Mortgage Broker

CmB magazine cmba-achc.ca spring 2017 | 29 I n the mortgage world, equity used to mean something. A homeowner with a good job, clean credit and 25 to 30 per cent equity in their home would land the best mortgage rate, hands down. But that's not necessarily the case now that the federal government has implemented sweeping changes to Canada's mortgage regulations. In October 2016, a series of changes were announced that the Liberal government says were developed to protect the financial security of Canadians, support a stable housing market, and improve the tax system by preventing abuse of the principal residence capital gains exemption. But some experienced mortgage brokers believe the government went too far by instituting the significant changes without the benefit of coast-to-coast industry consultation with those who make mortgages their business. ey also say that while the red-hot housing markets in Toronto and Vancouver may indeed need cooling, blanket changes at the federal level are harming other markets that were barely lukewarm in the first place. It's a case where "one size" regulations definitely don't fit all. Sweeping Changes Perhaps the biggest change announced by Finance Minister Bill Morneau last fall is that mortgage "stress tests" are now applicable to all insured mortgages, even if buyers have a down payment greater than 20 per cent. Ostensibly to protect buyers against the possibility of rising interest rates, their ability to pay mortgage, taxes and heating costs will be evaluated using the Bank of Canada's posted five-year fixed mortgage rate (currently 4.64 per cent). No more than 39 per cent of their income must be needed to cover these costs. Mortgage brokers say this move has reduced consumers' buying power and forced them to consider other types of housing, perhaps in less desirable areas, than they would have qualified for prior to the changes. And it seems that a significant segment of the buyer population is now being declined mortgages for failing the mortgage stress test. "I'd say it's made an impact of about 15 per cent on my clientele," says Janet McKeough, a CMBA director and owner of Verico Success Mortgages in Halifax, N.S. "I can tell you as well that because of these changes, it's taking longer to secure an approval for a client since you're having to shop multiple lenders." As an example, McKeough – who has been in the mortgage industry for 25 years – relates the story of a client whose mortgage was held by one of the big banks. "ey needed to refinance to do their roof. Because of the area they live in, their existing lender would not refinance them. It took me five lenders to get someone to do their mortgage and it was only a $7,000 ask." She adds that rural properties in Nova Scotia have been especially impacted by tightening regulations, with lenders more reluctant to finance those purchases because in the event of a default they traditionally take longer to sell. erefore, buyers of those properties are penalized since there are fewer potential lenders for them. As well, notes McKeough, while rental housing costs are on par with other urban centres across the country, Nova Scotia wages are lower. is means it takes people longer to save a down payment, and the mandatory stress test may now mean they have to further delay their entry into the housing market. Frustrated and Bewildered While mortgage insurance has been mandatory for high ratio mortgages with less than 20 per cent down, low ratio mortgages with more than 20 per cent equity were typically portfolio-insured. Recent rule changes now prohibit this, giving balance sheet lenders a competitive edge and conventional borrowers fewer and more costly options for both purchases and refinances.

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