The summer brought little sunshine to Toronto and little in the way of mortgage news, but this fall is turning out healthy doses of both! Not only have mortgage rates been slowly going down, but policymakers are moving forward with some market changes. Read on for a distilled version of the pending changes! (And sorry for the abundance of exclamation points, but, again, we had a very unexciting summer!)
Banks Pledge Greater Financial Transparency
This month, Finance Minister Joe Oliver announced that Canada’s eight largest banks have pledged to provide consumers with more information and disclosures on collateral mortgages, joint accounts and power of attorney.
Collateral mortgages are somewhat controversial in that they cannot be easily transferred to other banks at renewal time without incurring fees, which can often amount to thousands of dollars. Most lenders in Canada offer collateral mortgages as an option, but two of the big banks only offer collateral mortgages: TD Bank and Tangerine (formerly ING DIRECT Canada). It’s scary to think that some borrowers may not be given an explanation of the difference between the two mortgages, or, even worse, may not be informed they are signing up for a collateral mortgage at all!
The eight banks have also agreed to disclose more information about joint accounts and power of attorney, especially as they relate to seniors. Many seniors grant relatives joint accounts or power of attorney privileges, leaving them vulnerable to theft or abuse. According to CBC News, the banks have committed to post educational information online, put up posters in branches, and train bank employees on how to explain the implications of these products to customers. Still, being a voluntary policy with no tangible guidelines, it’s unclear how this will play out in practice.
CMHC Considering More Risk-Sharing with Banks on Mortgage Insurance
According to sources at the Financial Post, the Canada Mortgage and Housing Corporation (CMHC) is considering forcing banks to pay a deductible on mortgages insured with the Crown Corporation before claims are paid. A senior industry source told the Post: “The idea is being floated around right now. What they are trying to do is make sure lenders have some skin in the game.”
Any implementation – which would likely amount to 5-10% of a mortgage – would not happen for some time yet. Currently, CMHC mortgage insurance is purchased directly by borrowers with less than a 20% down payment, and protects Canadian lenders against mortgage default.
Peter Routledge, an analyst with National Bank Financial, rationed the move could translate to higher mortgage rates. The changes would drive up the costs for the banks because they would have to keep more capital on hand. Furthermore, investors who purchase securitized mortgages would also demand higher rates, as the risk of lenders bearing the cost of mortgage default would also increase.
In an interview with Canadian Mortgage Broker News, Ron Butler of Verico Butler Mortgage shared a similar sentiment: “In the end, the entire borrowing public would end up funding the deductibles for those that defaulted, through higher [mortgage] rates. Like every other government idea, it seems to make sense and it appeals to the public: let the big banks suck up some deductible costs to teach them to be better underwriters, but in the end that will never happen.”
Slick New Site
If you’re so enthralled by my thrilling mortgage update that you have yet to check out our new site design, I appreciate it – but once you’re done reading, go check out the new Ratehub.ca. This is a project we’ve been working on for months, and were proud to reveal it in this video earlier this week:
Follow My Homebuying Experience
Beyond just launching the new site design, we’ve had a lot going on at Ratehub.ca recently! We moved offices (and are now in a very tech-friendly, brick-and-beam downtown office), our CEO got hitched and I bought a house! I’ll be documenting my experience Q&A style on our blog every Monday for the next five weeks. Let me tell you, it’s one thing to write about real estate and mortgages, but it’s quite another to actually buy a house and get a mortgage!
And did we mention our monthly newsletter, which provides an overview of the best of the best? Subscribe here.
‘Til next month!