After the recent regulation change by the finance ministry, one segment of the mortgage industry is the reaping the benefit.
Few lenders are experiencing a noticeable increase in deal volume at the B side of their lending business. We have talked to few national lenders and they have confirmed that fact. We could not exactly find out the split between the purchases and refinances but it is safe to assume that refinance volume is higher than purchase.
Reasons:
- Some borderline borrowers might have gotten caught by the fast implementation of the new rule. They otherwise could have been easily qualified under the old GDS requirement. Although the TDS requirement virtually remained unchanged – some lenders are paying careful attention to the GDS ratio.
- Next reason is the lower loan to value ratio of mortgages insured by CMHC for the purpose of re-finances. Prior to the rule change it was 85% Loan to value ratio for re-finances. Now the maximum LTV is 80%. Any borrower who really needs that extra 5% would try to find an alternative lender.
- Home price evaluations or the appraisals are more conservatively estimated now. We can guess that this is due to the fear of over inflated house prices in some urban pockets.
- Rumors are, that there will be additional tightening of lending policies in future. So, before further changes disrupt the housing market, many are taking the opportunity of the existing situation in anticipation of further tightening.
- It is yet to be confirmed that if any lender is regularly getting borrowers to re-qualify for the existing mortgages upon renewals but that possibility cannot totally be discarded due to the new OSFI guideline. OSFI did not mandate the lenders to re-qualify borrowers on mortgage renewals but it did recommend to keep a tab on the credit history of existing borrowers. Therefore if a mortgagor got his credit messed up during the loan term and if the lender is adherent to the OSFI guideline then the mortgagor may ask for a re-qualification to renew the loan.
Effects:
Those facts and fictions are driving many borrowers to look for a B-Lender. Every other day we meet business owners who are not very happy with the current economic situation. Many of those select relatively higher interest B-Loans for a brief period to weather the worst time.
The new regulation did affect all spectrum of mortgage brokering industry but in the end it unknowingly opened another channel. Whatever is the case, if housing tanks then there is no way anyone can escape the aftershock including the mortgage brokers.
Lenders are facing tighter lending guidelines and because of that they will end up with more funds in their hands. To put that extra stash to work they will compete on rates and that is already the case.
Apart from the additional supply of cash, bond yields have been consistently unfavourable for the lenders. In Canada, real-estate investment is still regarded as a safe investment because it is either backed by home equity or default insurance. As an effect – supply of cash remained steady.
