We briefly discussed this two weeks ago when I posted my angry rant about the Liberal government’s attempt to buy votes in the coming election.
One thing the government could do, to make housing more affordable, is eliminate, or alter, the mortgage stress test that was brought into effect in 2017.
Many of the readers suggested the mere presence of the test itself is useless, unnecessary, and/or unfair.
Others suggested that it’s a fantastic idea, especially in a climate of rising debt levels, and some went on to talk about abolishing the CMHC, which always comes up when we talk about anything debt-related.
There is so much to talk about today, I almost don’t know where to start. I’m going to share four articles with you, chronologically, which explain where this is all going, and where the “yay” and “nay” sides stand.
First, for those that don’t know – what is the mortgage stress test?
It’s an initiative from the Bank of Canada to promote financial responsibility among mortgage borrowers, effectively ensuring that all borrowers can afford higher payments at some point down the line. It’s a real-life “what-if” scenario being used in the qualification process.
The “test” portion of the term essentially comes from the fact that borrowers are all being tested against rates are 2% higher than prevailing rates, to see if they’d pass.
So if a 5-year, fixed rate mortgage is currently 3.29%, the Bank of Canada wants that borrower to be able to afford the same mortgage at 5.29%. The BOC wants the borrower to qualify, “pass the test,” and ultimately be safe in an environment of rising rates.
An optimist would argue that being financially responsible is never a bad thing, and since the government protects us from ourselves all the time, by making it illegal not to wear seat-belts in cars, they’re protecting us from ourselves when it comes to home-buying by ensuring we can afford to pay our mortgages if and when rates rise.
A pessimist would argue that it’s not up to the government to address how or when we save for the proverbial rainy-day, and that the stress test has the greatest impact on those who are already clinging to the bottom rung of the housing market. Foreign buyers, cash buyers, and high-end buyers are all unaffected.
In the end, I’m sure the votes will be split 50/50 on this one. My personal opinion is that a 1% stress test would bridge the gap between two arguments, both with merit.
Two weeks ago, this article appeared in the National Post:
“Canada Considers Applying Mortgage Tress Test Rules To Private Lenders, Sources Say”
From the article:
Canada is considering subjecting private lenders to the same mortgage stress test rules faced by banks to prevent housing markets from being destabilized by the lenders’ rapid growth, three sources with direct knowledge of the matter said.
Officials from the country’s finance ministry, financial regulator, central bank and federal housing agency have discussed whether the private lenders’ expansion over the past year poses a threat to economic stability, said the sources, who declined to be named because the talks are confidential.
Private lenders, usually groups of wealthy individuals, currently account for around one-tenth of Canada’s $1.5 trillion mortgage market, according to economists, and are still dwarfed by banks but their growth has accelerated since rules introduced by the country’s financial regulator last year made it harder for banks to grant loans.
There’s a few things to discuss here.
First, most of the alternative lenders are already using their own version of the stress test. They have higher rates, say, 4.79%, and they’re qualifying borrowers at 6.79%. Equitable Trust and Home Trust are two examples of where this stress test is already in effect. Granted, the alternative lenders use different qualification measures, ie. when it comes to commission-based income, stated income, etc.
Second, the credit unions are provincially regulated, not federally regulated, so perhaps this article and these “sources” are aimed at credit unions.
Lastly, the idea that the government can regulate how private individuals lend their money is ridiculous. If the owner of a $2,000,000 house, with no debt, wants to borrow $100,000, but has no job, and no income, would that home-owner have to qualify based on a mortgage stress test? We can debate the merits of this, and the Libertarians will probably end up on the other side of the argument of the folks who work at banks, and have their hands tied.
Earlier this week, the following article appeared in the Financial Post:
The sub-heading reads: “answer to the rising cost of housing cannot be more debt,” and that seems like a very reasonable conclusion.
But that won’t stop those who no longer qualify for mortgages from crying foul, and as we know, the cries are getting louder and louder.
