New Mortgage Rules: Q&A With Benjamin Sammut

Scheduling conflicts didn’t allow me to pull in broker-to-the-stars, Joe Sammut, for a video today as promised.

But I found the next best thing – his son, Benjamin Sammut, who is almost as good-looking, and with a slightly better beard

Thanks to TRB readers and commenters for a host of solid questions, and great debate points from Friday’s blog that we can explore.

And thanks to Mortgage Architects, Benjamin Sammut, and Joe Sammut, for the following…

 

Mortgage button on a keyboard.

Next week, I promise.

I know many of you (aka only my mother…) want to see the results of what $129.99 worth of lighting and sound equipment can buy on Amazon Prime.

I’m also acutely aware that there’s new phenomenon out there whereby a lot of people don’t read, but will watch a video with the exact same content and subject matter.

So after today’s discussion, and more questions arise – both here on TRB, and in the media and among buyers and sellers, as the impact of the new OSFI regulations are felt, we’ll have topics to explore in a video next week.

Today, I want to get to some of the questions and comments from the last several days.

Several people had emailed almost identical questions, so I apologize (or you’re welcome?) for not getting the shout-out here.

I’ve also included some discussion points from last week’s blog which I think deserve consideration.


 

Andrew asks by email:

Q: “Media reports suggest that ‘affordability’ is down 20%.  Can you explain that?”

Ben says:

Some people won’t see their affordability change at all with these new regulatory changes. Meanwhile others can see a decrease of up to 20%.

It all depends on what demographic of homebuyer you fall into as well as who you’re working with (broker, bank, etc) and the solutions they can provide.

 


 

Sydney asks by email:

Q: “There was an article in the Financial Post by Gary Marr that suggested there’s a ‘loophole’ with the OSFI stress-testing, since you can tinker with the amortization period, to increase your affordability.”

Ben says:

There was a loophole in the stress test before that a lot of people were taking advantage of – they were finding other sources to come up with 20% down and avoid the CMHC stress test (gifts from family, private mortgages, etc).

The point of the new OFSI rules, I think, is to close this loophole and any others like it.

 


 

Professional Shanker asks on TRB:

Q: “If you are a move up buyer and are transferring your mortgage to a more expensive house – do you have to re-qualify under the new guidelines?”

Ben says:

This is a great question, and one that doesn’t have an answer yet.

Unfortunately, when OFSI comes out with these regulations, they’re intentionally vague to allow for interpretation from each individual financial institution.

Unfortunately, this usually means fear and confusion for the average Canadian at least for the next few weeks.

I would imagine that if you have any need to change the loan (increase mortgage amount, extend your amortization, break the mortgage and apply for a new charge upon moving, for example), you would have to re-qualify under the new rules.

Q: “If you recently purchased and are renewing with the same lender (say a 5 year fixed), then my understanding is that you do not have to qualify under the new guidelines. What happens if you plan to switch lenders – do you have to qualify under the new guidelines?”

Ben says:

Therein lies the rub. If you are renewing with the same lender, you do not need to requalify under new rules. However, if you switch to any new lender, you would need to re-qualify.

For some parts of the buyer sphere (self-employed, new career, maternity leave, etc) this could leave you with only one option – your current lender. T

These changes will systemically take away your competitive advantage and ability to shop for a better rate or product.

Q: “If you are currently under a variable rate mortgage and want to lock in, do the new lending standards factor in?”

Ben says:

Another great question that is subject to some ambiguity right now.

I would imagine that you would not need to re-qualify, as you were technically already stress tested to be in a variable mortgage.

Q: “Re-financing your mortgage – will the new guidelines have an impact?”

Ben says:

Refinances will be the hardest hit as they almost always fall into the segment of the market impacted by the stress test.

If you are considering pulling equity out of your house, you will want to look into this before the changes come in on Jan 1 because they will directly impact your limit.

 


 

Joel, Kramer and Kyle are debating on TRB:

“People are suggesting this is about ‘cleaning up bad debt.’  If that were the case, wouldn’t the government be going after credit card lending practices?  I’m of the mindset that consumer debt is far worse than mortgage debt.”

Ben says:

I think that attacking mortgages and claiming they are a bad debt is a bit of a strawman argument.

It makes for good headlines and politics but the fact of the matter is, the Canadian economy relies very heavily on the housing market. From realtors, to mortgage brokers, to builders, contractors, and suppliers, Canada’s real estate industry is MASSIVE.

It would be prudent to ensure it is as safe as possible. And while some disagree with HOW the government is regulating the housing market, there’s no doubt that it should be regulated for the sake of our economy.

 


 

Condodweller suggests on TRB:

“Regarding why OSFI did this is neither reason listed above (ie. either an attempt to reign in borrowing among Canadians, or an attempt to cool the market).  They want to protect CMHC from mass defaults.”

Ben says:

The new changes actually have nothing to do with CMHC.

These changes are directly aimed at the part of the market that CMHC does not really play in, the conventional mortgage market (80% loan to value or less).


 

David asks via email:

Q: “What will be the role of alternative lenders after January 1st, 2018?  What about credit unions and mono-lines?  Do they fall under the same umbrella as the Big 5 banks?”

Ben says:

There will be an even greater need for these lenders as they serve the population that do not fit under the new guidelines.

Credit unions and private lenders will be able to cater to whomever they choose in this new mortgage climate and will have a competitive edge as more and more people will fall out of the box that banks like to fill. Unfortunately, monoline lenders will still have to follow suit.

*Hint hint* there will be a huge opportunity to private investors looking to invest in private mortgages.


A big thanks to Ben for answering these questions!

Ben’s contact information for those who have other queries on this matter, or any others:

Benjamin Sammut
Mortgage Broker
(647) 518-4669
bensammut@mortgagegate.ca
Mortgage Architects # 12728 

81 Comments

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  1. John says:

    Realestate particularly in Toronto and Vancouver costs so much because credit has been so cheap for too long. The new stress test was a way for govt to effectively raise the borrowing costs effectively by 2% without blowing up the ec

  2. Kramer says:

    David… as I was writing my small book in one of the strings below, a question occurred to me…

    Just as our relatively superior lending standards shielded us from any significant housing crash/correction/etc in the wake of 2008…

    Has it also been our relatively superior lending standards that have held the market back as “undervalued” for so long vs other global cities?

    Until now… in the post 2008 world… in a time of ultra low interest rates and asset inflation… which has allowed the market to catch up to where it should be?

    I don’t know if that can be the topic of a future article, but just a thought I found interesting, and relating to what you said about the market being undervalued so long (and the eruption of responses that triggered!)

    On the other hand maybe this is common knowledge in your circle and I am the last person to figure it out.

