Monday, January 17, 2011

CMHC Rules Tightened - A LIttle

The Harper Government Takes Prudent Action to Support the Long-Term Stability of Canada’s Housing Market

Related Document:
Backgrounder: Supporting the long-term stability of Canada’s housing market
The Honourable Jim Flaherty, Minister of Finance, and the Honourable Christian Paradis, Minister of Natural Resources, today announced prudent adjustments to the rules for government-backed insured mortgages to support the long-term stability of Canada’s housing market and support hard-working Canadian families saving through home ownership.
“Canada’s well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries and helped protect us from the worst of the recent global recession,” said Minister Flaherty. “The prudent measures announced today build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future.”

“The economy continues to be our Government’s top priority,” continued Minister Paradis. “Our Government will continue to take the necessary actions to ensure stability and economic certainty in Canada’s housing market.”
The new measures:
  • Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
  • Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
  • Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.
Our Government’s ongoing monitoring and sound underlying supervisory regime, along with the traditionally cautious approach taken by Canadian financial institutions to mortgage lending, have allowed Canada to maintain strong and secure housing and mortgage markets.
The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.


AndrewJ said...

I don't undersand why people aren't shocked that the government is backing HELOCs. Instead it's "good job on not doing something you really shouldn't be doing". We are a bunch of sheeple to lap this stuff up. No wonder we made it through the recession in such fashion if the banks have no incentive to restrict the lending taps.

(Same thing last time they tightened lending restrictions and excluded investment properties. Again I was shocked they were backing loans for 2nd and 3rd properties.)

Nice spin doctoring anyway. They now have some "we told you so" street cred if it all goes down the dumper. Just enough to say "we tried" but not enough to definitively end this madness.

Oh and does anyone know if they still allow your mortgage to hit the full 42% GDSR if you have no other debt and a good credit rating or are they saving that for the next announcement?

DDO said...

Great blog,
I'm interested on your opinion as to whether you think this policy will ultimately result in the desired effect - Canadians not being so leveraged. Will the Vancouver, Toronto, & Calgary (presumably the target populations for this) respond in different ways? I can't help but think that they're driven by different phenomena and will - but that's just gut feeling speculation.