Halt to Further Mortgage Tightening – The Stress Test
Mortgage Professionals Canada has asked the Department of Finance for a moratorium on mortgage rule changes until the effects of the current changes are known.Speaking before the Standing Committee on Finance this week, MPC CEO Paul Taylor spoke to the association’s key concerns about the new rules and its hope that certain aspects will be revisited.
“The recent changes are having a cumulative negative impact on the mortgage market and ultimately on the Canadian consumer,” MPC president and CEO Paul Taylor said. “We are asking for slight amendments to the portfolio insurance eligibility guidelines, and to wait for the remaining existing changes to make their way through the market before implementing any further changes.
He touched on the disproportionate impact the portfolio insurance changes are having on non-traditional bank lenders, as well as the reduced purchasing power for young homeowners due to the more stringent stress testing of insured mortgages.
Taylor also told the committee how the new rules are negatively affecting the mortgage broker channel and hurting competition.
“Canadian consumers have been more and more inclined to use the services of a mortgage broker to provide choice, advocacy and support, and to assist in the technical requirements of mortgage qualification,” he said. “Placing competitive disadvantages [on] the non?traditional bank lenders will adversely affect this segment of the Canadian mortgage marketplace…We therefore maintain that in light of decreased competition, increased financing costs, decreased purchasing power, and increased regional prices and access disparity, that the government suspend any further changes to the housing market it is considering.”
The association made the following specific recommendations to the Standing Committee on Finance:
- Allow for refinanced mortgages to be included in portfolio insurance. “If an 80% loan?to?value ratio is unacceptable, please consider reducing the threshold to 75% rather than removing eligibility to these products entirely,” Taylor said. “This adjustment would alleviate some of the competitive disadvantage pressure the cumulative effect of these changes place on the non?traditional bank lenders.”
- Reconsider the increased capital reserve requirements implemented on January 1, 2017, for insured mortgages, as they are making low-ratio insurance too costly for small? and mid?sized lenders.
- Apply the stress test to all mortgages sold by all federally regulated lenders, not just insured mortgages.
- Uncouple the stress-test rate from the big five banks’ posted rates. Use an independent mechanism to determine the rate.
- Conduct a review of the long?term impact of regional?based pricing on the Canadian economy as a whole, and the potential additional harmful effects on already-strained regional economies.
The first three recommendations above would needfully re-level the playing field between major banks and Canada’s 400+ other lenders. It would put real choice back to hands of Canadians and meaningfully reduce borrowing costs for well-qualified borrowers. If the government deemed it necessary, these “fixes” to a now broken system could be re-instated with stricter qualification criteria, ensuring the government’s concerns (e.g., over-leverage) are addressed.
We’ll have more on the hearings to come, including surprising testimony from OSFI.
By; Robert McLister , Canadian Mortgage Trends