    1. Kramer says:

      One more thing…

      This plays in perfectly to how and why the ‘authorities’ have been tinkering with the lending practices in the last few years…

      It starts to seem possible that behind closed doors they are saying “our relatively strong lending practices are no longer strong enough because of the state of global economy (not because of the state of the Canadian housing market per se)… and if we want to SIMPLY MAINTAIN relatively strong lending practices (to shield us, and consequently impact its growth), we need to make them even stronger.”

      It’s a seemingly minor swerve vs how anyone would describe what they are doing, but perhaps an important one that really allows it to all make sense and fit. I dunno.

  3. Chris says:

    A bit off topic, but Statistics Canada released some more interesting data from the 2016 Census today.

    CMHC sets the line in the sand for shelter affordability at 30% of total household income income. 33.4% of Toronto households spent more than 30% of their income on shelter costs, the highest rate in the country. Note that this is all shelter costs (mortgage/rent, utilities, property taxes, etc.).

    http://www.statcan.gc.ca/daily-quotidien/171025/cg-c007-eng.htm

    Beyond our discussions here on price predictions, I do worry about the impact this has on the rest of the economy (discretionary spending, consumption, etc.) when over 1/3 of Toronto households are devoting such a large chunk of their income to simply keeping a roof over their head.

    1. Kramer says:

      I don’t get a kick out of paying so much for housing… I would rather be investing more… but I wonder how the these other big cities cope with it.

      We’re definitely not alone.

      I wonder which cities on these lists are flukes that shouldn’t be there (i.e. overvalued?) and for which ones it’s simply business as usual and it will never change or even get worse.

      http://nordic.businessinsider.com/the-cost-of-renting-a-home-house-property-in-the-leading-global-cities-2017-3/

      http://uk.businessinsider.com/most-expensive-cities-for-renters-2016-4

      1. DavidNotFleming says:

        https://patch.com/new-york/brooklyn/65-percent-your-pay-rent-truth-more-complicated-0

        54 percent of renting households in NYC in 2013 were rent burdened.

        1. Chris says:

          Small distinction, but both this article and the ones Kramer posted are about renting households. Typically, these households have a lower level of income (Stats Can had some good data showing the discrepancy in income levels and net worth of renting vs. owning households).

          The Stats Can data is for all households, renting or owning.

  4. Appraiser says:

    Everyone has a “humble opinion” on the market.

    Opinions are bereft of value without data, no matter how convoluted, obsequious, biased or unintelligilble.

    1. Condodweller says:

      Absolutely. And you are entitled to yours just like everyone else.

  5. Condodweller says:

    “The new changes actually have nothing to do with CMHC.

    These changes are directly aimed at the part of the market that CMHC does not really play in, the conventional mortgage market (80% loan to value or less).”

    This is true on the surface. But on further analysis, IMHO, it has everything to do with the large liability the CMHC has with their insured mortgages. The intent behind the series of rule changes over the years again, IMHO, has been to stabilize the housing market and in turn the economy. This change should have an effect of reducing mortgage sizes and make them more secure which will rein in prices which in turn will effect CMHC insured mortgages as well.

    1. Condodweller says:

      Before I get attacked again I am going to clarify my last sentence on how it will effect CMHC mortgages as it may not be clear. As people’s qualifying amount gets reduced they can afford less expensive houses. This should have a negative effect on prices which should trickle down the food chain where people with CMHC insured mortgages take on less debt due to the lower prices. This, of course, hinges on the idea that people have overstretched because they couldn’t find a house they can afford. If they can eventually afford the house they want, they might not overspend and therefore reduce the size of their mortgage thereby stabilizing the market and in turn the economy.

    2. Joel says:

      If the changes reduced the housing prices it would leave CMHC more exposed as many with 5% down and a 4% CMHC fee would be under water on their mortgage with only the slightest downturn.

      1. Condodweller says:

        Lower prices should not increase default rates. If prices go down, many people will be under water with their mortgages but that’s not necessarily a bad thing and shouldn’t trigger defaults. The problem comes when people can’t afford their mortgage and are forced to sell and they are under water.

        1. Kyle says:

          Not sure where you get off accusing Karmer and i of being the type who “take on extreme views without being able to back them up with sound data and analysis”, after posting this utterly ridiculous mountain of BS. Since, you consider self-awareness one of your strengths, then you really must not be very strong at much.

          1. Chris says:

            Can we perhaps all try to avoid personal attacks in the future? Name-calling and mud-slinging don’t really do a whole lot to move the discussion/debate forward.

            While we clearly don’t all agree on some topics, there’s no reason that this needs to prevent polite, respectful, and civil discourse between us.

            I would rather not spend my time and effort posting inflammatory things to strangers on the internet, nor reading them directed towards me.

          2. Kramer says:

            You’re really on a roll there Condodweller.

            One day telling people that the actual value of real estate is determined by the historical trend line…

            The next day arguing against the guest industry expert when they completely (like 100%) refute a theory of yours…

            Might wanna sit the next one out there chief.

          3. Condodweller says:

            @Chris polite and respectful doesn’t exist in Kyle’s vocabulary. What he is doing is psychological abuse. Best defense is to ignore him. I don’t care how smart and even right someone might be, if they are disrespectful and treat strangers behind the anonymity of the internet this way, I avoid them like the plague. Life is too short to waste my energy on them.

            @Kramer You know, if you allowed yourself to open your mind just a crack to even consider for a second what I said and not look at everything as black and white you might begin to understand what I meant. You would also realize that I was not refuting him. I actually agreed with him. That is why I started my post with: “This is true…”. I apologize for thinking forward and looking at a bigger picture.

            WRT my valuation of real estate I was using a commonly used metric to evaluate stocks. It’s relative strength index. It is a simple way to gauge something based on its price movements. It shouldn’t be the only measure because it has weaknesses but it is a good general indicator of whether the price is over/under bought. If I had the time to calculate the RSI value of housing prices it would not surprise me if it was over 90. Anything over 70 is generally considered overbought and over 90 would warrant serious consideration for selling. I will be the first to admit it is only one metric and there are a few dozen others you can apply. However, it is generally a good indicator so please spare me your “it’s irrelevant” speech unless you can back it up with solid reasoning an analysis.

            BTW I have stuck my neck out and took a position in stating that the RE market is overvalued currently. I’m curious and would like to hear what you think and what your reasons are. You know, in the spirit of having a cordial debate. I fear though that I am going to get the “you are a bear and you have been wrong for 15 years” rebuttal.

            Have a nice day…

          4. Kyle says:

            To be clear, i have been ignoring Condodweller and her idiotic comments. For at least the last year I’ve only ever responded to either correct her factually inaccurate statements or in response to her taking pot shots at me. For someone who supposedly has me on ignore, she sure mentions me in her posts an awful lot.

