*Updated* Measure for Measure: Real estate boards question mortgage rules

Over the last few years, organized real estate has been concerned with a cascading stream of new measures to tighten the rules on mortgages in Canada. Many in the industry fear that in attempting to prevent some problems, the federal government is creating new ones by making home ownership increasingly out of reach for middle class Canadians.

These measures were prompted when the Canadian government looked south to the US mortgage default crisis in 2007 as a wakeup call for Canada. Low interest rates have encouraged many Canadians, especially first-time buyers, to purchase real estate even when the prices are at historic highs. There was a concern that many Canadians were at risk for losing their homes if mortgage rates go back up, or their family income goes down. So, Ottawa’s solution was to require homebuyers to pay a larger down payment, limit the amount of their borrowing to match the value of the property, and reduce the maximum amortization period to 25 years.

Then last October the federal government announced there would be a standard “stress test” for mortgage eligibility for high and low-ratio insured mortgages. More shockingly to many brokers and Realtors, there is now another proposal to include uninsured mortgages as well. These changes would be written into the Office of the Superintendent of Financial Institution’s (OSFI) Guideline B20Residential Mortgage Underwriting Practices and Procedures, which sets out residential mortgage underwriting standards in Canada. The OSFI is an agency of the federal government that regulates federally registered banks and insurers, trust and loan companies

This week FVREB President Gopal Sahota sent a letter to the OSFI expressing concern about the proposal to require a qualifying stress test for all uninsured mortgages.

“We urge the federal government to carefully consider the potential impact of any new measures on all housing markets, not only the hot housing markets in the Vancouver and Toronto areas,” Sahota wrote.

Mr. Sahota’s letter also supported CREA’s August 2017 submission to the OSFI which outlined the reasons why further changes to Canada’s mortgage regulations would not be in the best service of the economy or home buyers. CREA made the case that home ownership is a “…a key contributor to the country’s gross domestic product (GDP) and overall economic health…” as well as providing a safe form of investment for Canadians.

CREA also pointed out that federal policies applied across the country, don’t necessarily take into account the variation in the markets from one metro region to the next. Where the market is “amply supplied” in many places in Canada, Vancouver is under supplied and very high priced. Therefore trying to apply the same policy for two different markets doesn’t make sense, CREA explained in its brief.

In response to Ottawa’s efforts to lower debt risks, CREA says the evidence is that “borrowers’ credit scores are relatively stable and strong.” However changes to tighten the rules on mortgage lending have created uncertainty which could lower economic growth, while the July 12 increase in the prime interest rate only compounds that uncertainty further.

CREA is asking the federal government to stop bringing in new measures until the full impact of the government’s recent policy changes have been assessed.

BCREA also made a submission to the OSFI and added, “In British Columbia, where homebuyers face the largest provincial property transfer tax in the country, any tightening of underwriting policies can put homeownership out of reach.”

Update: CREA is asking all Realtors to help oppose further changes to the mortgage rules

The Office of the Superintendent of Financial Institutions (OSFI) is proposing a stress test for uninsured mortgages which would require lower-risk borrowers to be approved at two per cent above the rate offered to them by their lender. CREA is asking all Realtors to write to their federal MP through the REALTOR® Action Network to oppose this move. Click here to send a message to your MP.