Mort­gage rules crit­i­cized in Fraser re­port

The Recorder & Times (Brockville) - - BUSINESS - GARRY MARR

Add an­other group to the grow­ing list of or­ga­ni­za­tions try­ing to con­vince the fed­eral bank­ing reg­u­la­tor to back down from its plan to tighten the reins on con­sumers bor­row­ing with low ra­tio loans.

The Fraser In­sti­tute said in a re­port Wed­nes­day the changes for con­sumers putting 20 per cent or more down could make it harder for them to ac­cess mort­gages, es­pe­cially in higher-priced mar­kets. Those buy­ers could turn to less-reg­u­lated fi­nance com­pa­nies or per­haps turn to shorter, more volatile vari­able loans to meet qual­i­fi­ca­tion cri­te­ria.

“The pro­posed stress test for fi­nan­cially sound home­buy­ers is un­nec­es­sary and will do more harm than good,” said Neil Mo­hin­dra, a public pol­icy con­sul­tant and au­thor of the re­port, Unin­sured Mort­gage Reg­u­la­tion: From Cor­po­rate Gov­er­nance to Pre­scrip­tion.

The Of­fice of the Su­per­in­ten­dent of Fi­nan­cial In­sti­tu­tions’ (OSFI) will re­lease fi­nal changes to its mort­gage lend­ing guide­lines, also known as B-20, by the end of the month and they will go into force two or three months later.

Key among the changes is a stress test for con­sumers bor­row­ing with 20 per cent or more down — a level pre­vi­ously not heav­ily reg­u­lated — re­quir­ing them to qual­ify at a rate 200 ba­sis points or two per­cent­age points above their con­tract. In 2016, the govern­ment forced bor­row­ers with less than 20 per cent down, and whose loans are backed by Ottawa, to qual­ify based on the five-year Bank of Canada posted rate which is now 4.89 per cent.

Some economists have ques­tioned whether the changes from OSFI are needed at a time when the coun­try’s hottest mar­ket, the Greater Toronto Area, has al­ready cooled off and seen av­er­age sale prices on a non-sea­son­ally ad­justed ba­sis drop about 31 per cent from the April peak.

Real es­tate groups have also heav­ily op­posed the changes but those in favour of a crack­down point to a mas­sive in­crease in debt, in­clud­ing mort­gage debt. Sta­tis­tics Canada said in Septem­ber that house­hold debt as a per­cent­age of dis­pos­able in­come had a reached a record 167.8 per cent in the first quar­ter.

“We clearly see the po­ten­tial risks caused by high house­hold in­debt­ed­ness across Canada, and by high real es­tate prices in some mar­kets,” Jeremy Rudin, the head of OFSI, said this month. “We are not wait­ing to see those risks crys­tal­lize in ris­ing ar­rears and de­faults be­fore we act.”

Still, the Fraser In­sti­tute doesn’t be­lieve the changes are nec­es­sary and says an­other key re­sult could be a less com­pet­i­tive mort­gage in­dus­try and sug­gests some niche play­ers in the res­i­den­tial­mar­ket, like those who fo­cus on the self-em­ployed, may have their busi­ness mod­els up ended.

More im­por­tantly, the group says the rate of ar­rears, made up of bor­row­ers more than 90 days be­hind in their pay­ments, is ba­si­cally the same as it was in 2002. The rate hasn’t ex­ceeded 0.45 per cent and that in­cludes 2009 fi­nan­cial cri­sis when the rate rose to five per cent south of the bor­der.

“OSFI’s em­pha­sis on cor­po­rate gov­er­nance worked well dur­ing the fi­nan­cial cri­sis. Shift­ing to­wards more pre­scrip­tive rules is an omi­nous sign,” Mo­hin­dra said.

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