Blog Post

Mortgage Brokers Continue Fight for Competition

Katherine Martin • Mar 23, 2017

As you may well be aware, the government has recently made changes to the way mortgages are qualified through the Canadian Mortgage and Housing Corporation (CMHC). In short, these changes have made it more expensive for some of the broker channel lenders to fund mortgages, the increased cost of doing business is then passed on to consumers through higher interest rates. This government intervention has led to an unfair playing field, which means when you consider all your mortgage options, you now have less options than you did before. As an industry, we don’t believe this is right, and we’ve taken our concerns to Ottawa.

Here is an article titled Mortgage Industry Voices Concerns to Ottawa that was published on Canadian Mortgage Trends, a publication of Mortgage Professionals Canada. It provides a highlight of what mortgage brokers are doing to continue the fight for better mortgage products for Canadians.

Mortgage Industry Voices Concerns to Ottawa

A delegation of mortgage industry leaders went to Ottawa this month. Its mission: to educate lawmakers about the implications of the latest mortgage regulations.

The event, organized by Mortgage Professionals Canada, was its first-ever Parliament Hill Advocacy Days. In just over two days, the group participated in more than 30 meetings involving more than 100 members of parliament, senators and senior policy staff.

The association’s core message centred on the economic ramifications of the new policies that came into effect last fall and January.

Face-to-Face Progress

“Many of the MPs could describe stories from their own riding of homebuyers who were affected by these changes,” said Paul Taylor, President of Mortgage Professionals Canada. “Others were less familiar with our issues but were appreciative of us bringing them to their attention. In all cases, we were delivering messaging to support the channel, to support choice and accessibility for the Canadian consumers we all serve day to day…”

Among those who participated in the effort were familiar industry names like Boris Bozic (Merix Financial), Eddy Cocciollo (Mortgage Centre), Jared Dreyer (VERICO Dreyer Group Mortgage Brokers), Claude Girard (Laurentian Bank), Dan Putnam (CLMS), Amanda Roy-Macfarlane (AMBA), Hali Strandlund (Fisgard Asset Management), Michael Wolfe (AMBA) and Dustan Woodhouse (DLC), among others.

The group conveyed to parliamentarians the recommendations that Mortgage Professionals Canada has publicly put forward, including asking the government for a moratorium on further rule changes for the next 12-18 months, as well as revisiting its anti-competitive position on refinancing.

Boris Bozic, CEO of Merix, said one of the key concerns was the new stress test rules and the need for any changes to be applied to all mortgage types (not just insured mortgages), and all financial institutions. “If the government is truly concerned about debt levels being incurred by Canadian homeowners, the stress test should be applied equally,” he said. “This would ensure that Canadian homeowners continue to have choice, and allow Canadian borrowers to benefit from competition.”

Overall, the group was pleased with how their position was received by members of parliament and other government officials.

“Our concerns were heard and appreciated by all the MPs we met with, irrespective of party affiliation,” Bozic said. “They all committed to raising the issue with their colleagues and sharing our recommendations for slight modifications to the new rules imposed on our industry and middle-class Canadians. Time will tell if the Department of Finance will be receptive to the modifications we suggested.”

Dunning Takes on the DoF

Mortgage Professionals Canada’s chief economist Will Dunning also made a submission to the Standing Committee on Finance in which he presented his analysis of the flaws with the government’s changes and the risks they pose.

“The policies announced on October 3 will reduce housing activity and weaken the broader economy,” Dunning said. “Even in the very best of economic times, a policy that will weaken the economy should be undertaken only after thorough discussion.”

He noted that the Trump presidency raises economic risks for Canada, which he argues justifies rescinding the government’s changes to mortgage insurance. Here’s Dunning’s analysis.

The Next Steps

In an update posted on its website, Mortgage Professionals Canada outlined the expected timeline for the Standing Committee on Finance to finalize its report and recommendations for the Minister based on the testimonies it heard concerning the mortgage changes.

The report isn’t expected to be tabled and made public until at least July or August. In the meantime, the association says the industry “needs to remain active in educating MPs, officials, and the Minister of Finance on how these changes will increase interest burdens, obstruct competition and harm local economies across Canada.”

The mortgage industry has another shot at having its voice heard this Wednesday when DLC President Gary Mauris and our own Editor Robert McLister meet with Deputy Bank of Canada Governor Larry Schembri. The Bank of Canada routinely consults with the Department of Finance on housing issues and Schembri aims to better understand our industry’s perspectives on its policy changes. We’ll keep you posted on that meeting.