          5. Kramer says:

            I don’t need to back it up with solid reasoning and analysis. You simply DO NOT use RSI to valuate a real estate market, and you certainly don’t use RSI over a 50+ year period to DO ANYTHING, EVER. The notion of using RSI or whatever you were doing with that 50+ year price trend line is absurd. RSI is a SHORT term LAGGING indicator used to identify overbought or oversold stocks across short (between relevant news release) periods. I can’t even debate this any more because the notion is so absurd. Once again you are googling things to defend your incorrect position rather than learning anything. I’m sure you will now jump on some minute mundane thing I said that conflicts with your google search rather than admit to the obvious conclusion here which is that your method of valuation of the real estate market is completely… HORRIBLE. This doesn’t require opening my mind up to new possibilities, it is simply WRONG.

          6. Condodweller says:

            “I don’t need to back it up with solid reasoning and analysis. ”

            That tells me everything I need to know.

            Of course, there is nothing to back up as I have yet to hear anything coherent that would resemble a point of view from you. All you do is jump on my comments in various threads that you can’t keep straight and attack those who actually contribute something without taking a position yourself instead just throwing out random statements and accusations. This has been a surreal experience and I think it’s about time I pull the plug on this engagement.

    3. Ralph Cramdown says:

      CMHC’s fraction of all mortgages has been shrinking due to other measures. Most involved Ottawa agencies have been expressing concern about too much debt on Canadian households’ balance sheets, and to the extent that these changes are being driven by broader policy concerns than just the stability of OSFI regulated businesses (are they?), I believe that it is an effort to reduce debt to income by cutting off those who attempt to borrow the most.

      Tim Hudak, the OREA guy, calls these people ‘savers,’ and others in the industry are saying that the new rules will feed growing families to the (loan) sharks, or that they are a solution to problems limited to the GTA and lower mainland. I think that Ottawa knows what is trying to accomplish, and that all these “unintended consequences” are actually intended, or at least anticipated.

      The new rules certainly won’t affect all industry participants equally, but given the sector’s structure, it would be almost impossible to design policy that does.

      1. Appraiser says:

        @ Ralph Cramdown wrote: ” I believe that it is an effort to reduce debt to income by cutting off those who attempt to borrow the most.”

        Unfortunately, the proposed measures affect all uninsured borrowers, not just those who “borrow the most” – whatever that means.

        It’s like cutting down all of the trees to prevent a forest fire.

        1. Ralph Cramdown says:

          The stress test affects people who were planning on borrowing more than they will now qualify for based on their incomes. Borrowing that much is probably just as bad an idea whether you’re in Richmond Hill or Flin Flon.

          I suspect that a lot of buyers in the last year have been using parental money to get over 20% equity and qualify for a low ratio mortgage when they didn’t have the income to meet the stricter qualification on a high ratio mortgage. In many cases, that parental money came from parental home equity, so increasing GTA prices drove a positive feedback loop in that segment. But I have no data on that, obsequious or otherwise…

        2. Ralph Cramdown says:

          Hey, data! Somewhat dated, but lends credence to the idea that stress test effects likely to vary significantly by location…

          https://beta.theglobeandmail.com/report-on-business/loan-to-income-ratios-by-canadian-city/article30786891/

          1. Appraiser says:

            Speaking of data, let’s look at the mortgage default numbers in Canada: Take special note of the rate in Ontario – the lowest in the country! How is it that all of these “over-borrowers” are managing to service their debt? Yeah yeah, I know the drill as proffered by the bear camp, such as – they’re paying their mortgages with HELOC’s and credit cards. Or how about the old saw that default rates are a lagging indicator, therefore irrelevant. I’ve been hearing this nonsense for close to a decade now. That’s quite a lag.

            https://cba.ca/Assets/CBA/Files/Article%20Category/PDF/stat_mortgage_db050_en.pdf

          2. Chris says:

            “We’ll do almost anything to ensure we stay current on mortgage payments. We see people use credit cards, lines of credit, even HELOCs to do so. In one case, a client cashed out an RRSP just to make a single mortgage payment.

            In other words, the mortgage is the very last thing to slip when people’s finances get tight. Homeowners who come into our office are often behind on paying almost every unsecured credit bill they owe, as well as car loans or leases, yet their mortgage is as current as possible.

            In this way, low delinquency rates are in no way an indicator of financial health among households and the economy. Indeed, the delinquency rate on mortgages in the U.S. reached its lowest level in decades in 2005, precisely when the U.S. housing bubble was at its frothiest and money was easy to borrow. Likewise, mortgage arrears in Ontario just reached their lowest level since 1990, the year Toronto’s last housing bubble popped. In that real estate crash, prices fell close to 40 per cent and took until 2010 to fully recover, after adjusting for inflation.”

            http://www.macleans.ca/opinion/why-a-low-delinquency-rate-isnt-the-good-news-real-estate-story-you-think/

            I think it’s a bit of a stretch to label the opinion of Scott Terrio, a well known insolvency trustee, nonsense. Or is he just an angry bear too?

          3. Kramer says:

            In the USA, as we all know, the issue was subprime mortgages, whose delinquencies went from a “standard” rate of about 3% per year (2002) to as high as 14% per year in the fallout (almost quintupled). The collapse of many billions worth of MBS/CDOs built on those mortgages caused the great financial crisis.

            Fraudulent subprime mortgage lending was rampant for years leading up to it, and the housing market was just soaking in them, and while the fraudulent nature of how these loans were written, itself, started increasing the delinquency rates, it was the inevitable waterfall of rate adjustments in 2007 that tipped things over the edge, to collapse.

            Prime mortgage delinquency in the USA 2002 were 0.29%… which is basically what our delinquency rates are here today for ALL of Canada’s mortgages combined. So yes, there is comparable in there. And in the GFC 2008, Prime Mortgage delinquency rates MORE than quintupled from extremely low to about the “standard” rate of subprime mortgages.

            However. Our market is not soaked in fraudulent subprime mortgages. I walked through this for my own benefit to make absolutely sure that when I say 2008 is not comparable to our market, nor any other in history, that I am not exaggerating or wrong.

            But I won’t argue about the whole low-delinquency rates being a foolproof indicator of anything. Clearly low-delinquencies is not a bad thing, but clearly it also doesn’t mean that delinquencies cannot increase, slowly or rapidly because of other events or circumstances surrounding them.

            Now, I will take a wild leap assume that you think delinquency rates are going to increase significantly here in Toronto. Yes? So I ask:

            1. Why?
            – economic/employment downturn?
            – not enough renters paying owners mortgages?
            – is it all because of rates increasing? (and people having bit off more than they will be able to chew)
            – demographic trends?

