Canada housing agency concerned by unregulated lenders' growth

November 6, 2017 | Posted by: Sherry Corbitt

Seriously?! What did they think would happen?

It baffles me that these new rules are coming into effect January 1st and NOW they think about what that will mean for the unregulated lenders? (Also known as private lenders)

Summary of the rule changes:

Before January 1st if you bought a home for less than 20% down you had to approve as if you could pay a higher amount even if that was not your contract rate. So your rate is 3.40% but you have to approve as if you can pay 4.89%. If you had more than 20% down or you were refinancing then you could approve on your contract rate (i.e. 3.40% and not at the stress test rate of 4.89%). AFTER January 1st no matter if you are purchasing or refinancing, you have to approve at the stress test levels. This WILL cause some people to not be able to refinance their homes because they do not meet the stress test levels. Where will they turn? To a mortgage broker and a private lender.

So I will sit here and shake my head at the fact that now the Canada Housing Agency is worried about this ‘wild west’ way of lending. Private lending is not a dirty word! It is the fix that many Canadians need to stay in their homes and keep equity growing by being a home owner.

Best advice I have for you is if you find yourself in need of alternative lending for your mortgage needs is that you work with a reputable mortgage agent who can provide you a few quotes and give you options for your needs. As I’ve always said, it isn’t just about rate, it is about the right solution and I am here if you have any questions.

Canada housing agency concerned by unregulated lenders' growth

By Matt Scuffham,  Reuters October 20, 2017


NEW YORK (Reuters) - New rules meant to cut out risky lending by banks in Canada are pushing home purchasers into the arms of unregulated lenders, the head of the nation's housing agency said on Friday, adding that steps could be taken to curb their growth.

The Office of the Superintendent of Financial Institutions, Canada's banking regulator, said this week it will introduce a stress test on all uninsured mortgages to test borrowers' ability to pay back their debt if interest rates rise.

That announcement has sparked concerns that borrowers rejected by banks could turn to unscrupulous private lenders that charge sky-high rates.

'Right now, the level of activity (by unregulated lenders) is relatively low, but we've created an incentive for it to be higher,' Evan Siddall, chief executive of the Canada Mortgage and Housing Corp, said in an interview with Reuters ahead of a speech in New York.

'To the extent that we continue to shrink the space, then riskier loans just move outside of our purview and we need to think about what that means,' he said.

Siddall said the CMHC was researching how much of Canada's C$1.4 trillion mortgage market was being served by unregulated lenders and investigating whether their activity posed a systemic threat to the broader market.

'There are two factors involved - one is the level of activity and the other is the risk of contagion,' he said. 'The first thing we do is just watch. We can move pretty quickly but we're in the middle of watching right now.'

Siddall said his main concern about the country's housing markets related to supply issues in Toronto and Vancouver, citing a number of factors including restrictions on open land around Toronto, the slow pace of regulatory approvals, and developers' speculatively owning land without building on it.

'All those factors together are a problem,' he said, adding that Canada's forthcoming National Housing Strategy will look to address them.

Siddall echoed comments earlier this week by Canada's top banking regulator that sufficient action had been taken to tighten mortgage lending standards at federally regulated lenders.

Canadian authorities have introduced a range of measures over the past 18 months intended to cool housing markets, including slapping special taxes on foreign buyers in Toronto and Vancouver and adopting tougher tests on borrowers' ability to meet repayments.

'Do I think we need further measures in the federally regulated space? No, I actually don't. Not for now,' Siddall said. 'The risk in that space has gone down. We've done our job.

'Now we're looking at the result of the consequence of moving that out of the federally regulated space and should we, can we do something about it,' he added.

Siddall also said the CMHC was examining if self-employed workers and new immigrants were being discriminated against as a result of the new rules. He said the agency welcomed moves to cut out 'bundled mortgages' in which regulated entities team up with private lenders to circumvent lending limits.

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