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Katherine Martin

Origin Mortgages

Phone: 1-604-454-0843
Email: kmartin@planmymortgage.ca
Fax: 1-604-454-0842

Why Downpayment Source Matters

By Katherine Martin • 01 May, 2024

If you’re looking to purchase a property, although you might not think it matters too much, the source of your downpayment means a great deal to the lender. Let’s discuss the lender requirements, what your downpayment tells the lender about your financial situation, a how downpayment helps establish the mortgage loan to value. Anti-money laundering Lenders care about your downpayment source because, legally, they have to. To prevent money laundering, lenders have to document the source of the downpayment on every home purchase. Acceptable forms of downpayment are money from your resources, borrowed funds through an insured program called the FlexDown, or money you receive as a gift from an immediate family member. To prove the funds are from your resources and not laundered money from the proceeds of crime, you’ll be required to provide bank statements showing the money has been in your account for at least 90 days or that you’ve accumulated the funds through payroll deposits or other acceptable means. Now, if you’re borrowing all or part of your downpayment, you’ll need to include the costs of carrying the payments on the borrowed downpayment in your debt service ratios. If you’re the recipient of a gift from a direct family member, you’ll need to provide a signed gift letter indicating that the funds are a true gift and have no schedule for repayment. From there, you’ll need to show the money deposit into your account. Financial suitability Lenders care about the source of the downpayment because it is an indicator that you are financially able to purchase the property. Showing the lender that your downpayment is coming from your resources is the best. This demonstrates that you have positive cash flow and that you’re able to save money and manage your finances in a way that indicates you’ll most likely make your mortgage payments on time. If your downpayment is borrowed or from a gift, there’s a chance that they’ll want to scrutinize the rest of your application more closely. The bigger your downpayment, the better, well, as far as the lender is concerned. The way they see it, there is a direct correlation between how much money you have as equity to the likelihood you will or won’t default on their mortgage. Essentially, the more equity you have, the less likely you will walk away from the mortgage, which lessens their risk. Downpayment establishes the loan to value (LTV) Thirdly, your downpayment establishes the loan to value ratio. The loan to value ratio or LTV is the percentage of the property’s value compared to the mortgage amount. In Canada, a lender cannot lend more than 95% of a property’s value. So, if you’re buying a home for $400k, the lender can lend $380k, and you’re responsible for coming up with 5%, $ 20k in this situation. But you might be asking yourself, how does the source of the downpayment impact LTV? Great question, and to answer this, we have to look at how to establish property value. Simply put, something is worth what someone is willing to pay for it and what someone is willing to sell it for. Of course, within reason, having no external factors coming into play. When dealing with real estate, an appraisal of the property will include comparisons of what other people have agreed to pay for similar properties in the past. You’ll often hear of situations where buyers and sellers try to inflate the sale price to help finalize the transaction artificially. Any scenario where the buyer isn’t coming up with all of the money for the downpayment, independent of the seller, impacts the LTV. All details of a real estate transaction purchase and sale have to be disclosed to the lender. If there’s any money transferring behind the scenes, this impacts the LTV, and the lender won’t proceed with financing. Non-disclosure to the lender is mortgage fraud. So there you have it; hopefully, this provides context to why lenders ask for documents to prove the source of your downpayment. If you’d like to talk about mortgage financing, please connect anytime; it would be a pleasure to work with you.

Porting Your Mortgage

By Katherine Martin • 24 Apr, 2024

Porting your mortgage is when you transfer the remainder of your current mortgage term, outstanding principal balance, and interest rate to a new property if you’re selling your existing home and buying a new one. Now, despite what some big banks would lead you to believe, porting your mortgage is not an easy process. It’s not a magic process that guarantees you will qualify to purchase a new property using the mortgage you had on a previous property. In addition to re-qualifying for the mortgage you already have, the lender will also assess the property you’re looking to purchase. Many moving parts come into play. You’re more likely to have significant setbacks throughout the process than you are to execute a flawless port. Here are some of the reasons: You may not qualify for the mortgage Let’s say you’re moving to a new city to take a new job. If you’re relying on porting your mortgage to buy a new property, you’ll have to substantiate your new income. If you’re on probation or changed professions, there’s a chance the lender will decline your application. Porting a mortgage is a lot like qualifying for a new mortgage, just with more conditions. The property you are buying has to be approved So let’s say that your income isn’t an issue and that you qualify for the mortgage. The subject property you want to purchase has to be approved as well. Just because the lender accepted your last property as collateral for the mortgage doesn’t mean the lender will accept the new property. The lender will require an appraisal and scrutinize the condition of the property you’re looking to buy. Property values are rarely the same Chances are, if you’re selling a property and buying a new one, there’ll be some price difference. When looking to port a mortgage, if the new property’s value is higher than your previous property, requiring a higher mortgage amount, you’ll most likely have to take a blended rate on the new money, which could increase your payment. If the property value is considerably less, you might incur a penalty to reduce the total mortgage amount. You still need a downpayment Porting a mortgage isn’t just a simple case of swapping one property for another while keeping the same mortgage. You’re still required to come up with a downpayment on the new property. You’ll most likely have to pay a penalty Most lenders will charge the total discharge penalty when you sell your property and take it from the sale proceeds. The penalty is then refunded when you execute the port and purchase the new property. So if you are relying on the proceeds of sale to come up with your downpayment, you might have to make other arrangements. Timelines rarely work out When assessing the housing market, It’s usually a buyer’s market or a seller’s market, not both at the same time. So although you may be able to sell your property overnight, you might not be able to find a suitable property to buy. Alternatively, you may be able to find many suitable properties to purchase while your house sits on the market with no showings. And, chances are, when you end up selling your property and find a new property to buy, the closing dates rarely match up perfectly. Different lenders have different port periods Understanding that different lenders have different port periods is where the fine print in the mortgage documents comes into play. Did you know that depending on the lender, the time you have to port your mortgage can range from one day to six months? So if it’s one day, your lawyer will have to close both the sale of your property and the purchase of your new property on the same day, or the port won’t work. Or, with a more extended port period, you run the risk of selling your house with the intention of porting the mortgage, only to not be able to find a suitable property to buy. So while the idea of porting your mortgage can seem like a good idea, and it might even make sense if you have a low rate that you want to carry over to a property of similar value, it’s always a good idea to get professional mortgage advice and look at all your options. While porting your mortgage is a nice feature to have because it provides you with options, please understand that it is not a guarantee that you’ll be able to swap out properties and keep making the same payments. There’s a lot to know. If you’re looking to sell your existing property and buy a new one, please connect anytime. It would be a pleasure to walk you through the process and help you consider all your options, including a port if that makes the most sense!