            From your previous comment and the unfortunate folks who come into your office, I imagine you will point to high debt levels that people will not be able to sustain as interest rates increase, even if they increase slowly, and hence delinquencies will spike.

            2. By how much?
            Quantity is important. How rampant would this be. Will delinquencies across all mortgages double, triple, quadruple, quintuple if mortgage rates go up a few more percent? As we know, we do not have a fraudulent subprime mortgage problem here, so saying they will quintuple might be a stretch. Let’s be conservative and say they triple, from say 0.3% to 0.9%. What would this mean? Would this crash the market?

            As an aside, while the GFC 2008 obviously didn’t hit Canada anywhere near as badly as the USA, it was still a recession… a big one… and it still hurt Canada’s economy and every other economy in the world… and Canada’s mortgage delinquency rate went up from approx. 0.3% to a high of 0.4%. The main talking point on the tiny impact of the GFC to Canada’s housing market was that it was because of our relatively superior lending standards.

            I have spent some time looking, and I cannot find what mortgage delinquency rates were in 1990 and more importantly how sharply they increased during and in the wake of the housing crash. I am now very curious to see. What were they standing at pre-crash and did they triple? Did they quintuple? Did they go up 10 fold? I’m not saying 1990 was comparable to today either (in terms of all market drivers and state of the economy, etc), but since we are talking delinquency rates, I would like to know what their path looks like in an epic Canadian housing crash.

            Having absorbed all of this, these current articles on “why low delinquency rates do not mean we are fine” are really leaving out a lot of key analysis. I BELIEVE it is because if they analyzed things deeper, they would no longer be able to haphazardly use USA 2008 as a dramatic comparable.

            So I ask again: Increasing delinquency rates… Why? And by how much?

          4. Kyle says:

            I see the Macleans article as largely sentimentalization of one person’s view. I could see a similar response from a Doctor in the Trauma Center when faced with stats showing a low violent crime rate. They see the worst of the worst everyday, so their perspectives can be skewed. That said does he support his arguments well? IMO, no.

            I’m paraphrasing here – he tries to argue that low delinquency rates do not indicate a healthy financial situation among average borrowers in normal times. But his two main arguments are both pure strawmen. First he tries to support with anecdotes from the trenches, but his are not average borrowers so they’re IMO largely irrelevant (i.e. if a trauma center doctor sees gunshot wounds everyday, you can’t argue that everyone in the City is on the verge of getting shot?). Then he tries to support the fact that past recessions have managed to drastically change the arrear rates, but recessions aren’t exactly normal times (i.e. it’s like the trauma Doctor saying after a mass disaster like 9/11, see the low violent crime rates prior to the attack were misleading).

            Then he finishes with this completely unfounded and unsupported conclusion, “At some point, the low delinquency rate will catch up with the reality of Canada’s overburdened households.” As far as i’m concerned he is a nothing more than an angry bear, and has not successfully argued his position.

          5. Kyle says:

            Should say sensationalization, not sentimentalization..

          6. Chris says:

            Kramer,

            I am not Scott Terrio; I didn’t write that article, nor are those examples of people coming into my office.

            I don’t know if delinquency rates will go up, by how much, or when. My point was simply, as you agreed, that low delinquency rates in and of themselves are nothing to bet the farm on. If interest rates continue to increase, the price declines we saw earlier this year continue, and sales volumes remain low, then yes, I would expect delinquencies to increase as credit and liquidity dry up. It is a lagging indicator, not one that should be used for prognostication.

            To your points about subprime borrowing being the causes of the US’s economic crisis, please view this recent research that asserts it was not the subprime borrowing segment that drove the crisis:

            http://www.nber.org/papers/w23740

            I’m also really not sure how many loans in Canada are fraudulent. I don’t think anyone can say for sure. We’ve all heard stories about Brampton Loans, and seen what happened at Home Capital.

            But overall, I agree with you; what happened in the US was unique. Every credit cycle and asset bubble is unique. The US was different from Japan, which was different from Ireland, which was different from Spain, which was different from Iceland. But they were all similar in having huge growth in debt, far outstripping growth in GDP. Canada shares in this characteristic.

            Kyle, as to your point, you can choose not to believe Scott Terrio. Personally, I view him as an expert in his field and thus place weight on his opinion. I also don’t think he’s just an angry bear…I have no idea if he owns or rents. As I said above, I do support the theory that he espouses though, that delinquency rate is a lagging indicator, whereas Appraiser seems to think this number is something that allows him to see into the future.

          7. Kyle says:

            It’s your prerogative to believe Terrio.

            When i read Appraisers comment, his interpretation of the indicator seems far more logical than Terrio’s. The way i interpret Appraiser’s comment, is that the indicator is an accurate reflection of financial health at a particular point in time, exogenous factors not withstanding. Which is exactly how i view the arrears rate as well. If the rate is lower than it was last year fewer people are struggling than last year. And if it is at historic lows than fewer people are currently struggling than in previous times in history. It’s entirely fair to say that people are historically less over-burdened and that relative to other points in time, mortgage debt is not a house of cards. That’s the message.

            To claim that people are over-burdened, and the rate just doesn’t reflect this (without any proof of this over-burdening), and then trying to support it by pointing to exceptional periods where people were blindsided by exogenous factors is IMO pure angry bear tactics and doesn’t pass my BS radar. Similar to other bearish articles i read that wholly rely on strawmen arguments, false equivalece, irrelevant examples, cherry picked data or anecdotes, this one gets filed under “ABF” angry bear fodder.

          8. Kramer says:

            Thank you for the link to a brand new single paper on a new suggested alternative narrative on the cause of the GFC. I am going to continue to believe that the GFC was predominantly caused by fraudulently written subprime mortgages (the most risky) but, if it pleases you, extend that (naturally) to include ANY very risky and fraudulently written mortgages, be them prime or sub-prime. I will safely assume that in the fraudulent environment that existed, there were likely thousands of mortgages written in as Prime that should have been Sub-prime, “at best” (i.e. shouldn’t have been allowed period). So unless the writers of this paper are going to analyze each prime mortgage and say that they were amazing credit scenarios that would have been safely permitted in other markets (i.e. the Canadian lending environment), I will maintain that this GFC was caused by mortgages being given to people who shouldn’t have gotten them.

            Just off the top of my head, investors (who you and the report mention) in Canada require at least 20% down for a second property. Prime or sub-prime, those requirements did not exist in the USA.

            So basically… I don’t even care what this report says… the only thing it changes in my mind is that it identifies that there was risky (i.e. investors without large downpayment) and fraudulent lending happening in the prime space as well, and that in retrospect a ton of prime mortgages written under extremely weak lending requirements should have never been written as well. THIS DOESN’T MEAN THAT CANADA’S LENDING STANDARDS ARE WEAK. It changes nothing, other than maybe every report before will need to rename their title from “The Subprime Mortgage Crisis” to “The Subprime and Dogshi+ Prime Mortgage Crisis”.

