Mortgage lenders urge caution as regulator eyes more control

Mortgage lenders are urging Canada's top financial regulator to exercise caution amid reports that the agency is considering cracking down on terms for uninsured mortgages.
A woman walks past signs for homes for sale at a real estate agency. The industry is urging caution as Canada's banking regulator is reportedly considering tinkering with mortgage rules again. (Phil Noble/Reuters)

Mortgage lenders are urging Canada's top financial regulator to exercise caution amid reports that the agency is considering cracking down on terms for uninsured mortgages.

Earlier this week, media reports suggested that the Office of the Superintendent of Financial Institutions (OSFI) is considering taking steps to rein in mortgage term lengths for so-called "uninsured" borrowers who put down at least 20 per cent on their homes.

Several times in the past few years, the federal government has moved to raise the minimum down payment for mortgages insured through the government-backed CMHC to five per cent, and to lower the amount of time borrowers have to pay it back — down to 25 today from as much as 40 years in 2007.

Until now, uninsured borrowers have been the last thing housing experts and policymakers needed to worry about. But in the continuing attempts to stickhandle the formerly hot Canadian housing market toward a soft landing, changes there may now be on the table.

"A decision in that regard would be taken once we hear back from the industry," mortgage industry newsletter quoted officials at OSFI with saying this week. 

"Any proposed changes to our mortgage guideline that may result from this work would be subject to a public consultation process."

A series of changes implemented over the past several years appear to have had their desired effect of letting out some of the steam from Canada's housing market. Since the last round cutting amortizations to 25 years in July came into effect, home sales are down about nine per cent. And price increases have gone from double-digit gains on average to increases that are just slightly outpacing inflation.

Housing starts have slumped from a peak of 205,000 in 2011, and the growth of mortgage credit has also slowed dramatically since then.

In reaction to the possibility of a further tightening on a new front, the Canadian Association of Accredited Mortgage Professional or CAAMP urged on its website this week for OSFI to exercise caution.

"Instead of further restrictions on uninsured mortgage products, the government should examine measures to support first-time buyers who have been impacted the most by recent regulatory changes," CAAMP said.

In an interview with CBC News, CAAMP president Jim Murphy says the agency has yet to be formally consulted on any changes OSFI may be considering, but he urges a cautious approach to any new changes. Indeed

"As an association we always take a balanced approach," Murphy said. "We're always concerned about household debt, and rates and we understand the government's concern with taxpayer exposure [through CMHC] but we also know housing is an important economic contributor that has taken some knocks already," he said.

Indeed if regulators or policymakers are thinking about changes, he says they would do well to consider making it easier to buy a home for a specific segment of people — first-time homebuyers.

An expansion of the Home-Buyer's Plan RRSP exemption, some sort of modest new home buyer tax credit or even simply making sure first-time borrowers qualify under stringent rules before allowing them some leeway would all be easy to implement policies that could help out first time homebuyers without making the system as a whole more vulnerable.

New data came out Wednesday showing the average price of a Canadian resale home was $380,588 last month.

For its part, the federal Department of Finance appears content to sit on the sidelines. After moving four times to tinker with CMHC rules, Finance Minister Jim Flaherty said yesterday he has done enough.

"I'm not going to intervene in the mortgage market, I don't need to," he said.