to Canadians.




Gary Mauris


Dominion Lending Centres

17 Jan

Flaherty tightens mortgage taps Last Updated: Monday, January 17, 2011 | 10:58 AM ET


Posted by: Tony Passalacqua

Snow-topped houses for sale in Calgary. Ottawa moved on Monday to lower the maximum amortization period for mortgages.Snow-topped houses for sale in Calgary. Ottawa moved on Monday to lower the maximum amortization period for mortgages. (CBC)

Federal Finance Minister Jim Flaherty announced tighter mortgage rules on Monday to address concerns over high Canadian household debt.

“In 2008 and again in 2010, our government acted to protect and strengthen the Canadian housing market,” Flaherty told a news conference in Ottawa. “We continue to do so today.”

Flaherty unveiled three main changes:

  • The maximum amortization period for a government-insured mortgage was lowered from 35 to 30 years.
  • The upper limit that Canadians can borrow against their home equity was lowered from 90 per cent to 85 per cent.
  • Government insurance backing on home equity lines of credit, or HELOCs, has been removed.

The first change is likely to have the largest impact. Buyers who purchase a home with a down payment less than 20 per cent of the value of the home are required to purchase government-backed mortgage insurance through Canada Mortgage and Housing Corporation.

Under the new rules, mortgages amortized over longer than 30 years will no longer qualify for that insurance, making it effectively impossible to get a highly leveraged mortgage of more than 30 years in Canada.

After companies began insuring mortgages of 40 years or more, Ottawa set the limit at 35 years in 2008 before Monday’s move lowered it to 30.

Aims to stem tide on consumer debt

“This measure will significantly reduce the total interest payments for Canadian homeowners,” Flaherty said.

He was referring to the fact that anyone taking a longer amortization on a mortgage would pay much more in interest over time.

Flaherty pitched the lowering of the amount that can be borrowed against home equity to 85 per cent as a move to ensure Canadians retain more equity in their homes.

“This will promote saving through home ownership and limit repackaging consumer debt into mortgages,” he said.

The final change, to remove government insurance on HELOCs, came as a result of Ottawa’s concern that certain financial institutions were allowing homeowners to roll too many consumer purchases into CMHC-insured mortgages.

“I think that’s particularly risky because some of those loans are not used to create housing. They’re used to buys boats, and cars and big-screen televisions,” Flaherty said. “That’s not the business that home insurance was designed for.”

Finance Minister Jim Flaherty, shown addressing reporters during a news conference last week, on Monday outlined several changes to mortgage lending rules.Finance Minister Jim Flaherty, shown addressing reporters during a news conference last week, on Monday outlined several changes to mortgage lending rules. (Jeff McIntosh/Canadian Press)

While Flaherty called the changes “moderate,” they did not include an increase to the five per cent minimum down payment Ottawa requires for a home purchase. They also stopped short of a proposal that surfaced last week which would have required 100 per cent of condo fees to be included in the list of expenses that are measured against income when financial firms consider a mortgage candidate. Currently, only 50 per cent must be included.

The changes also come following recent warnings from the Bank of Canada on household debt levels.

In December, bank governor Mark Carney cautioned Canadian households and businesses not to be lulled by current low interest rates, because repercussions from a hike could be swift.

Rates ‘will rise’

“While rates are low by historical standards, they eventually will rise,” Flaherty said Monday. He dismissed the notion that the announcement was timed to precede the bank’s next decision on interest rates, which are set to be revealed Tuesday.

“The particular timing today is not related to the interest rate announcement,” Flaherty said. “The governor and I speak regularly, and we discuss these types of issues [and] we make an effort to make sure government policy complements the Bank of Canada’s monetary policy.”

Last week, Agathe Côté, a deputy governor at the bank, told a Kingston, Ont., audience that a sudden weakening in the Canadian housing sector could affect other areas of the economy given the high debt loads of some households.

If that shock hits, Canadians would be expected to cut back on their spending, she said.

Flaherty’s announcement is the second time in three years that the government has clamped down on mortgage rules. In 2008, the government brought in several alterations, including:

  • Cutting the maximum amortization period to 35 years from 40.
  • Requiring a minimum down payment of five per cent.
  • Establishing a requirement for a consistent minimum credit score.
  • Introducing new loan-documentation standards.

