The Office of the Superintendent of Financial Institutions drafted a set of guidelines – Draft B-20 which, if passed, will tighten lending practices even further.
I quote Peter Foster’s article in the National Post “…Canadian bankers, who are universally acknowledged to be the soundest in the world, … raises questions less about their competence than the ludicrousness of minute regulation. The guidelines imply that the Canadian banks may be in danger from the housing market, but if they are, which in fact seems unlikely, that would be due to government mortgage insurance and artificially low government-mandated interest rates. They are not unaware of such dangers.”
Summary of proposed changes:
- Cash back mortgages could disappear… currently, one could get a mortgage for 95% of the purchase price at Bank posted rates and then get a 5% cash back.
- Homes would have to be appraised at renewal time… can you imagine if your bank called in your mortgage?
- HELOCs would have to be amortized… No more interest only payments
- HELOCs maximum would be reduced from 80% to 65% loan to value of your house…. a few years ago we could have obtained up to 90% loan to value
- mortgages would require tighter debt servicing guidelines including fewer exception approvals by your lender… no more common sense on the lender’s part