            My overall point is that USA 2008 should not even be discussed in our assessment of the Canadian market.

            My point is also that we need to know what interest rate increases will actually do to delinquency/default rates in Canada.

            We can’t simply sit back and claim that rates going up a “WHOPPING 2%” in 5 years will send delinquencies skyrocketing and destroy the market. That is no better than me saying if rates go up “ONLY 2%” in 5 years then delinquencies should not go up at all and the market should continue to increase at double digits per year. I think if I said that you would jump all over it and demand an explanation.

            All I hear is bear-biased speculation. And if I said the opposite (which I will not), it would be bull biased speculation.

          9. Kramer says:

            And yes I agreed that low delinquency rates in and of themselves are nothing to bet the farm on… but I also believe they in and of themselves are still a good thing. You need to then slap on all the other layers of the cake (about a hundred of them) to forecast what is going to happen.

            Personally I see no layers that are at high risk/probability of collapsing on their own. I am not betting on the economy collapsing. I am not betting on Toronto’s overall growth (economic, employment, population) slowing down, I am not betting on rents dropping off. I am not betting on the authorities intentionally killing the market… although they are clearly tranquilizing it, and I am starting to see it as a good thing (provided they don’t kill it accidentally!).

          10. Chris says:

            Kyle, I think there is decent evidence of overburdening from the debt to income stats that Stats Canada publishes each quarter. In my opinion, that was what Scott Terrio was trying to get across. Yes, delinquency is low, but debt levels are high, so in his view, the picture is less positive.

            Kramer, you are entitled to believe or disbelieve reports as you see fit. However, I think we both agree that delinquency rates are not suitable for forecasting. That was my overall point in responding to Appraiser. I am not saying a low delinquency rate is a bad thing, but neither should it be held up as a positive prognostic indicator for future economic health.

          11. Kyle says:

            Debt to income in isolation is not an accurate indication of burden. As we’ve discussed before, the Debt-to-income ratio doesn’t necessarily reflect the burden, unless interest rates and amortizations are considered. As well if you’re looking at financial health, you can’t just look at debt and simply ignore the otehr parts of the balance sheet, like how debt holders’ equity has grown.

            But in any event, he didn’t make any attempt to prove that people are over-burdened, instead he just relied on his two irrelevant strawman arguments. Something you seem to be quite ok excusing. I encourage you to actually try challenging things from the other side, you will soon see that this fluffy opinion piece is no more credible than the Better Dwelling articles you used to link to.

          12. Kramer says:

            Rapidly increasing delinquency rates hurt real estate markets. So this is important. Don’t back-peddle now.

            You don’t forecast delinquency rates directly. You forecast fundamentals (economy, employment, interest rates, demographics), and then you do your best to estimate what will happen to delinquency rates as a result of those changing (or unchanging) fundamentals.

            If someone (an unbiased expert, not anyone who posts on this blog – and I am burning myself there too) told me that they are 85% certain that delinquency rates will quintuple in the next 3 years and provided sound reasoning for it based on reasonably forecasted fundamentals (or some freak once per lifetime systematic orchestra of fraud), then I would sell my house today and start renting.

            Terri didn’t say anything like that. Goldman didn’t. UBS didn’t. Michael Burry hasn’t. Ryan Gosling hasn’t. No one has. Why?

          13. Chris says:

            Kyle, you’re right, we should consider interest rates and net worth. With today’s low interest rates, it helps keep monthly payments low. But interest rates have increased twice, and will likely keep increasing (US Fed is almost certainly increasing in December).

            https://www.statcan.gc.ca/pub/13-605-x/2015006/article/c-g/c-g04-eng.gif

            CBC had an interesting analysis of this situation here:

            http://www.cbc.ca/news/business/bank-of-canada-economy-dollar-1.4370977

            Anyways, as I’ve said multiple times, my point in citing Scott Terrio’s post is not to presage doom, but rather that you cannot and should not use delinquency rates as a harbinger of good times (as Appraiser seems to be doing). Beyond that, Terrio’s predictions are his own, which you can take or leave as you see fit.

            Finally, bit off topic, but as you mentioned Better Dwelling, did you have a chance to read their analysis and forecast series? Quite interesting stuff:

            https://betterdwelling.com/the-future-of-canadian-real-estate-prices-part-3-price-targets-and-recovery/

            It’s three parts, so a bit of a long read.

            Kramer,

            Who’s back-pedaling? Sure, high delinquency rates are not good for the real estate market, but the downturn in the market would likely come first, leading to higher delinquency. After all, if someone owns a home and is struggling to pay their mortgage, why wouldn’t they simply sell the house, rather than go into arrears? In an upwards trending, highly liquid market, this is easy to do. It is only once the market goes downhill that this becomes harder, resulting in more people stuck in their situation, and thus, more delinquencies.

            Finally, I have never suggested you should sell your house. I wouldn’t likely ever suggest that. Assuming your house is your residence, and is more than just an investment to you, I would never recommend that you jump in and out of the market as it fluctuates. I’m quite sure I have said this before. But for those who speculate, flip, have rental properties (particularly cash-flow negative ones, which are banking on appreciation), it becomes a very different discussion.

          14. Kyle says:

            Thanks for sharing that Better Dwelling link. “Interesting” is one way to put it… I have never laughed so hard at someone trying to be serious before in my life. That guy truly has no clue about how real estate markets and economics work.

          15. Chris says:

            Did you have a chance to read all three parts? Care to articulate your specific criticisms of their models, predictions, or conclusions? I’m genuinely curious; I found it quite an interesting read, yet don’t really know what to make of it. As I’ve said, I’m wary of predictions with such specific time frames.

          16. Kyle says:

            I did read all three parts, though to be honest much of it was just him self-promoting. I won’t waste too much time dissecting it because that is a waste of my time. Let me just say that there is no such thing as a magic number or magic pattern in real estate. I personally am skeptical of technical rules in stocks other than very, very short term tactical opportunities, but i sure as hell don’t agree with the idea when it comes to real estate. At the end of the day, fundamentals drive the real estate market

            The question is what are those fundamentals? If you actually want an accurate analysis and to be able to forecast the overall market the fundamentals are actually quite simple: the only populations that matters are the active buyer pool, (and NOT the average population, unless everyone in the average population can afford to own and is shopping for a home), and the population of what’s available for sale: You just need to understand what’s going on in the size of pool, wealth of pool and household income of pool and know what properties are available. Any theory, idea, argument or fundamental that doesn’t directly (i.e. not loosely)tie back to these attributes/populations is nothing more than a crack pot guess.

