Refinancing Activity Drops by 40%

Mortgage refinancing activity has dropped by a steep nearly 40% after Flaherty introduced new lending and amortization policies intended to control debt.
Some economists suggest that this indicates the level and the depth to which CMHC was involved in some risky lending practices.

Although CMHC’s financials indicate a steep drop, has this really trickled down, across the board into local markets?

 

Not really, as Brad Compton, Mortgage Agent, Invis Inc., told Propertywire.ca, because due diligence is part of the daily practice, regardless of what the governmentally imposed rules are: “Personally, I haven't seen much impact on my business as a result of the rule changes. I am still doing refinances for my clients and an 80% loan to value is more than enough in most cases. I have always felt it was part of my job to not just get the client the most money they can pull out of their house, but rather, advise them on the amount of money and corresponding payment that will set them up for success.”

“In the majority of cases 80% is more than enough room for clients to take out some money to consolidate debt or whatever they need the money for. In special instances where the client might need a bit more than CMHC will allow, there are still a few specialty and private lenders that will allow them to access 85-90% of the equity in their home, but for a significantly higher rate. They are definitely going to pay for that luxury, and the increased costs will force most consumers to think twice.”

Matt Daniels, Principal Broker / Owner, Ottawa Mortgage Advisors, has not really seen much of an impact recently: “"I have obviously noticed the changes but it has not made as big an impact as I had originally thought, especially since brokers have a bigger slice of the refinance market compared to the branches."

Some economists are now expressing concern for the current state of the economy- in light of the potential chaos that is lurking some pockets of the globe, and suggest that more needs to be done to restrict debt as a safeguard.

 

Daniels disagrees: “Personally, I did not agree with the reduction to the maximum loan-to-value for refinances. I think the government has made enough changes to date. I fully understand that Canadians debt levels are rising faster than incomes but I think they could have used many other mechanisms like regulating credit card interest rates that would have had a significant impact. Decreasing the ltv on refi's has taken away the ability to consolidate debt that the consumer ALREADY has.”

Compton too, feels that enough is enough: “As far as tightening mortgage rules further is concerned, I really don't think it is necessary. I think we are at a very comfortable place right now. Mortgage rules are strict enough to keep Canadians from getting in over their heads, but at the same time people who are responsible with their credit and make a decent living can still enjoy home ownership. At the end of the day CMHC was developed to help more Canadians become owners. There was a period in the recent past where they might have been a bit too liberal with the mortgage qualification rules, but they have done a good job over the past couple of years bringing them back to a more conservative level.....while still remaining fair.”

Compton believes as well that the focus may be pointed in the wrong direction- mortgage debt may not be the problem: “I would like to see the government address is unsecured credit. The ease of which most people are able to get unsecured credit has not seemed to change since the economic slowdown. Most department stores are only too happy to sign you up on the spot for a credit card and I think most people still receive at least one offer for credit in the mail every week.....I know I do. I have had clients with 5-10 active credit cards. Do you really need that many? “