From the article:
A federal banking regulator defended on Tuesday a stress test for uninsured mortgages that has been criticized for making it harder than it should be for some Canadians to own a home.
“The stress test is, quite simply, a safety buffer that ensures a borrower doesn’t stretch their borrowing capacity to its maximum, and leave no room to absorb unforeseen events,” said Carolyn Rogers, assistant superintendent at the Office of the Superintendent of Financial Institutions.
“This is simply prudent. It’s prudent for the bank and it’s prudent for the borrower.”
Later in the article, we see how politics is going play a role, whether simply as a measure to buy votes, or in terms of actual change:
“The government, through the stress test, changes to the mortgage rules, carbon taxes and higher daily costs of living, is suppressing the ability of people to meet the day-to-day needs and pay for their needs,” said Conservative MP Tom Kmiec in a speech in the House of Commons on Jan. 31.
The Mortgage Professionals of Canada also chimed in, with a quote that will surprise nobody:
“Our report illustrates that a more reasonable stress test level and lending restriction reforms are now needed to strike a better balance for borrowers and policymakers, improving housing affordability and Canada’s economy,” said Paul Taylor, president and CEO of the group, in a release.
And the day after this article was posted, the good ‘ole Toronto Real Estate Board, yes, everybody’s favourite, put their two cents into the bucket.
This article by the Canadian Press was picked up in multiple news outlets:
“Toronto Real Estate Board Calls On Ottawa To Revisit Mortgage Stress Test”
No kidding?
TREB is on the “nay” side of the stress test?
Well I’ll be damned!
And here I thought they were so busy agreeing to share sold data with their membership-paying agents who want to give better customer service to their clients, that they wouldn’t have time to back a horse in this particular race.
From the article:
Canada’s largest real estate board is calling on Ottawa to revisit whether a stricter mortgage stress test introduced last year is still needed, arguing that the policy has negatively impacted the economy and Toronto’s once red-hot housing market.
“While we saw buyers return to the market in the second half of 2018, we have to have an honest discussion on whether or not today’s homebuyers are being stress tested against rates that are realistic,” said John DiMichele, chief executive of the Toronto Real Estate Board (TREB) in a statement Wednesday.
“Home sales in the GTA, and Canada more broadly, play a huge role in economic growth, job creation and government revenues every year. Looking through this lens, policymakers need to be aware of unintended consequences the stress test could have on the housing market and broader economy.”
I will give John DiMichele credit for that one point – that rates might not be “realistic.”
I was the one who predicted at the start of 2019 that despite rumours of interest rate increases, not only did I think rates would fail to be increased, but that I think rates will decrease. So is a 5.79% interest rate realistic? We’re looking at a five year horizon, so it’s unreasonable to say “Not a chance.” But do I think we will see a 5-year, fixed rate mortgage of 5.79% in the next five years? No. I don’t.
Having said that, it looks suspect when the CEO of a real estate board comments on public policy that currently makes buying real estate less affordable. I don’t know why TREB even bothered.
But that’s what TREB does, right?
When they’re not busy making optimistic predictions about the real estate market, case in point…
“Toronto Area Home Prices Predicted To Rise 4 Per Cent This Year”
I love headlines like this.
Predicted?
Who predicted?
Oh. A bunch of real estate agents.
And last but not least, I give you today’s article in the Globe & Mail:
“Why Ottawa Must Rethink The Stress Test On Mortgage Switches”
At first glance, seeing that this article is by Rob McLister, who is the founder of Ratespy.com, and works in the mortgage industry, you might think the article is biased. I probably wouldn’t blame you.
But Mr. McLister is arguing a different point, that of mortgage renewals, and how the stress test applies to borrowers looking to renew a mortgage, but not to those who are renewing with a new lender.
This ends up “trapping” buyers with their existing lender, and who thinks that less choice in a free market is a good thing?
