One year later: Marking Flaherty’s mortgage rule changes

Happy anniversary? It’s been a year since the mortgage rule changes took effect, and brokers have felt the impact not only on their business, but especially their clients.

One year later: Marking Flaherty’s mortgage rule changes
Happy anniversary? It’s been a year since the mortgage rule changes took effect, and brokers have felt the impact not only on their business, but especially their clients.
“We are finding a lot of people no longer qualify based on 25 years amortization or have to cut the purchase price back, which is easier said than done, depending on the market where you intend to purchase,” says Nicole Drummond, a mortgage broker with DLC The Mortgage Source. “The new regulations have impacted the consumers who are purchasing and do not have the 20 per cent down payment.”
Another broker agrees that Finance Minister Jim Flaherty’s amortization restrictions have had an impact.
“If Flaherty’s intention was to push some of these first-time buyers to the sidelines, he has succeeded,” says Ron Butler, of Verico Butler Mortgage. “The self-employed Canadian has taken it on the chin in the last 12 months as the original rule changes and subsequent OSFI changes have tightened the screws on those in business for themselves.”
Although sales and volume may be up, brokerages are working a lot harder for less pay, Butler points out. 
“In our own business our unit sales are massively up year on year, 39 per cent, and our overall loan volume is way up as well but due to our rate-discount strategy our income is flat year on year,” Butler told “So the net effect is we are working much harder for less pay as our salaried staffing increased to handle the unit volume surge.”
The major restrictions put in place by Finance Minister Jim Flaherty were to cap amortizations at 25 years, and limiting refinancing from 85 to 80 per cent of LTV.
Andrew Galea, a mortgage agent with Calum Ross Mortgage, has seen many clients moving to fixed rates to qualify for a mortgage.
“The new rules have limited the various opportunities for the consumer, that is, they have forced many of them to take a fixed rate term of 5 years or longer so they can avoid the dreaded MQR (mortgage qualifier rate)  currently at 5.14%, which limits the total credit available to the first-time homebuyer by 25% or more,” says Galea. “The major impact of the new rules have affected the self-employed as the insurers are asking for more supporting documents  to substantiate their stated income—CMHC requires proof of income for BFS clients that have been in business for two years or longer, whereas Genworth doesn’t have this requirement but the income must be reasonable for their particular profession.” 
Brokers and agents immediately saw the effect on first-time buyers, even before the rules came into effect.



CREA’s June numbers from 2012 revealed that there were 4.4 per cent fewer homes sold compared to 2011, with average home prices dipping 0.8 per cent during the same comparison period.
Industry economists, such as CAAMP’s Jim Dunning, predicted a year ago that the economy would take a hit in job creation, as housing and mortgage activities “account for more than 1.35 million direct and indirect jobs (about 8 per cent of total Canadian employment.”
The Toronto condo market took a direct hit, according to Shaun Hildebrand, a senior vice president of Urbanation and former market analyst with CMHC, as first-time homebuyers flocked to the condo market instead of buying, pushing average rents in the GTA to a record $1,856.
“For the first time in a long time, we’re seeing rent levels grow stronger than resale and new condo prices,” Hildebrand said. 
Numbers from Urbanation – a leading condo analysis firm – show that new condominium sales were down 55 per cent for the first quarter of this year, compared to 2012.
Paolo Di Petta, a mortgage broker with EQRON Mortgage Corporation, has seen lenders back off on some deals over the past year.
“In terms of the mainstream channel, lenders have been tightening up,” says Di Petta. “I saw a thread on LinkedIn the other day that was about how CMHC isn't approving deals as consistently as they used to. I've been hearing from other agents that those borderline deals that used to get approved without any question are often being declined.”
Flaherty’s move to tighten amortization rules was the finale of a continuing campaign to cool the housing market, as Ottawa acted three times to rein in the maximum mortgage term after the CMHC briefly started insuring mortgages with 40-year terms in 2006.
Flaherty brought the amortization limit down to 35 years, then 30, and now where it sits at 25 years.
Other rule changes included a cap on the maximum gross debt service ratio at 39 per cent, and the maximum total debt service ratio at 44 per cent for those looking to get CMHC insurance.
Refinancing restrictions have made once simple deals undoable today, says Butler.
“There is no question that a year down the road refinance business is far harder to execute, deals that would have been simple to do a 13 months ago cannot be done,” says Butler. “There is also clear evidence in our business that some first time home buyers find it challenging to get in the market.”
In addition, Flaherty limited CMHC insurance to homes priced less than $1 million.
Economists agree that GTA housing prices have leveled out, while Vancouver prices are down an average of 5 per cent, with the average Canadian housing price expected to drop only 2 or 3 per cent in the coming year.
For Di Petta, the tightening of the market has meant his services as a mortgage broker have placed him in higher demand.
“Being more on the non-institutional private lender side of the business, I've been getting a steady increase of business, especially from other brokers/agents interested in co-brokering,” he told “I provide a temporary solution for their clients and we put them on track to get approved with more traditional lenders. Those sorts of deals aren't always easy, but when they work, they're win-win. They're the reason I got into this business in the first place.”