16 Feb

Flaherty Announces Changes to Mortgage Lending in Canada


Posted by: Rabinder Dhillon

Jim Flaherty Tuesday announced tighter lending standards for mortgages, saying that while the housing market is “healthy” the moves are needed to “help prevent negative trends from developing.” Under the new rules, all borrowers will need to meet standards for 5-year fixed-rate mortgages regardless of whether they’re seeking a loan with a lower rate and shorter term.

Also, the government is lowering the maximum amount Canadians can withdraw when refinancing to 90 per cent of the value of their homes, from the current 95 per cent, and requiring a 20 per cent down payment for government-backed mortgage insurance on “speculative” investment properties.“There are no definitive signs of a housing bubble,” Mr. Flaherty said. “We think we’re being pro-active in the three steps we’re taking today.”

Frank Techar, the President of Personal and Commercial Banking for BMO Bank of Montreal, welcomed the announcement.“While we do not believe that Canada faces a housing bubble, we fully support the minister’s actions,” Mr. Techar said in a statement. “Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent. Currently, we require high ratio mortgages to be able to qualify using the 5 year rate.”

In a release, the finance department indicated that the three new changes to the mortgage insurance guarantee rules are intended to take effect April 19, 2010.  In reference to the tightening of re-financing rules, Mr. Flaherty said this will encourage Canadians to build equity in their homes instead of tapping that equity as a source of cash. “This will discourage the kind of mortgage refinancing that can create unsustainable debt levels as interest rates go up. We are encouraging people to build equity over time, using home ownership as an effective way to save, rather than as a vehicle for quick cash,” he said. 

In his comments on the third measure, Mr. Flaherty said the hike in minimum down payments for such properties will help keep prices from climbing too high. “We will require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner occupied properties purchased for speculation. This will discourage the kind of reckless real estate speculation that can drive prices to unsustainable  levels which does not serve Canadian home buyers,” he said. “We’re not aiming here at investment properties,” Mr. Flaherty added. “What we’re getting at is the speculation in multiple-condo markets, in particular.” 

CIBC economist Avery Shenfeld said “these look to be very well targeted at the one area of concern that we have, which is that low rates are making larger variable rate mortgages look more affordable than they really are on a long term basis.” The moves send an appropriate message to borrowers about debt, he said. While the rules don’t take effect yet, Mr. Shenfeld suggested that the banks might begin adopting them earlier. And they could take a little bit of steam out of the market, he said. “It may be part of a cooling that we’ll see in house price appreciation,” he said. “We were pushing into house prices that were running a bit ahead of rental rates and income fundamentals – not to the point that we feared a huge house price crash, but to the point that it might be time to head-off such risks.”

Click here to read the full article article in the Globe & Mail

10 Feb

ING warning Ottawa not to pull back on mortgage rules


Posted by: Rabinder Dhillon

The head of ING Direct Canada, the country’s sixth-largest mortgage lender, is warning Ottawa not to pull back too quickly on mortgage rules, lest that causes the very thing everyone wants to avoid – a swooning housing market.
While Ottawa should increase scrutiny of the percolating Canadian real estate market, acting too quickly to impose blanket new rules on mortgages could have the unintended consequences of toppling the market, he said Tuesday.
Most expect the market will cool off by itself later this year even as some, including Scotiabank, acknowledge house prices are now in bubble territory.
“High level, one-stroke fixes are too simple, and can have a very large impact,” said ING Direct Chief Executive Peter Aceto. “I worry about government-based tightening of the mortgage rules creating a much worse reaction – too fast of a cooling, which is not really good for anyone.”
Click here to read the full article in the Globe and Mail.

3 Feb

Private Economists urging Finance Minister to tread cautiously


Posted by: Rabinder Dhillon

Canada’s leading private economists are urging Finance Minister Jim Flaherty to tread a cautious path in his March budget and keep spending flowing in a fragile recovery.
At a meeting in Ottawa on Tuesday, the economists suggested Flaherty look past some of the better-than-expected data in Canada and the US, and resist moving too quickly to rein in the deficit.
The economists have boosted their projections for the economy, which Flaherty uses to shape his own assessments. They now see average economic growth of 2.7% this year, according to a Bloomberg survey. That’s higher than the 2.3% Flaherty projected in his September fiscal update, but still well below the 5% to 6% that typically follows a deep slump.
“The dominant theme here is that unlike recoveries from previous recessions, this one’s going to be fairly slow and drawn out,” said Craig Alexander, Deputy Chief Economist at Toronto-Dominion Bank. “I don’t think the government should be tightening fiscal policy before the recovery has gained greater traction.”
Click here to read the full Globe and Mail article.