From the article:
The stress test, which requires federally regulated lenders to confirm you can afford a rate that’s at least two percentage points higher, does not apply if you simply renew your mortgage with your existing lender.
As a result, lenders industry-wide have enjoyed watching their customer retention rates climb. Last October, OSFI reported that renewals surged an unusual 30 per cent as of midyear while new mortgages were down 19 per cent.
As many as 100,000 renewers every year may be at risk of not passing the stress test, based on estimates from Mortgage Professionals Canada. And when a lender suspects you can’t qualify elsewhere, it has little incentive to offer you excellent renewal rates.
Worse yet, renewers who flunk the new stress test have no ability to switch to a lender with more favourable terms (such as lower penalties or more flexible refinance privileges). Better terms often save borrowers one to three times more than even a quarter-point interest rate difference.
“A stress test when switching lenders is purely anti-consumer,” says Ron Butler, a 23-year mortgage veteran of Butler Mortgage. “It’s an abuse of Canadian mortgage holders who deserve to shop for a better rate.”
Later in the article under the heading, “A Flaw In Logic” we read:
Renewing borrowers have already been stress tested. And they’ve already proven they can make all their mortgage payments on time. Exempting the current lender from the stress test, but not a competing lender (the one with the better rate and terms), is virtually nonsensical.
The renewing lender generally doesn’t re-underwrite the mortgage. So, it has less insight into how likely the customer is to pay going forward, versus a brand-new lender that fully reviews the borrower’s income, employment, credit report, property and other expenses.
“The borrower [who renews elsewhere] will be far better underwritten than at the incumbent lender who just fired off a renewal offer after checking for arrears,” Mr. Butler states.
You have to admit, this is a lot of attention on the stress test just in the past week, and I do think that changes are coming, like it or not.
We have a federal election this year, and as we have learned in every election in recent memory, it’s not about who you are as a party, it’s about what you can promise people – whether you follow through, or not.
I suspect both the Liberals and Conservatives will promise to make housing more affordable, and reducing the mortgage stress test is the low-hanging fruit…
Derek
at 7:28 am
David, your description of the stress test is not accurate and the BOC has nothing to do with it. ?????
David Fleming
at 9:31 am
@ Derek
You are correct – OSFI and not BOC. FYI – I spell-check, but don’t always proofread. I know that might come as a shock, but time is not my friend in this work-life balance…
As per Jackei’s comment bleow about protecting banks and not consumers, I suppose this is a matter of opinion. I personally see this as the government trying to protect consumers from themselves.
Or is it one and the same? Protect consumers from taking on too much debt, and defaulting, thereby protecting banks?
The people in the mortgage industry that I speak to regularly would say this is not about protecting banks, who don’t want protection, and some might argue – don’t need it. This is about the government trying to ensure Canadians don’t take on more debt.
Perhaps another point to debate.
Derek
at 10:26 am
sorry, my terse comment probably came across as more prickly than intended!
The RE industry is organizing hard against the stress test. Can someone explain exactly what the problem with it is? Everything is fine, but the stress test needs to go?
Is it that the number of sales are lower than they were at the highest point? Is it that price growth is lower than at its highest point? Is it that prices are lower than at their highest point? Is it that SALR is lower than its highest point?
Chris
at 10:45 am
It is a bit perplexing that TREB is predicting a 4% increase in prices, and a 7% increase in sales, yet also claiming that the OSFI B20 stress test needs to be revisited.
Is it that they don’t believe their own predictions? Or are the increases they predict insufficient?
David Fleming
at 11:10 am
@ Derek
You have to remember that TREB and John DiMichele do not speak for us.
Ask the 50,000 agents a question about anything real estate related, and you will get a different answer from what the figureheads at TREB put out there.
Although, 20,000 of those agents are busy bartending or driving Ubers from 9-5, so you’d have to dedicate a lot of time to this endeavour…
Chris
at 11:16 am
“You have to remember that TREB and John DiMichele do not speak for us.”
