Report: OSFI has the wrong end of the stick

A new report is backing up broker concerns OSFI is about to fix what ain’t broke – this new research identifying already-reduced amortizations, low arrears and high levels of homeowner equity.
“Mortgage borrowers are making significant efforts to accelerate repayment, such as voluntarily increasing their regular payments (23 per cent) and making lump sum payments (19 per cent), with some borrowers (10 per cent) doing both,” finds CAAMP's spring consumers' report, released Wednesday. "And approximately 50 per cent of borrowers pay $100 per month (or more) above their required payments.”
The report relies on an online survey of 2,000 Canadians, including 800 homeowners with mortgages. It was conducted by Maritz Research and adds weight to the findings of a CMHC report issued last week.

It also suggests that recent buyers expect amortization periods will be about 20 per cent shorter than their contracted length, mirroring the current reality for many Canadian homeowners.

To boot, the report also suggests 83 per cent of Canadians have at least 25 per cent equity in their homes. Separately and collectively, those findings point to a mortgage market well positioned to handle the challenges of a correction in the housing market and to protect the investment of the vast majority of homeowners.

Brokers are also hoping the findings will encourage OSFI to reconsider some of the underwriting
guidelines it will likely bring into force next month.

Those measures – from re-qualification at renewal to slashing the maximum loan-to-value on HELOCs – are meant to throw up a firewall around Canada’s housing market.
Brokers haven’t been convinced of the need for it.

The position is garnering support outside of the CAAMP research, with the official opposition in Otttawa registering the same concerns as brokers.
"We just need to make sure that people are protected in some of these temporary situations (where they may have lost a job),” said Peggy Nash, the federal NDP’s finance critic, “if they have a good credit record and have never had a problem making their payment."
OSFI has floated the idea of forcing mortgage-holders to re-qualify at renewal, although exactly what that involves remains unclear.
Brokers, and their professional associations, were among the first to balk at the suggestion, arguing it could create the kind of market crisis the proposals aim to overt.
Nash appears to agree, with her party most worried Canadians temporarily out of work could possibly lose their homes. She’s asking the Harper government to back off.
But OSFI has suggested it has little intention of backing down, Its manager of policy developing expressing concern about the country’s ability to meet a significant housing correction head on.

http://www.mortgagebrokernews.ca

Collateral charge mortgages

Here's another great article I read about collateral mortgages. I'm a huge advocate that we as consumers of mortgages, need to know about these and the potential down falls that come with them.


Few products ignite broker debate like collateral charge mortgages. For Gord McCallum, who will be part of panel of industry leaders discussing the subject at the upcoming Mortgage Summit, the need for broker education on every facet of these complicated deals is key.

“They have their place, but proper disclosure is an important aspect in terms of consumer protection,” says McCallum, broker/president of First Foundations Residential Mortgages in Edmonton.

“What concerns me are the more recent developments where they’re being used across the board for all mortgage products as opposed to lines of credit.”

Collateral charges have been used for lines of credit before, but the ah-hah moment for brokers came when TD began registering all of their mortgages as collateral charge in 2010.

“Some of us saw that as contractual handcuffs at renewal for clients because it took away a lot of the client’s leverage in terms of being able to transfer that mortgage at renewal to another institution,” says McCallum. It also plays a role in renewal pricing, he says. “If you don’t have any leverage the lender will price things less competitively at renewal.”

Collateral charge mortgages also seriously hinder a client’s ability to get secondary financing.

“Clients can’t secure a second mortgage against their property because the collateral charge is registered to 100 per cent of the value,” says McCallum.

Many people don’t know the difference or aren’t being told about how collateral charge mortgages differ from traditional mortgages and what the implications might be, he says.
“It might be a case of finding out too little too late and then being in a position of having to sell your home.”

There are alternatives to collateral charge mortgages, say McCallum, but he would be worried if these products became more popular across the board. “It would be a challenging environment.”
“[Collateral charge mortgages] limit choice and as a broker I can’t be in favour of anything that limits choice for people. I have to value competition and choice,” says McCallum.

“I don’t mind lenders doing things differently, but I think people have to be properly educated about it.

“Is it truly for their benefit or is this seen as a retention tool and margin improvement for the lenders. If it truly benefits the client, brokers will choose it.”

article is from www.mortgagebrokernews.ca