Mortgage Broker

overregulation 30 | spring 2017 cmba-achc.ca CmB magazine is means that homeowners with good jobs and credit could now be offered a significantly higher interest rate than a first-time buyer, as lenders pass along the newly mandated costs of fully insuring low ratio mortgages. When mortgage brokers attempt to explain these new rules to clients, they are oen met with frustration and bewilderment. Troy Resvick, a 20-year industry veteran who is managing partner at Invis – Resvick and Associates Mortgage Advisors in Langley, B.C., recounts a situation where parents wanted to gi their son and future daughter- in-law with a five per cent down payment on a home by removing that money from the equity in their own property. e parents were "the picture of financial health," according to Resvick, but they ended up getting a worse interest rate than the kids. "ey couldn't believe it. I think this is the biggest impact the regulatory changes have had so far, the adverse effect on rates offered to conventional mortgage holders. at seems to be backwards to me from a risk point of view. Equity still represents something, but unfortunately not to the Canadian government. How do I even try to explain that to a client?" Resvick says that, across the board, the new regulations are causing people to adjust their expectations as purchasing power diminishes. "Lenders don't have flexibility anymore; there is no wiggle room with debt service ratios. Qualification rules are set in stone." While he believes wholesale lenders have adapted well to meeting the new needs of the market, he adds that when costs escalate, consumers pay. It's as simple as that. In terms of promoting financial stability, Resvick takes aim at the consumer credit industry, where unsecured loans for cars, charge cards and lines of credit seem to be given out like candy. "e cost of consumer credit is significantly higher than mortgage debt," he says. "In many cases there isn't a lot of vetting. We see this all the time – $50,000 car loans to people in their 30s. So if you've established equity in your home, why shouldn't you be able to access that equity to lower your overall cost of borrowing?" He, too, cites an example of a client who ran into difficulty as a result of the new regulations. "I was speaking to someone who was up for renewal and was being offered a good rate with his original lender. He wanted to consolidate a small debt into it. His rate will go up about 20 basis points if he refinances. But adding less than $10,000 to this guy's mortgage doesn't make him a bigger financial risk. Whether it's prudent to take or not, there are many arguments about it." Resvick adds that he doesn't see the government backtracking on these new rules any time soon. "e water in the pot has already boiled, so everything in it is already cooked," he says. "From the government's point of view, it was a move to get back to insuring Canadians for principal residences. CMHC [Canada Mortgage and Housing Corporation] was originally started to help Canadians buy their primary home. Now we have secondary homes, rental properties and diversification also being insured. e government simply doesn't want to take on that risk." He says it would have been much better if the Liberals had held a series of nationwide industry town halls prior to implementing legislative changes. "It's evident the federal government didn't do its homework on this. Not only for the consumers, but also the lenders. You have to take into account all the players in a marketplace." Resvick further explains that mortgage markets are different across the country but one thing is certain: "ey're all Canadian taxpayers and their needs need to be considered and addressed before legislating changes." Referring to the CMBA submissions to the Parliamentary Committee on Finance, CMBA President Ajay Soni advises: "We did point out that CMBA has significant expertise on these rule changes and should have been and must be consulted in advance of any further rule changes." McKeough agrees. "ey constantly worry about a housing bubble but that's primarily the Toronto and Vancouver markets. A one-size- fits-all approach doesn't apply to this situation because markets are different across the country." She is also in favour of additional industry consultation. "We put forth the recommendation to calculate the benchmark rate a different way and only making [the stress test] applicable to properties priced at $500,000 and over. According to the Canadian Real Estate Association (CREA) the average home purchase in Canada was $474,590 in September 2016. Remove the markets of Toronto and Vancouver, and this decreases to $358,884. at would make a real difference." One of McKeough's fellow East Coast brokers, Janice MacIver of Premier Mortgage Centre in Moncton, N.B., says she doesn't see how the recent federal regulatory changes benefit the average consumer, particularly when it comes to refinancing. "ey wanted banks and lenders to take some of the hit so they removed the mortgage default insurance for refinances," MacIver explains. "So the monolines, who tended to back end insure, are no longer able to do that. We have such a low rate of default you have to ask, 'What was this for?' " She says that when you come right down to it, the recent regulatory changes mean fewer options for consumers, oen at a higher price. MacIver believes that less competition will only result in rates increasing. She herself has seen a client fallout of about 10 per cent over the last six months. Again, MacIver says a blanket approach to regulation doesn't work in a country with very diverse mortgage markets. "I can read the words they're saying and how they want to slow the market down, but we're talking about two major centres that need to be slowed down. Why punish everyone else?" "Equity still represents something, but unfortunately not to the Canadian government. How do I even try to explain that to a client?"

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