Oct. 15th... New Mortgage Rules for Canadians

[21pro]

Buying a home? New mortgage rules begin October 15, 2008

(NC)-Are you planning to buy a house or refinance your mortgage? If the answer is yes, you
should be aware of recent changes governing mortgage lending in Canada.
Starting October 15, 2008, new government-backed, insured mortgages will be subject to a
series of changes, designed to keep Canada's housing market strong. The changes include:
. Reducing the maximum amortization period to 35 years from 40;
. Requiring a minimum down payment of 5% (up from 0%);
. Establishing a requirement for a consistent minimum credit score; and
. Introducing new loan-documentation standards.
. Newer and more effective laws that allow Lenders to Call Mortgages due to lapses of payments of other credit, including missed credit card payments and utility bills.
Darren Thompson, Vice President of Lending at ResMor Trust Company, a leading residential mortgage company
that works with mortgage brokers in Canada, encourages consumers to talk to their mortgage broker about the
changes and how they may influence their ability to purchase a home.
"Buying a home can be a challenging journey at the best of times ? and some argue the new changes will reduce
options for Canadians," says Thompson. "A mortgage broker can help explain the process and work with you to
customize a solution best suited for your needs."
Any homebuyer with less than a 20% down payment is required to get mortgage insurance if they are borrowing
money from a financial institution covered by the Bank Act or The Loan and Trust Companies Act. Canadians who
already hold mortgages will not be affected by these changes.
For more information or to find a mortgage broker near you, visit www.resmor.com.

hmmm... so, I guess we Canadians needed to tighten up on lending also. Wonder what this will do to to our local RE market?

 

[james t kirk]

You used to need 10% down.

Then they lowered it to 5% about 13 years ago.

I didn't know that some fool lowered it to 0%.

As far as I'm concerned, they can make it 10% again.

BTW, if housing prices were to crash by say 50%, a lot of people would be in TROUBLE because the bank will not give you a mortgage for more than your house is worth.

I.e. Say you owe $500,000 on a house that's currently worth $600,000.

No problem getting a mortgage renewal.

But if that house were to sudddenly be worth $300,000 say as the result of a market collapse, well my friend, you NEED to come up with $200,000 CASH on your own before the bank will renew your new mortgage for $300,000.

Now THAT could be a problem.

 

[S.C. Joe]

Smart...wish the USA would have done this years ago...think today its still not a rule but fat chance a bank today will give a mortgage with no money down.

 

[Aardvark154]

. Newer and more effective laws that allow Lenders to Call Mortgages due to lapses of payments of other credit, including missed credit card payments and utility bills.

These all seem very sound and prudent rules save for the above. The Mortgagee has faithfully serviced the mortgage, but has late payments on some other bills and the Bank now will have the power to call the mortgage?! Why not give the Hydro/Electrical Company the power to disconect a client for their being late on a credit card bill?

 

[The Cunning Linguist]

I think some of the current problem is also is people buying houses that stretch them the limit financially, just because their credit score says they can afford it.

Less house, more liquidity is the ticket.

"Own the house, don't let the house own you."

 

[freakshow]

There was really no reason for this..........the default rate is very low.

Really is just more money for banks, because now you would have to buy with 5% down, and recieve a 5% cash back at a posted rate.

You can also have your 5% down gifted

 

[21pro]

^^^ glad you could chime in here, freakshow.

my realtor has been accumulating houses for a few years now getting sometimes 125% financing. I couldn't stomach that much risk.

 

[dcbogey]

Smart...wish the USA would have done this years ago...think today its still not a rule but fat chance a bank today will give a mortgage with no money down.

Joe - If the US had a system like we do none of this crap you (and the rest of the world) is going through would have happened. Here, if you don't have 20% down, not only do you need bank approval but you need the approval of a mortgage insurance company, usually CMHC. The Bank can say yes but if CMHC says no - too bad. If you get the mortgage, you pay an insurance premium with your usual payments. Bear in mind this insurance doesn't protect the borrower - its pays the lender(bank) if you can't pay. It works here, maybe something the US should look at.