          17. Kramer says:

            Chris,

            You posted an article that compared our current delinquency rates to those from before 2008 and 1990 crashes. If that is not aggressive fear mongering then it is passive-aggressive fear mongering. This is why I, personally, am trying to be so hard on you and on this point… so that god forbid any pour soul read that article you posted, that they don’t get freaked out into thinking we are 90% likely of having a 1990 or 2008 imminently and do something stupid. Do you ever think that that could actually lie on you and your shoulders? By posting articles so biased and saying that this is inevitable without knowing for sure or putting a disclaimer in that you have not assessed the near, mid, or long term prospects of the economy or any other key fundamentals?

            Next, I don’t agree with your assessment of delinquency rates and housing prices and which comes first. It is not so black and white, and your comments on this are making you sound like you’re trying to get out of something now that you opened the floodgates by posting that ridiculous 1990/2008 article.
            1. Housing markets don’ just crash for no reason – there are drivers which you are failing acknowledge and go on the record of forecasting (even casually), you keep avoiding that question and just assume things will happen. You cherry pick stats that suit your position, which is classic biased behaviour.
            2. Delinquencies also don’t just increase for no reason, or exclusively because of housing market downturns happens first. They increase because jobs disappear, wages decline, interest rates rapidly increase, initial rates on subprime mortgages hit their adjustment period, etc.

            You haven’t attempted to play out a full scenario in your head or on this blog of how this crash of yours is going to play out re: fundamentals. You just feel prices are way super expensive, and assume they must drop on their own, and then you just post these fear mongering articles that have been useless for so many years. You have ignored repeated requests to state where you see all the fundamentals going in the next 5 or so years. You feel that forecasting the economy, demographics, and other actual fundamentals is unnecessary. You cling to median income and other metrics that have not grown in line with housing prices (nor have they EVER grown in line with housing prices – generally speaking, don’t go throwing a 1-year out of 50 piece of data where they were accidentally equal to refute my point). You clearly just feel that prices are too expensive and hence must crash and try like crazy to build an argument around that prediction, a biased approach.

            And I have never said that you suggested that I should sell your house. That was an independent thought of mine and I will repeat it, since you didn’t address it and it was an excellent point and question. In fact I’ll keep posting it until you address it:

            If a truly unbiased REAL expert (of Buffett-like quality and experience) told me they are 85% certain that delinquency rates will quintuple in the next 3 years and provided sound reasoning for it based on reasonably forecasted fundamentals (or some freak once per lifetime systematic orchestra of fraud), then I would sell my house today and start renting.

            But no one has provided such a forecast along with sound fundamental analysis… no one. If this crash is inevitable, then WHY NOT?

          18. Chris says:

            Kyle,

            Ok, but if we’re assessing the market based on fundamentals, a number of experts have said that the fundamentals do not support current valuations.

            Stephen Poloz of the BoC: “The bank argued that while strong fundamentals are partially responsible for the high prices in Toronto and Vancouver, it is concerned that those markets continue to see price increases that exceed fundamental drivers – evidence of speculation and unsustainably high expectations.”

            CMHC: “We continue to see strong evidence of problematic conditions in Toronto’s housing market. Economic fundamentals like income and population growth cannot fully explain the rapid growth in house prices in Toronto.”

            Even the Federal Reserve Bank of Dallas’ models indicate that valuations in Canada (not even Toronto exclusively) are beyond what fundamentals support:

            https://pbs.twimg.com/media/DMWjLwGUEAALUkR.jpg:large

            I’m sure I’ve posted similar quotes from big banks, international organizations, and individual economists before, so I won’t repeat myself. But if you truly believe that fundamentals are what drive the market, why do you think it will continue to appreciate despite so many saying we are detached from them?

            Kramer,

            I posted an article that was published by Macleans, a very well known media outlet in this country. If you feel it’s content is fear mongering, take it up with them or the author, Scott Terrio.

            With regards to your requests for analysis of fundamentals, please see my above comments to Kyle. I am not an economist with the BoC, the CMHC, any of the big banks, etc., and thus I turn to their models and analysis in assessing the fundamentals of the market. If you wish to use your own models, that’s your prerogative.

            As for unbiased experts of Buffett-like quality, does Robert Shiller, the Nobel Laureate economist, who has extensively studied and published on real estate markets, fit the bill?

            http://business.financialpost.com/investing/robert-shiller-on-canadian-housing-bubble-market-distractions-like-trump-and-new-bmo-etf

            Somehow I suspect you will say no, but oh well. Hopefully you enjoy the article at least.

          19. Kramer says:

            I’m sorry, I must have missed where Schiller said said he was 85% certain (or any X% certain) that delinquencies would quintuple (or any estimate) and back it up with a solid fundamental analysis to explain the change delinquencies.

            No wait, he said nothing of the sort. Just like everyone else, which is my point, thanks for proving it for me by posting that.

          20. Kramer says:

            You say that you turn to their models on fundamentals… why don’t you explain to us (without posting an article link) what their models are forecasting for the following key drivers for whatever region and timeframe you’re calling crash on:
            – economic growth
            – employment levels
            – population growth
            – interest rates

            If you don’t, I’ll assume you haven’t considered their (or any) forecasts for these drivers and that you think these drivers are unimportant to the real estate market. And you think that these drivers are unimportant to the real estate market, well then we can conclude no one should listen to you.

          21. Chris says:

            Kramer, why don’t you share your analysis of those key drivers and the other fundamentals underpinning real estate appreciation? You seem very quick to dismiss everything I post with antagonism and the occasional insult. So let’s see your models.

            I expect you have very thorough economic models forecasting the future of Toronto real estate, upon which you’re basing your arguments; correct?

          22. Kyle says:

            Like i’ve said many times before, it comes down to what people view as fundamentals and drivers, and how sensitive the market is to those fundamentals and drivers. And teh way one gains understanding of those sensitivities is by living and breathing in the market, not by collecting fancy degrees and crunching numbers from Ottawa, Dallas or Switzerland. If i wanted to know the price and near term outlook on a bond, i personally would trust the Trader with a mere B.Sc and CFA who makes a market in that security over some propellerhead pHd looking at historic charts and graphs.

          23. Chris says:

            That’s fair Kyle. I think you and I have previously discussed the different weight we place on various opinions. While I buy into the theories and predictions espoused by Stephen Poloz and Evan Siddal, you place more value on those of David Fleming and Ben Myers. Nothing wrong with that.

          24. Kramer says:

            I’ll take that as a no. Proving you have not come up with forecasts of key drivers for yourself, nor do you even know the forecasts of key drivers of any of these economists you rely on.

            So you are making calls on a market crash with no consideration of forecasts of key drivers.

            Case closed.

