CAAMP Response to Draft Guideline B-20 Residential Mortgage Underwriting Practices and Procedures
Back in March of this year, OSFI (Office of the Superintendent of Financial Institutions Canada) released their draft recommendations to banks and other federally regulated lenders to tighten underwriting practices. The OSFI was calling on banks to submit their feedback to the suggested changes with the deadline being this past Tuesday, May 1st.
The Canadian Association of Accredited Mortgage Professionals (CAAMP) is Canada’s national mortgage industry association, representing the largest and most respected network of mortgage professionals in the country. CAAMP chose to comment on 5 areas surrounding the 18 pages of recommendations released by OSFI: (1) loan documentation, (2) debt service charge (additional assessment criteria), (3) loan to value ratios, (4) down payments and (5) home equity lines of credit (HELOC).
You can find the entire report from CAAMP here.
Loan Documentation and Underwriting
In terms of the loan documentation, it sounds as though OSFI has suggested that at renewal, a client must re-qualify and endure the entire underwriting process. CAAMP and others alike are looking for clarification around this proposed change. If the idea behind this is to literally re-qualify the client, CAAMP does not support this movement. How would you feel if when your mortgage came up for renewal, you’ve made all of your payments on time, but somehow you no longer “qualify” for that mortgage? This might be due to the fact that you are now retired or your income isn’t what it used to be.
The idea of re-qualifying for a mortgage that you’ve been compliant with seems a little backwards to most…myself included. The majority would support the idea of re-assessing the risk at the time of renewal, but find it unnecessary to go through the whole underwriting process again. CAAMP has suggested that implementing such a process “would result in a number of properties hitting the market at the same time thereby driving down prices”. I find this to be a little dramatic as I don’t believe that a large number of consumers wouldn’t re-qualify … but I do agree that re-qualifying is redundant.
OSFI has also proposed that any cash back amounts received from mortgages should not be used as any part of the down payment. CAAMP has sided with OSFI on this change and supports the idea that borrowers should have “skin in the game” (one of the 5 C’s of credit). There was a reason that the Minister of Finance ended the no down payment mortgage back in 2008…and it wasn’t to spark creativity among borrowers by using a 5 per cent cash back product to satisfy the minimum down payment requirement. I agree! Borrowers should have some capital to put towards what likely will be the biggest loan they will ever have.
The Mortgage Market in Canada
Canada’s mortgage market is said to be a model to markets around the world. Our success distinguishes us from the rest of the world. We can attribute our success to the regulations that we have in place, and the governing bodies who ensure compliance. The demise of the American mortgage marketplace and the bailouts that the U.K. banks had experienced should be a reminder that sound policies are a cornerstone to our success, and although tedious it is important that we review and alter them periodically.
StatsCan released a report on Canada’s GDP for February 2012. Due to a weak global demand and temporary mining closures in February (namely across potash and nickel mines in Saskatchewan), overall real GDP declined 0.2 per cent. Canada experienced decreases across its agriculture and forestry, mining and oil and gas, manufacturing, utilities, and retail sectors which wasn’t offset by the increases across construction, wholesale, financial and insurance, education, health, and public administration sectors.
So let’s focus on the areas that are directly speaking to the mortgage and housing industry. Construction rose 0.5 per cent in February due to increases in residential and non-residential building constructions. Output of real estate agents and brokers also increased 1.1 per cent in February due to increased activity in the home resale market. And finally the finance and industry sector climbed 0.5 per cent. All good news!
RateSupermarket.ca Week in Review
It feels funny to report a notable change to the best mortgage rate page since rates have been so stagnant for the last little while. However the 3 year variable rate has increase by 15 bps over the last week, leaving the best rate in Canada right now sitting at prime – 0.10. The only other increase to rates over the last week was the 5 year fixed rate, up 5 bps from last week and sitting at 3.14 per cent. Do you want to know when the 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!
Still hot in the number one spot for the most popular searched mortgage rate is the 5 year fixed mortgage rate with a 47.3 per cent viewing rate. Following the 5 year fixed is the the 5 year variable rate which sparked an interest in 22.9 per cent of RateSupermarket.ca’s visitors, the 10 year fixed which was searched by 9 per cent and finally the 3 year fixed searched by 5.7 per cent.