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PostPosted: Tue Oct 17, 2017 9:17 am 

Joined: Fri Feb 01, 2008 2:35 pm
Posts: 527
As we have been anticipating, more changes to mortgage regulations were announced this morning which are intended to further cool the housing market. There were three notable changes made to the B-20 regulation:

OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages.
Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.

This was expected. This means that all mortgages regardless of down payment size will need to qualify on the higher of the benchmark rate, which is currently 4.89%, or 2% above the contract rate. With the market 5 year fixed mortgages being at 3.39%, this means that they would have to qualify based on a rate of 5.39% (there are still 5 year fixed rates as low as 2.94% for conventional mortgages). This is going to significantly reduce what many will qualify for.

OSFI is requiring lenders to enhance their loan-to-value (LTV) measurement and limits so they will be dynamic and responsive to risk.
Under the final Guideline, federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve.

(I'll post the details on this below)

OSFI is placing restrictions on certain lending arrangements that are designed, or appear designed to circumvent LTV limits.
A federally regulated financial institution is prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.

I personally did not see much of this going on, so I don't foresee it to be a major issue for most. I do see it having more of an issue for those needing B lenders as it's not uncommon for 2nd mortgages to be used when borrowers need to exceed the LTV limits set by the lender. This is not something that is uncommon, so this could have an impact on the B lending side. (A B lender can be defined as a lender servicing borrowers with non-qualifying credit or income, or one who caters to those who don't qualify through an A lender).

Here's a bit more info taken right from the guidelines:

Property Value used for the LTV Ratio (Loan to Value)
Property value for FRFIs should assess and adjust, as appropriate, the value of the property for the purposes of calculating the LTV and determining lending thresholds within LTV limits, including limits for conventional mortgage loans, non-conforming mortgage loans and HELOCs (see sub-sections below), by considering relevant risk factors that make the underlying property more vulnerable to a significant house price correction or that may significantly affect the marketability of the property. These factors include, but are not limited to:

The location, type, and expected use of the property for which the loan is granted;
The property’s current market price, recent price trends and housing market conditions; and
Any other relevant risk that may affect the sustainability of the value of the underlying property.
In markets that have experienced rapid house price increases, FRFIs should use more conservative approaches to estimating the property value for LTV calculations and not assume that prices will remain stable or continue to rise.

For the purposes of incorporating property value risk and determining appropriate lending thresholds for mortgage loans, FRFIs have flexibility to apply valuation adjustments to specific properties when calculating LTV and/or by setting LTV ratio framework limits that consider and incorporate the property valuation risk factors described in this sub-section.

It's undetermined how lenders will do this at this time and this is still up to interpretation by the lenders. As we know more information, we'll provide it. You can read more about the new regulations here:

http://www.osfi-bsif.gc.ca/Eng/osfi-bsi ... ft_nr.aspx
http://www.osfi-bsif.gc.ca/Eng/fi-if/rg ... 0_dft.aspx

These changes will take effect on January 1st.

Paul Meredith
Mortgage Broker
CityCan Financial (est 1976)

Follow me on Twitter! http://www.twitter.com/paulmeredith

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