Q: Hi Kyle, I read in the Sun today that the OSFI is going to be watching over CMHC now and that there may be new changes to mortgage rules. What do you think will happen with mortgage rates? Will financing get tighter again? Thanks, Heather
A: Hi Heather and Harry,
It will be interesting to see what will come down the pipeline with the OSFI overseeing CMHC.
The inevitable change that occured is the way that mortgages are securitized. It will likely become more expensive for banks to securitize their loans the way way they had done in the past, and this cost may end up getting passed to the consumer. Economists predict this cost could be anywhere from 10 – 20 basis points (.1% – .2%).
With regards to financing product changes, the OSFI had made it clear that they do not want Canadians using HELOC’s (Home Equity Line of Credit) as an ATM machine, and are strongly suggesting that banks cut total financing down from 80% to 65% for these products. This would have a large impact on investors, as HELOC’s are an integral part of most investment strategies, but also on your average homeowner who wants to borrow money for improvements to their house or for debt consolidation. How much pull CMHC will have over the banks with the OSFI overseeing them is yet to be seen.
CMHC has already tightened up financing and although they haven’t changed your guidelines, it is becoming apparent that as they come closer to their $600 Billion cap, they are beginning to become much choosier with who they will insure. Clients with tight debt servicing (but still fall within guidelines) are beginning to get declined much more frequently than before. Self employed borrowers and clients relying heavily on rental income will continue to feel the squeeze.
Most of the tightening already began with CMHC’s realization in early February of this year that they were nearing their cap. That being said, don’t be surprised to see a few tweaks here and there to keep the OSFI happy.