          25. Chris says:

            Kramer when did I assert that I forecasted these myself? As I said, I’m not an economist working for the BoC, CMHC, etc. Thus I take their opinion/reports, similar to Kyle taking the opinion of those working in the market.

            But since you seem to think having personally created models and forecasts is so important, please share yours. You have created these models, right? Surely you wouldn’t hurl accusations and insults the way you are without very extensive, detailed, and well researched economic models and forecasts which you have created yourself.

          26. Kramer says:

            I’ll gjve you a second chance:

            You say that you turn to the models and forecast of fundamentals of your chosen economists… why don’t you explain to us (without posting an article link) what their models are forecasting for the following key drivers for whatever region and timeframe you’re calling crash on:
            – economic growth
            – employment levels
            – population growth
            – interest rates

            If you don’t, I’ll assume you haven’t considered their (or any) forecasts for these drivers and that you think these drivers are unimportant to the real estate market.

          27. Chris says:

            Kramer you can assume whatever you like, pal! I’ve posted numerous links to commentary, articles, opinions and reports, from these economists and organizations. Not all of them make their entire reports public, particularly the private financial institutions, but some do, so you’re free to read them. Have a read through my precious comments to see all the ones I’ve posted before (and no, I’m not going to comb through all my posts and compile them for you; got better things to do on a Saturday night!)

            So now I’ll ask again, can I see your economic models? You talk as though they are far superior to those of the BoC, CMHC, the big banks, so I’m quite excited to read your work!

          28. Kramer says:

            Lame. You have no opinion that you can share on what you think is gonna happen with employment, economic growth, population growth, interest rates, but you can share your opinion hundreds of times over that the real estate market is going to crash. Just doesn’t make sense does it?

          29. Chris says:

            When did I say it was going to crash? I think it’s overvalued. Doesn’t necessarily mean it will collapse in a huge dramatic crash. Even the last time Toronto’s real estate turned downwards in 1989, it was a slow sustained decline for seven years. As I’ve said many times, real estate moves slowly.

            Anyways, why are you changing the subject? Please share your personally created economic models and forecasts. I am very much looking forward to reading them!

          30. Kramer says:

            I never asked you for a complex model. I asked you twice the following… (I will scale back the number of words so it’s clear):

            What are your favourite economists (since you refuse to forecast them yourself) forecasting for the following key drivers:
            – economic growth
            – employment levels
            – population growth
            – interest rates

            I have already said, several times above, what I think will happen to these key drivers and others over the next 5-10 years:

            – economic growth – positive and steady with increased population and increased business investment in Toronto
            – employment levels – steady at healthy levels
            – population growth – continued growth, if anything at faster pace than recently
            – interest rates – increase at an extremely slow pace over next 5 years, to average new 5 year mortgage rate of about 4.5% 5 years from now.
            – housing supply – increase at an extremely slow pace and mainly in condos.

            Based on these drivers and the current extremely low delinquency rates, I do not see any reason why the housing market will crash or significantly correct, outside the government and Bank of Canada regulating it to death. If the bank regulates it into some kind of a “forced correction” then it will simply mean slower but more sustainable growth in the future over the long run.

            You try.

          31. Chris says:

            Ah, I see, so in the place of the economic models and forecasts done by economists with the BoC, CMHC, Dallas Fed, UBS, BIS, Prof. Josh Gordon/Ryerson, our large Canadian banks, etc., you would prefer to substitute in your own personal guesses on those fundamentals?

            You’ll forgive me if I assign more weight to the models and forecasts of the experts at those organizations, than I do to that of one stranger on the internet. Particularly when there are some inconsistencies/errors in your guesses and explanations.

            For example, if economic and employment growth is steady and positive, the Bank of Canada will raise interest rates, and not at an extremely slow pace. That should be obvious given the two interest rate rises in recent memory, in the face of decent employment and economic data, and paltry inflation. Should inflation ever get back above 2% (which we would expect if the economy gets back to “steady positive growth), the BoC will raise rates at a faster pace.

            For another, the Bank of Canada plays no role in regulating the real estate market, at all; their only mandate is to control inflation, which they primarily do through setting interest rates. None of the recent real estate market regulations have been implemented by the BoC. Perhaps you’re confusing them with the CMHC, OSFI, or the Provincial or Federal Governments? But I can assure you, there is little risk of “the bank regulating it into some kind of forced correction”.

          32. Kramer says:

            You’re hilarious.

            You asked me to provide my forecast, so I did. I didn’t ask you to place weight on them.

            I have asked you 4 times to say what you think will happen with these fundamentals in the future, and you refuse.

            My point is that you talk a lot of shi+ about forecasting the real estate market but you don’t put it in the context of key drivers and where you think those are going. You cherry pick often useless stats from articles. Congratulations. I’m not even gonna ask you again because you’re obviously unable to show that you factor in even opinions on these with your opinions on the real estate market.

            And yah, I was talking about GTA economy, so if we grow and rest of Canada is slow growth the Bank of Canada can absolutely keep rates low, furthermore our rate moves also take into account what’s happening with rates in the USA and around world and in case you haven’t noticed rates are still ultra low and no one is forecasting rapid increases..

            And yah, government, Bank of Canada, OSFI, and whoever else can meddle with the real estate market directly or indirectly. Sue me. “The authorities”. Bite me. I’m done.

          33. Chris says:

            Nope, I asked for your economic models, not best-guesses. If you’d like to read the models/reports/forecasts for the economists I’ve cited, the links are through my comments, or you can look them up yourself. As I said yesterday, I will not be taking the time out my day to compile a list for you.

            Further, do you truly believe that the BoC, CMHC, etc., don’t consider fundamentals such as the broader economy, the labour market, interest rates, population growth, new construction, etc., when they make their forecasts and issue their statements?

            As for the USA and their interest rates, US Federal Reserve has raised multiple times, and is almost guaranteed to raise again in December.

            http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html/

            As we’ve seen in previous months, it is highly likely the BoC moves in step with them.

            Finally, there is an important distinction to be made between the BoC, OSFI, CMHC, the various levels of government, etc. When you use them interchangeably, it shows a clear lack of understanding regarding their various, disparate roles and responsibilities.

            “Bite me. I’m done.”

            Ah, the hallmark of immaturity; resorting to insults. Unfortunate that you’ve seen fit once more to stoop to that.

        3. Mike says:

          @Appraiser

          You know they do cut down swaths of trees to prevent and fight forest fires right?

  6. JCM says:

    The stress test is an important part of the new B-20 regs, but the new income verification requirement is also important, as are the new capitalization requirements.

    Lenders will now need to verify incomes using tax returns or similar, and will need to significantly reduce their leverage (i.e., they will be able to loan out significantly less with the same level of deposits).

    Credit is about to get WAY tighter.

