Canadian homebuyers know that, when it comes to housing, they should always listen to their mortgage broker. Now, the nation’s banking regulatory agency might want to heed their advice as well.
New rules proposed by the Office of the Superintendent of Financial Institutions would present a “significant, significant change” to the way mortgages are refinanced, according to Jim Murphy, head of the Canadian Association of Accredited Mortgage Professionals. The OSFI is proposing that banks reevaluate borrowers’ income levels and employment status, as well as reassess home values every time a homeowner attempts to refinance his or her mortgage. Most mortgage renewals are based on past payment history, and revised borrower assessments are almost never made.
“CAAMP strongly recommends that this concept be clarified so that mortgages continue to be renewed at maturity without requalification,” the organization said in a letter to the OSFI. “If not, homeowners who have been in compliance may no longer qualify. This would result in a number of properties hitting the market at the same time thereby driving down prices.”
In analyzing the development, The Globe and Mail noted a recent Fitch Ratings report that indicated rapidly-expanding mortgage consumption was still a threat to the nation’s banks. Finance ministers in Ottawa have already taken strides to curb the growth of the housing market by subjecting the Canadian Mortgage and Housing Corporation, which guarantees most of the mortgages in Canada, to OSFI oversight. This could have the effect of slowing lending as banks find they have less access to safe mortgage products.
The statement from CAAMP came in response to a series of proposals issued by the OSFI. In addition to refinance underwriting rules, the agency also commented on a proposal to limit home equity lines of credit to 65 percent of the value of a home. According to CAAMP, HELOCs are used by a number of Canadians to invest in capital markets or help finance small businesses. The OSFI should allow flexibility for those with good credit who show they would be able to afford HELOCs greater than 65 percent, Murphy said.
Home equity loans are often used by older Canadians to help finance their retirement. A recent housing market analysis from industry expert Ben Rabidoux indicated that as more Canadians approach retirement and look to turn their assets into income, the housing market will experience a significant shift. Writing in The Globe and Mail, Rabidoux suggested home prices will drop by 1 percent annually over the next decade as older Canadians sell or leverage their homes.