Residents of Southern Alberta have been slowly recovering from devastating floods over the past few weeks, and now have to face the possibility of stricter mortgage policies on their homes as a result. Banks and other lenders are beginning to flag certain postal codes in flood-prone areas of Alberta and are imposing stricter policies onto current and potential homeowners.
Postal codes were flagged in Calgary, Medicine Hat, High River, Canmore, Cochrane, Rocky View County, Black Diamond, Sundre, Turner Valley and Crowsnest Pass. Participating lenders, such as Scotiabank, will now require additional home inspections or appraisals before approving mortgage financing for homes in these areas; this potentially makes it tougher for sellers to sell and buyers to buy. In addition, Scotiabank announced that deals approved prior to June 21, 2013 will be resubmitted to insurers who may ask for a new appraisal.
Although making changes to already approved deals may seem unfair, at this point, the banks need to protect themselves. According to Calgary Mortgage Broker Dan Eisner, who is also the CEO of True North Mortgage, “Banks need to be aware if the value of a home drastically changes, in order to protect themselves and the homebuyer.” Eisner believes that although some of these bank measures seem tough, “they are necessary as the homes [that lenders] finance are their main security for mortgages.”
In the past, auto-renewal offers for mortgages were sent out in the mail, but some lenders will be changing this practice. Banks may begin to refuse financing or ask for additional security, if they believe a property was damaged or is likely to be damaged in the future from flooding. TD is just one bank that will now review all purchase and refinancing transactions in Southern Alberta on a case-by-case basis.
Furthermore, banks are reaching out to homeowners in flood impact zones, to confirm if their property was damaged or not. If customers do not complete a statutory declaration confirming that their home was not damaged, banks will get the property inspected. Their aim is to try and reconfirm the condition of the security behind the mortgage (the home), because the original appraisal may no longer be accurate.
Right now, banks are most interested in determining the market value of homes in flood-stricken areas, which has been hard to assess because there have been so few sales since the floods occurred. Residential home sales from the past two-and-a-half months show that there were 947 deals in flood-affected areas that could be affected by these new policies. Eisner believes that these new regulations could lower the value of homes in areas of Southern Alberta, as potential homebuyers may fear more flooding in the future.