  7. Kyle says:

    One question i forgot to ask, was whether the stress tests would be harmonized for those with 20% down. If i’m not mistaken, someone with >20% down, whose contract rate is higher than ( posted 5 Yr – 2%), would actually qualify for less than someone else with < 20% down, which to me doesn't make sense.

    1. Kyle says:

      Sorry meant to say ” harmonized for those with <20% down."

      1. Paul says:

        People with less than 20% already have the same stress test. How would they be able to afford more?

        1. Kyle says:

          My understanding is that if you have > 20% then you need to qualify at the higher of contract rate +2% or 5 yr posted, while those with <20% only need to qualify at the 5 yr posted.

          1. Kramer says:

            So you mean the >20% down folks are punished more relative to what they would have previously been approved for.

            That certainly would make no sense.

          2. Kyle says:

            Correct, you’ve put it much more simply and eloquently than i have.

          3. sevyn says:

            Yes Kyle this is true – we are being penalized for having more down – why? that so called 20% came from the ‘inflated’ prices so – you are correct – banks are harder or will be harder on those with more than 20% down – makes no sense but hey I am not the government who has nothing better to do with their time than make everyone’s life difficult! Get prepared for a shake up or a shake down – whatever you want to call it!

          4. Professional Shanker says:

            I agree this sounds completely backwards as someone with 20% down has more skin in the game and therefore are less likely to default. but from a lender’s perspective if I had to chose which segment I would prefer to lend more $ to, I would most certainty go with the one which the government has stepped up and become the guarantor for. That said I suspect harmonization in some shape or form will be right around the corner.

    2. Chris says:

      “As of Oct. 17, a stress test used for approving high-ratio mortgages will be applied to all new insured mortgages The home buyer would need to qualify for a loan at the Bank of Canada’s five-year fixed posted mortgage rate, which is an average of the posted rates of the big six banks in Canada.”

      “For uninsured residential mortgages, FRFIs should contemplate current and future conditions as they consider qualifying rates and make appropriate judgments. At a minimum, the qualifying rate for all uninsured mortgages should be the greater of the contractual mortgage rate plus 2% or the five-year benchmark rate published by the Bank of Canada.”

      In summary:

      20% – stress tested at posted rate or negotiated rate + 2% (whichever is higher)

      So, there would likely be situations where someone with a larger downpayment is stress tested at a higher rate (negotiated + 2%). Perhaps this is intentional, due to the increased risk on financial institutions when mortgages are uninsured? Or perhaps they will move to harmonize them?

      Interesting catch though.

      1. Chris says:

        Formatting on that post went wonky:

        Summary meant to say

        Less than 20% is stress tested at posted rate
        20% or more is stress tested at posted rate or contractual rate + 2% (whichever is higher)

      2. sevyn says:

        That’s right! insured vs uninsured – also – the insured – get a better rate too – again makes no sense to me

        1. Chris says:

          Well, interest rates are typically related to risk of lending. Payday loans are pretty risky (typically lending to people of limited means, low credit scores, etc.) and thus have higher interest rates.

          One could make the argument that lending to someone with a 15% downpayment and mortgage default insurance is less risky to the bank than lending to someone with a 20% downpayment and no mortgage default insurance (which leaves the bank on the hook for any default).

          Rather than viewing this as punishment for those who have a 20% downpayment, it could be viewed as preferential treatment for those who have mortgage default insurance.

          1. Condodweller says:

            This sounds logical to me. In addition, my take on it is that people with 20%+ tend to get the over 1 million uninsured mortgages. Lenders give deeper discounts on large mortgages which is probably why the greater of the two applies. If they want you to qualify at 5% and you are able to obtain a 2% then they are forcing you to still qualify at 5% rather than 4%. 1% on a large mortgage makes a big difference. I think this also addresses investors. Investors are in the 20%+ group (I’m going by memory here so correct me if I am wrong with all the changes) as well and to make things worse, in the sense of risk to the system, they tend to have multiple mortgages. I wouldn’t be surprised if at one point we get a graduated test rate for multiple investment properties i.e. increase the qualifying rate for each successive property.

    3. Joel says:

      If you have 20% down and the mortgage is not insured you will have to qualify at a higher rate than those with less than 20% down.

      You can also qualify for insurable mortgage with can be more than 20% down, but qualified at 25 year term at 4.89%. As long as you don’t need a 30 year am it will be cheaper to go this route.

      1. Condodweller says:

        It is truly scary how complex mortgage qualification has become. I can’t help but think how an average person who doesn’t deal with this regulary navigate it.

      2. Professional shaker says:

        Joel can you clarify your last comment I am not following

  8. Kramer says:

    Thanks David and Ben.

    I was surprised to see it doesn’t apply if you are renewing with the same lender… that feels very anticompetitive. But I guess it’s kind of a loophole so not as many people on the cusp of these rules get screwed into losing their homes, allows the lender to keep working with their current clients business as usual, so I guess overall I like that element.

    1. Mike says:

      Default risk is assessed in the underwriting process, if you renew under your current mortgage provider you’re essentially keeping the same mortgage and therefore don’t need to undergo new underwriting.

      That said, if you have any troubles during your mortgage (late or missed payment) I think the banks will be quick to deny you a renewal without going through the underwriting process again.

      Banks hate risk and this new rule allows them to avoid a lot of risk. Banks were having trouble issuing debt because of the fear of a housing crash, hence the rules.

      1. Condodweller says:

        @Mike “That said, if you have any troubles during your mortgage (late or missed payment) I think the banks will be quick to deny you a renewal without going through the underwriting process again.”

        I’m curious if you have seen this or heard of it happening? I.e. a bank not renewing for an existing client due to payment issues. My understanding is that most banks will work with the borrower to help them if they have problems with their payments. I know at least one mortgage insurer also has a program to work with their client to stay in their home and work through a rough patch.

        I am really curious to see how banks will handle people on renewal who they know would not qualify elsewhere. Perhaps we will hear stories surface here. I also wonder if OSFI might put a protection clause in to not allow banks to charge higher than the posted rate for these people. I mean that is bad enough as you can obviously get much lower rates, but once they know they got you, all bets are off.

        1. Mike says:

          Since the rules have yet to take effect I’m not sure that it could have influenced bank decisions. That said, I’m sure if you miss a couple of payments or are continually late under the old rules you’d have difficulty during renewal. The new rules provide the bank incentive to not renew or send things back to underwriting. Traditionally banks have avoided underwriting at renewal because its expensive but the better their lending book the cheaper they can borrow money at so it might be a wash.

  9. ed says:

    I’m also acutely aware that there’s new phenomenon out there whereby a lot of people don’t read, but will watch a video with the exact same content and subject matter.—David.

    Please, not you too.

    1. Libertarian says:

      No podcasts either!

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