On July 9, 2012 four changes were implemented by CMHC:
- A reduction of the maximum amortization period to 25 years
- Lowering refinance loan to value ratios
- Fixing a ceiling for gross debt service ratios
- Limiting insurance to those homes purchased for less than $1 million
When will the real estate market begin to feel the impact of those mortgage tightening rules?
MCAN Mortgage Corporation recently reported their Q2 earnings and also released the following outlook answering the above question:
While economic conditions in Canada continue to be stable, the global economy has once again turned more negative as concerns over European credit have found their way into financial markets. The impact to Canadawas felt in falling bond yields as flight to quality and risk off strategies took over markets.
Canadian housing markets remained balanced in the quarter, with some signs of slowing volumes at higher price points in the market. The low interest rate environment continued to support affordability and housing sales. Originations on the most affordable segment of the housing market continued to grow.
Recent federal government announcements of significant changes to mortgage insurance and underwriting standards are expected to have material impacts on Canadian housing markets in quarters to follow. First, the Canada Mortgage and Housing Corporation (“CMHC”) announced a decision to curtail its portfolio insurance activities. Secondly, the Office of the Superintendent Financial Institutions (“OSFI”) issued Guideline B-20, Residential Mortgage Underwriting Practices and Procedures, which will alter the lending practices of Canada’s regulated financial institutions. The impact will be a reduction in the amount that home purchasers are able to borrow under the government-backed mortgage insurance program.
The impact of the above changes is expected to take effect on mortgage markets in the third and fourth quarters of 2012, with a more pronounced impact in the spring market of 2013. We expect insured mortgage origination to be negatively affected.
We continue to monitor the impacts of these changes on mortgage markets and will adjust our strategy accordingly. As we have traditionally not been a significant participant in the insured single family mortgage segment we expect the impact to be minor. We have concentrated our origination efforts on the entry level/affordable segment within our core markets in an effort to minimize the impact of any price adjustments. We have historically been active in the uninsured single family mortgage market and expect this segment to grow with the recently announced regulatory changes. We continue to regard residential mortgages as a solid investment asset class.