What the Big Fish Are Saying
TD Bank and RBC are on-side with the federal government’s idea to cool off the housing market; however, they’re also worried about the long-term effects these changes will have on the Canadian economy. This is looking at the big picture – potentially years down the road – when mortgage rates have returned to “normal” levels.
No one knows exactly where that normal level will be, but one thing’s for sure… the Canadian marketplace will experience a higher rate environment at some point in time. But then what? Will the government perhaps revert to the old way of doing things and old rules? Industry experts think so!
RBC’s Head of Canadian Banking David McKay put it well when he cautioned Ottawa about the adverse effects of a permanent change, saying, “This is not like turning a Ferrari. This is like a big ship. And it takes a while to turn. And sometimes if you over steer, you can’t re-steer the other way.” The truth of the matter is, only time will tell how quickly these new rules will cool the demand in the housing market, when rates will return to normal levels, and if the government will let up on any of their tightening rules.
My two cents: this isn’t going to be a quick fix or require a one-time tweaking. Constant monitoring is required in order to ensure a viable balance within the Canadian economy and marketplace – and the government will continue to play an active role.
Conventional Underwriting Guidelines and the Mono Lender
When CMHC has made changes to underwriting guidelines in the past, lenders have generally followed suit for their uninsured business as well. This shouldn’t have come as too big of a surprise since most lenders often bulk insure their conventional mortgage portfolio through securitization and the creation of MBS. Check out The Answer, for dummies section from an earlier Friday Mortgage Round Up for a refresher on what this all means.
The Broker Channel
The general consensus is that brokers are a little nervous about how the changes will affect not only their insured business, but now their conventional book as well. So far, the banks and mono-line lenders haven’t made any changes to their regular product line offerings or the guidelines to abide by for qualifying. But if the past is any indication of the future, changes to conventional business could be coming.
Back in February, when CMHC announced that they were approaching their $600-billion cap, they claimed that lenders would be the ones feeling the pinch, not borrowers. This was because CMHC had put a limit on the volume of insured, conventional business offered to their lending partners.
However, some lenders responded by providing promotional financing options for high-ratio deals only. This would ensure that the mortgage client (and not the lender) would be responsible for obtaining insurance which would not count towards their own uninsured, securitized portfolio. Promo rates offered that are for “high ratio only” deals were due to the changes made by CMHC; so with further tightening to the CMHC-insured mortgage, lenders may need to call on Genworth Financial for insurance or offer their promo rates to the conventional client as well.
RateSupermarket.ca Week in Review
Half of the rates on the Best Mortgage rates page changed over the last week, but not to worry! – it’s for the better! The 1 year fixed, 2 year fixed and 3 year fixed rates all dropped either 5 or 15 basis points over the last week. While on the variable side, both the 3 year variable and 5 year variable rates also dropped. The biggest change was to the 3 year variable rate which dropped 30 basis points and sits at prime – 0.40.
Do you want the inside edge when best mortgage rates change? Be the first to know and sign up for RateAlert, RateSupermarket.ca will e-mail you a daily digest of the mortgage rates that have changed in your area!
What is the most popular searched term you may be wondering? 5 years. 43.5 per cent of RateSupermarket.ca’s visitors are seeking out the ever-popular 5 year fixed closed rate, more than any other rate on the market! Nearly one third of visitors are searching the 5 year variable rate, and under 10 per cent of visitors are looking for a term other than 5 years.