Read more: http://www.cbc.ca/money/story/2011/01/17/flaherty-mortgage-changes.html#ixzz1BJTU66GG

NOTE: The changes will be implemented from March 18, 2011 and will have a considerable negative impact on buying and refinancing. If you know someone who has intentions of buying of refinancing it’s best to do it before March 18 and I would really appreciate the referral and being able to assist them in finding suitable mortgage financing before the changes take place and they no  longer qualify.

14 Jan

Potential changes to qualifications on Condos


Posted by: Tony Passalacqua

Sources say rules now being discussed would add 100% of condominium fees to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage. – Brett Gundlock/National Post

The federal government’s efforts to get tough on borrowing are now focused on the condominium sector, with new rules in the works to make it more difficult to qualify for a loan on a high-rise apartment, the National Post has learned.

Sources say rules now being discussed would add 100% of condominium fees to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage. Currently, only 50% of the fee is considered. The move has the potential to squeeze thousands of consumers out of the market.

“I know for a fact they are talking about it,” said one source close to finance officials who asked not be identified, about the proposal which is part of series of a new rules that the government is described as “seriously considering.”

It is almost a guarantee that the government will once again lower the maximum length of amortizations for a mortgage, down to 30 years from 35. Longer amortizations lower monthly mortgage fees making it easier for consumers to borrow more.

The Canadian Association of Accredited Mortgage Professionals says 30% of new mortgages last year were for amortizations of 35 years, so a considerable percentage of Canadians are taking advantage of the current rules.

About three years ago, amidst a battle for customers between federal Crown agency Canada and Mortgage and Housing Corp and private mortgage default insurers, amortizations lengths rose almost overnight from 25 years to 40 years before Ottawa cracked down. “Going from 35 years to 30 does almost nothing,” said the source, adding that’s why the government is looking at the changes to condominium qualifications.

Ottawa is also still considering a far more controversial proposal to increase the minimum downpayment required to buy a home but it is unlikely to go from the current 5% to 10%, as some have speculated. A 6% to 7% range seems more likely, said the source.

The proposals only affect those Canadians who require mortgage default insurance. Anyone borrowing from a financial institution covered by the Bank Act must get insurance if they have less than a 20% down payment.

“I’m concerned and disturbed if they are making changes, particularly to condos,” said Stephen Dupuis, chief executive of the Toronto-based Building Industry and Land Development Association. “They have already imposed stricter rules and that was plenty.”

In April, 2010 new mortgage rules went into affect that forced consumers to qualify based on a higher interest rate than was on their actual contract. It also required all housing investors, as opposed to people who use a home as principle residence, to have a 20% down payment which mostly affected the condo industry.

Mr. Dupuis said he can live with the amortization period being shrunk but any attempt to increase the minimum down payment will only hurt the market. “There seems to be a fatal obsession with real estate and engineering the real estate market which may be an unhealthy obsession.”

But Ottawa has coming under increasing pressure from the financial industry to tighten mortgage rules. Ed Clark, chief executive of Toronto-Dominion Bank, has called on the federal government to take steps to curb consumer access to bank loans.

The government is said to have looked into imposing new rules on lines of credit but that would be tougher to implement because it would require a change to the Bank Act, said a source.

The condominium proposal would have an immediate impact because the average condominium fee on an existing home is 55¢ a square foot in Toronto, according to research firm Urbanation Inc. which says the average condominium apartment in Toronto is 900 square feet.

Currently only half that approximate $500 in monthly condo fees counts toward monthly expenses for qualifying purposes. To qualify for a mortgage only 32% of gross income can go towards housing, which also includes mortgage payments including principle and interest, taxes and utilities.

Vince Gaetano, a vice-president with Monster Mortgage, said he too has heard the discussion of condominium fees being included in debt calculations and figures it makes sense.

“Yeah, condos provide extracurricular activities like swimming pools, gyms tennis courts and all that stuff. But the reality is you are paying the fee so why make it 50% it should be 100%,” says Mr. Gaetano. “This is going to put some pressure on people. The rules have not changed in ages and this is way before the proliferation of condos.”

Brad Lamb, a real estate broker and developer, said the practice would discriminate against condominium owners. “When you buy a house you don’t put any future maintenance costs [in your debt calculation],” says Mr. Lamb.

“All it is is a knee jerk reaction by idiot bankers pressuring idiot politicians that don’t understand the nature of the condominium market in Canada. What is driving the condominium market in Ottawa, Vancouver, Toronto and Montreal is investors. This won’t affect them. This just attacks the lowly first-time buyer.”