 

[dcbogey]

my realtor has been accumulating houses for a few years now getting sometimes 125% financing. I couldn't stomach that much risk.

125%? from private sources, I assume. I agree, in this market that is a big risk to take.

 

[21pro]

i think he finances it based on appraisal values not purchase price. ie, buy a house for $200,000 but get an (ahemmm) unbiased appraiser to appraise it for $280,000 and the lending bank takes the appraised value and lends 90% of the $280k or $252k, ie. 125% of the purchase price....

atleast that's how I would guess it works. don't know though, too much risk for me.

 

[3Tees]

i think he finances it based on appraisal values not purchase price. ie, buy a house for $200,000 but get an (ahemmm) unbiased appraiser to appraise it for $280,000 and the lending bank takes the appraised value and lends 90% of the $280k or $252k, ie. 125% of the purchase price....

Wow - both risky and illegal!

Most banks and lenders only take appraisals from accredited professionals. So he's either using non-accredited/professional people (which would be hard because the lenders would not accept the appraisals), or he's managed to hoodwink a true professional into breaking the rules. That's a feat.

Also, it is well-known within the RE investment community that professional appraisals tend to be about 5% to 15% lower than actual market value. Professionals always under-estimate just a bit to cover their asses.

 

[HafDun]

i think he finances it based on appraisal values not purchase price. ie, buy a house for $200,000 but get an (ahemmm) unbiased appraiser to appraise it for $280,000 and the lending bank takes the appraised value and lends 90% of the $280k or $252k, ie. 125% of the purchase price....

atleast that's how I would guess it works. don't know though, too much risk for me.

Actually, the only way this could happen is if there is some significant fraud happening.
Lenders always use the lesser of actual sale price or appraised value. And any appraiser who comes in at 40% over actual sale price would not be in business for very long. Their appraisal must document similar sales to substantiate their price. That big a discrepancy would leave them open to charges of anything from gross incompetency or fraudulent reporting.

 

[HafDun]

Wow - both risky and illegal!

Most banks and lenders only take appraisals from accredited professionals. So he's either using non-accredited/professional people (which would be hard because the lenders would not accept the appraisals), or he's managed to hoodwink a true professional into breaking the rules. That's a feat.

Also, it is well-known within the RE investment community that professional appraisals tend to be about 5% to 15% lower than actual market value. Professionals always under-estimate just a bit to cover their asses.

That's just not true. Appraisers are commissioned to give an accurate estimate of market value. If they were truly 5-15% below market, there would never have been any 100% financing because the appraisals would never justify the loan. The same applies to any high ratio mortgage because a lower appraised value would throw off the percentage of financing requested.

 

[3Tees]

That's just not true. Appraisers are commissioned to give an accurate estimate of market value. If they were truly 5-15% below market, there would never have been any 100% financing because the appraisals would never justify the loan. The same applies to any high ratio mortgage because a lower appraised value would throw off the percentage of financing requested.

You're missing the point a bit. First, I'm talking about the INVESTMENT market (see my previous post), not the retail market that most people buy and sell in. Second, in the investment community, no one gets 100% financing (or if they do, they won't be an investor for long), and few get high ratio mortgages. When I've purchased other houses from investors, most say that they consider the appraisal to be a lowball offer.

Third, in the retail residential market (and actually any market for that matter) a house is worth what someone pays for it. So, if the buyer and the seller AGREE that the selling price will be the appraised value of the house (which may be 5% to 15% lower than market value) then the bank could pay-out 100% financing on what the agreed-upon appraised price is.

Also, I don't know many residential buyers who have a house appraisal (home inspections, yes, appraisals no). I think it is more likely a bank that may request it, and then it comes back to what I just said. If an appraisal says a house is worth less than it is, if both the buyer and seller agree to the appraised price, then that's the price. In this situation, in fact, the bank likely has the upper hand, as it simply won't finance the deal, leaving both the buyer and seller in a lurch if they don't take the appraised price.

Finally, when a consumer refinances a house or requires a Home Equity Line of Credit, and an appraisal is requested by the lender, it behooves everyone if there is a conservative estimate (i.e. slightly below market value) done on the house.