Someone should let them know this, because they certainly seem to think they speak for you:
“TREB serves more than 53,000 licensed real estate Brokers and Salespersons in and about the Greater Toronto Area. TREB is the collective voice for both its commercial and residential REALTOR® Members”
http://www.trebhome.com/about_TREB/who_we_are/index.htm
David Fleming
at 5:34 pm
@ Chris
Of course they think they speak for us, that’s exactly the problem.
As we have discussed for the past two years, TREB had gone rogue. You have 16 directors and a CEO who do and say things that their membership don’t agree with.
But it’s not unlike other areas of politics. Picture a prime minister about to implement higher taxes on the highest earners, and saying something like, “Throughout history, Canadians who are fortunate enough to enjoy a higher lifestyle and wealth have always stepped up to the plate when called upon to assist other Canadians.” Sure, they have because they were forced to by the government, not because it was a choice. The alternative is to break the law.
This is what “leaders” do when their constituents/members don’t have a voice.
Anyways, this is a whole other topic.
I guess what I’m saying is that personally, I don’t agree with most of what TREB does or says, and most other top agents don’t. The fledling agents might, but they also might not care, and/or know what’s going on. So if the CECO of TREB says something, I don’t want people to assume that I agree.
Derek
at 12:18 pm
Point taken re: TREb; But, it is not the TREB, solely, coming out against the stress test, though. I suppose the opposition simply boils down to the idea that all of the facets of the industry wanted the charts to curve upward in perpetuity and any policy perceived as a barrier to that outcome needs to be vilified as hurting the public good.
Chris
at 7:44 pm
David,
That’s fair, and I know you and TREB haven’t always seen eye-to-eye.
But TREB is portraying themselves to the public as the voice of realtors. Their words and actions reflect positively or negatively on all realtors.
To use the Prime Minister example, when our federal government makes statements, the international community likely views them as speaking for all Canadians. We did not all vote for, and may not agree with Trudeau, but he is our voice to this audience.
If so many realtors disagree with TREB, I’m curious as to why the directors have not been replaced by those who would better represent the membership? Perhaps a blog topic for another day.
Chris
at 9:14 am
I think it’s worth reading the words of Carolyn Rogers, OSFI Assistant Superintendent, from a few days ago:
http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/sp-ds/Pages/CR20190205.aspx
She has some great points in her speech. To my mind, this is one of the keys:
“However, unlike other businesses, the risks that banks take are borne, at least in part, by the public. A portion of the money they use to fund mortgages and other investments is your deposit money and is guaranteed by the government, and in turn, the taxpayer, through the Canada Deposit Insurance Corporation.”
If someone wants to avoid the B20 stress test, as you alluded to David, they can go to unregulated lenders. If they want to enjoy the privilege of the (usually) lower interest rates offered by taxpayer backed banks, it seems fair to me that they are subjected to testing to ensure that lending is prudent.
It is also worth mentioning that, a few days after that first article was posted, Bill Morneau publicly stated that “I’m not currently considering any stress tests on private mortgage lenders”.
The Assistant Superintendent said they are monitoring the margin of safety, and will consider changes if the conditions in the environment change. Personally, I do not know if the stress test would more suitable at +1%, rather than +2%. I trust OSFI, and their economic modelling, to know the appropriate stress test rate, far better than I, or probably anyone here, could guess. I’m not going to Monday morning quarterback their banking regulations.
Jackie
at 9:18 am
The mortgage stress test by OSFI, not BoC, is about protecting banks not consumers. Any political interference on the stress test (OSFI is supposed to be an independent agency of the federal government) will have to ensure that there is no additional risk to financial institutions with any adjustment to the rate or policy. That is OSFI’s mandate, not to protect consumers from themselves.
Andrew
at 9:48 am
Yeah I noticed the BOC remark too. Give him a pass, he probably wrote it at 2am.
