Myke Thomas The Kingston Whig Standard
The Office of the Superintendent of Financial Institutions’ (OSFI) is looking to further reduce mortgage financing.
OSFI has introduced a number of measures designed to slow down the rapidly rising costs of housing in overheated Canadian markets such as Toronto and Vancouver.
The latest move will affect underwriting that over-relies on the equity of a property, without due consideration to the borrower’s capacity to pay. As OSFI says in a newsletter, “there continues to be evidence of mortgage approvals that over-rely on the equity in the property (at the expense of assessing the borrower’s ability to repay the loan). OSFI will be taking steps to ensure this sort of equity lending ceases.”
Mark Herman, a Calgary mortgage broker with Mortgage Alliance, is wondering why OSFI is making the move.
“The new mortgage lending rules (B-20 and B-21) have pretty much shut down banks equity lending products. Most of all of our lenders have phased out their equity-based lending and there are only a few left,” says Herman.
“The few programs that still exist fall into a low documentation qualifier and they still require a 35 percent to 50 percent downpayment and are usually combined with high-net worth buyers and or a substantial investment portfolio to qualify.”
“Overall, there are very few customers that actually do fit into the few equity programs that are left. We don’t think this next OSFI Memo is going to change the existing mortgage lending landscape very much at all.”
Certainly not as much as the B-20 and B-21 rules, which, better known as the stress test, imposed new restrictions on government insurance for low-ratio mortgages and issued new reporting rules for primary residence capital gains exemptions.
In its newsletter, OSFI says the B-20 guidelines have yielded positive results, including lower average loan-to-value ratios for mortgages, and fewer mortgages being approved for over-leveraged individuals.
Nowhere in the newsletter did OSFI mention the unintended consequences of B20.
However, high-ranking members of Mortgage Professionals Canada (MPC), the association representing brokers, took that story to more than 50 Members of Parliament and senior government officials on October 16.
Their mission was to update decision-makers on the continued negative impact of the stress test and how recent federal mortgage rule changes are hurting Canadians. MPC members brought industry concerns on housing affordability, availability and accessibility being seen in regions across the country.
“Fewer Canadians now are able to obtain the mortgage they need to acquire a home, and many sellers now find fewer buyers to sell their home to,” said Paul Taylor, president and CEO of MPC. “As we first outlined at the time of the mortgage rule changes, it’s now clear that our concerns regarding the cumulative impact of said changes are decreasing competition and increasing costs for consumers.”
MPC acknowledges the government’s intent of the regulations and is not calling for B20 to be abolished, but rather that it takes into account all Canadian housing markets are not the same as Toronto and Vancouver.
The new rules have made it harder for Canadians to achieve homeownership, whether they be millennials, single parents or recent immigrants, said Mark Kerzner, MPC board member.
“We ask that the government reconsider and recalibrate these policies to ensure the Canadian Dream is as achievable for this generation as it was for their parents and grandparents,” said Kerzner. “We have outlined five clear asks that reflect the growing national evidence being felt by Canadians from coast to coast, which includes uncoupling the stress test from the Bank of Canada five-year benchmark rate and be set to 0.75 percent above the contract rate set by the lender, as well as changes to the B-20 stress test.”
As pointed out in the PwC Canada/Urban Land Institute 2019 Emerging Trends in Real Estate report, “A key issue with the federal government’s approach is that Canada doesn’t have just one national housing market. And since each local market is unique — with its own issues, challenges and opportunities — applying one approach across Canada falls short.”
The annual report is compiled by interviewing a broad cross-section of people involved in every aspect of real estate, from financial institutions, builders, developers and property management companies to lenders, brokers, advisers and consultants.
“Interviewees lamented that all sorts of government regulations are already posing challenges for all real estate sectors, with many saying that they expect affordability will only get more difficult for most people,” says the report. “Also contributing to the challenge is the fact that the actions taken so far have addressed the demand issues but not the real issues on the supply side.”
Governments need to change the way they look at housing, say people interviewed for the report.
“Bureaucracy is not responsive or helpful,” one interviewee said. “The impact is to put even more pressure on supply and, therefore, put more pressure on increasing prices.”
“While high demand and limited supply are the main forces at play in these expensive markets, government development charges, taxes and levies also are significant factors in the cost of homeownership,” says the report.
“The average government charge for a single-detached home is about $186,300 (in Toronto) or almost 22 percent of the price of an average new home, according to a May 2018 report from the Building Industry and Land Development Association.”
Hopefully, the Members of Parliament and senior government official who sat down with MPC members will see the need for action.