What remains to be seen is how the Liberals and Conservatives will phrase their arguments for housing affordability by altering the mortgage stress test as we approach the federal election. Will they make this about affordability? Will they suggest that the banks don’t need their protection? I don’t know that they can have it both ways.
Housing Bear
at 10:03 am
Jackie is right.
The main purpose of OFSI is to protect the big fed regulated banks. This is because these banks are backed directly through CMHC and CDIC and indirectly through the fact that we would bail these a banks out if any of them were going to fail. Everyone should also look into “Bail -In” legislation that was passed in the fall of last year. Basically, the banks can cover liabilities (anything you might have with the bank not covered by CDIC) into equity (Congrats you now own shares of CIBC)……. Very ugly/ sneaky stuff in my opinion….
I do expect the stress test to be capped eventually, but everyone is just assuming that as soon as the BOC stops raising that we are in the clear. Banks can also raise their mortgage rates for a number of reasons including to offset losses in other areas. With the Alberta RE markets in the shit house and Vancouver starting to implode, dont be surprised if we see rates going up in our markets.
In regards to the stress test on renewals for changing banks, I am actually more on the side of getting rid of this. The main argument for keeping it as is – You dont want the big taxpayer baked banks to start competing over these individuals on renewal. This could result in a higher concentration of bad loans held by a single bank making it much likelier that such a bank would fail. They want to keep risky loans spread out, or create an environment where the banks are offloading these shitty borrowers to the private lenders. Over the last year, we have seen a huge spike in people renewing with private lenders………….. This was by design.
The talk about starting to apply the stress to private lenders is a pipedream in my opinion. Don’t think they would be able to enforce it/ monitor it. Just wont happen. If they were going to tighten further, I think it is much more likely that they will go after HELOCS……. which are quit often used to fund the private lender segment.
The big bone that is about to be thrown out by Morneau and the Liberal party (and something they can do on their own with out having to try and influence OFSI) is the return of the 30yr CMHC baked mortgage. The party has a budget meeting in march but rumor has it that this annoucement could come earlier, maybe the last week of February………… Right in time for the spring market!
This could add some more fuel to the fire and delay the correction/crash………. it is an election year after all. But remember Millennials…………… you are being played. The goal is for you to over leverage now, to a) help the libs get re elected and b) to make sure the boomers have their liquidity. Good Luck!
Housing Bear
at 1:57 pm
*OSFI
Housing Bear
at 1:59 pm
*backed
hoob
at 10:26 am
I don’t get it. The simple idea that the “stress test” makes housing less affordable, or its complement, that eliminating the “stress test” will make housing more affordable, to me seems completely wrong.
At the anecdotal level, it means people who fail the stress test are excluding from specific houses or opportunities.
But at an aggregate level, all it does is shift the net sale price bar lower, meaning that there is a gap in demand at a particular range of prices, meaning that prices would need to drop to cater to that demand. Stress test doesn’t add cost, it reduces demand. Which in theory means the offer/deman curve lowers. Meaning it’s more affordable.
How is it that the opposite is touted? It’s like saying a land transfer tax makes things more expensive. It doesn’t — it merely reallocate the proportioning of funds in an established supply-demand equilibirum.
Kyle
at 10:41 am
Agree that on the net demand and net sale price bar would likely decrease, but it isn’t uniform across all segments of real estate. It actually increases demand and sale price for the cheaper more affordable types of housing like condos, and decreases it for more expensive types like detached. Thus the entry level stuff becomes less affordable.
IMO:
– Keep stress tests but make them consistent across insured vs non insured, OSFI regulated vs private/credit unions
– Lower the qualifying spread, to take into account a more realistic probability of rate increases over the mortgage term, that incomes rise over the mortgage term and that principal is reduced over the mortgage term
– Get rid of the re-qualifying at renewal
– Then spend as much or more effort regulating the truly bad forms of debt: pay day loans and credit cards
autocorrelation
at 10:59 am
As others have pointed out, the stress test is OSFI, not BOC, although the BOC has expressed its support.
Regardless, the politics get more interesting here as the government cannot, in easy/practical terms, tell OSFI to change the test. What they government can do, and we are getting some rumours now (G+M yesterday IIRC) that instead the Liberals are thinking about extending amortizations for first time buyers back to 30 years (other borrowers can already get this on renewal, and, I think, with 20+% down). Given people live pretty darn long nowadays, as much as I support improving the quality of lending (i.e. the stress test), I’m not sure that an extra 5 years amortization, that would potentially be unlocked further along the line anyways as equity is built is that bad an idea. Still need SOMETHING on the supply side, transit in the GTHA in particular and other issues, but it would help affordability without increasing risk too much IMO.
Jennifer
at 11:54 am
This is NOT to protect consumers to be more financially responsible. That’s part of the problem, people have a gross misunderstanding of what this is aimed to accomplish. This is to protect banks, but really everyone who has a deposit account with them etc, such as me and most likely you and the majority of other Canadians. I prefer my money to be safe than to see some people buying houses they may not afford in a few years.
TREB has no business arguing for or against it – it has nothing to do with the interests of real estate agents and except for lining their pocket.
David (Not the David who runs this website)
at 12:38 pm
” If the owner of a $2,000,000 house, with no debt, wants to borrow $100,000, but has no job, and no income, would that home-owner have to qualify based on a mortgage stress test? ”
How would this even be possible? There’s no way that you would be able hang onto a $2,000,000 home with no income. How would the home owner pay property taxes, insurance, gas/hydro/water, repairs and maintenance costs unless they have significant savings and/or investments? They’d have to sell the home.
Derek
at 1:28 pm
Hypothetically, that’s probably why the hypothetical person wants the hypothetical loan. Or, they don’t want to spend the hypothetical money in their hypothetical savings/investments.
Another David
at 2:12 pm
Easy, plenty of rich Chinese nationals buy multi-million dollar homes for their child attending university in the GTA. The home is in their child’s name, and say the kid want a new lambo, what else he gonna do to get money?
You take out a HELOC of of course, use part of the proceed to pay your new lambo and the rest to pay for taxes, fees, electricity……
Mike
at 2:03 pm
I would tweak it to allow slightly higher lending limits in certain circumstances. But on average limiting mortgages to ~4.0-4.5X income is prudent. We shouldn’t be lending people much in excess of that.
Appraiser
at 4:23 pm
As often happens in regulatory matters, the pendulum swings too far in one direction.
Time for a serious re-think about the purpose of the mortgage qualifying test, especially as it relates to where interest rates are heading and the overtly negative affect on otherwise well-qualified potential home buyers and those renewing their mortgages.
Of course the bears love it…because bears.
Chris
at 5:12 pm
Nah. While I’m bearish and like the stress test, many others, as evidenced by the responses here, are in favour of prudent lending standards when it comes to taxpayer backed financial institutions. I somehow doubt they’re all just angry bears cheering on B20 for…schadenfreude?
Appraiser
at 4:35 pm
“Canada’s economy added 67,000 jobs in January”
https://www.cbc.ca/news/business/statistics-canada-jobs-numbers-january-1.5011098
Yup those bears must be right. Looks like a recession and a housing crash are clearly on the way.
Chris
at 5:07 pm
Good stuff! Nice to see positive economic news. Maybe 2019 BoC rate hike(s) are back on the table?
JG
at 11:04 am
Jack up the rates, AND keep the stress test lol
mortgagejake
at 4:39 pm
Why is so much death being wasted (or, keystrokes) with talk of killing the stress test when anyone who knows anything knows THAT WILL NOT HAPPEN ANYTIME SOON?
I will be more than happy to bet money in this.
Mortgagejake
at 4:40 pm
LOL. Death. Breath. Oops!
Joel
at 7:33 pm
The main problem is that many people will go much too far to not lose their homes. My office and everyone I have talked to has seen a dramatic increase in the amount of private mortgages since the stress test. When people can’t refinance their house to pay out their credit cards they take on a second mortgage.
Sadly these people will then run up their credit cards again and will still have to make the payments on their mortgage and the problem compounds. If this continues we are going to see a major influx of people that will desperately need to sell or will go bankrupt. While this does happen a 3% mortgage amortized over 30 years is much less debt to take on than a 12% mortgage that is interest only.
Instead of just the stress test the government needs to look at overall lending rules from the banks and limit the amount of credit given to people and put together a program to help educate. When you can get $100,000 of unsecured debt and only get a $300,000 mortgage I think it is the unsecured debt that is a problem.
The previous version of not stress testing fixed rates makes sense. If you have a 5 year term and rates go up after 5 years, you can always refinance to make the payments manageable.
There was also talks of extending CMHC insurance to 30 years for first time buyers only. I think this would be good in helping many qualify for a home, but then comes the problem of condo prices increasing even more and many pf the people it was meant to help being priced out again.
Obviously there is no solution that will be right for everyone, but this is going to be a huge issue among many voters in the upcoming election.
Alexander
at 10:46 pm
IMHO stressed test was invented to help BOC to micro-manage housing market in general and mortgages in particular – it was just late for 2-3 years, but who cares! All economists were afraid of crazy housing runaway prices and Canadian population indebtedness. Those problems are still there but unfortunately the mechanism was set in stone… The situation is changing in different sphere – local government are receiving less revenue, banks are receiving less fees, there are less people who make money in real estate – from mortgage brokers, builders, lawyers, trade, bankers and simply speculators. And it will get worse until it gets better, at the end 60% of Canadian growth is consumer-driven… Once the housing prices start falling – and they will start unless something is done on legislative level – then the stress test will have to go in it current form. It was flawed to begin with – so stupid to simply add 200 point to whatever BOC came up with, without any flexible mechanism for adjustment.
No name
at 11:06 pm
I don’t believe in the stress test. Nor do I believe in CHMC. I think the govt has too much influence in the housing market.
Let’s look at 2 situations that perfectly show how both systems are flawed.
If a borrower wanted a mortgage with a 10% down payment that borrower would get a better mortgage rate than one that had an 80% down payment.
How could that be? We would all agree that the borrower with an 80% down payment is less of a risk than the 10% borrower. Chmc removes risk therefore makes those mortgage more valuable when they’re sold.
As for the commenter regarding $100k mortgage on a 2million home with no income. Yes you could have no income and have a $2million home. If you had 5million in a checking account earning nothing or a huge portfolio that would trigger cap gains if you sold. So it’s possible but unlikely.
J
at 11:11 pm
If you had $5MM in a chequing account, why take out a $100k mortgage?
Appraiser
at 3:06 pm
Looks like not all banks are in favour of the stress test.
Scott Barlow:
BMO on housing: “while the BoC is still plodding its way to neutral, the
residential mortgage market is now, at least from a qualification perspective, well into restrictive territory”
https://twitter.com/RateSpy?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor
long time listener
at 10:52 am
My question is where was OSFI in 2010/11/12/13/14/15/16/17… That’s when a Stress test would have made the most sense. Now, when rates are rising back to neutral levels (or at least it looked that way in 2017/18), that’s when you implement it? So when rates are back at the neutral levels that the BOC wants, are you still going to be testing people 2% above that – what would be the point?
Caroline
at 1:43 pm
Great article! But I think that dealing with private money lenders is more convenient than with bank institutions as they don’t require the stress test. Then, they use a tailored approach; I, for example, consulted with Northcreek Financial specialists when I decided to apply for a second mortgage. The company’s underwriting is based on your equity – not your credit. The application process was very simple and hassle-free. There was no income verification and no credit score requirements.
Vivian
at 11:50 am
Get rid of the stress test. Let the lenders do what they do best at qualifying clients for a mortgage.