Wednesday, February 13, 2019

OSFI Facing Pressure to Ease Mortgage Stress Test

Article by Steve Huebl

"Canada’s financial regulator is facing growing pressure to tweak its mortgage stress test, and no longer just from the mortgage industry.

On Monday, Calgary city councillor George Chahal filed a motion asking for the mayor to call on the federal government to amend the stress test implemented by OSFI (the Office of the Superintendent of Financial Institutions) on January 1, 2018.

Chahal argues the stress test is designed for the Greater Vancouver and Toronto markets, where prices have soared in recent years, and that slower-growth cities, such as Calgary right now, are suffering the wide-ranging consequences. One of those, which he addressed in his motion, is that many borrowers who don’t pass the stress test are being forced to turn to private, unregulated lenders that typically charge higher rates.

“I think we need to have a made-in-Alberta solution based on local economic indicators and which reflects the needs of Calgary and our local economy,” he told The Calgary Star.
Alberta Conservative Party Leader Jason Kenney also spoke out against the stress test last week, vowing to fight it should he be elected premier.

“If you elect a United Conservative government, we are going to go to bat for [those]…who are being pushed away from home ownership because of the prejudicial, regional, unfair stress test imposed by the Canada Mortgage and Housing Corp.,” he said in a speech to Calgary real estate agents.

In January, Mortgage Professionals Canada released its annual report, which addressed the negative effects of the stress test and reiterated calls for changes. Key among them being that any stress test be based on a “relevant” interest rate and factor in income growth and principal repayment; stop subjecting renewals to the stress test; and making it easier for borrowers at alternative lenders to transfer to more liquid and lower-cost lenders.

Canada’s big banks too, which at one time welcomed the stress test, are now voicing their own concerns in the face of a 17-year low in mortgage growth.

“The damage caused by the central bank’s premature bullishness was reversed quickly [with a pause in interest hikes]. What hasn’t been reversed yet is the damage to the housing market due to OSFI’s B-20 rules,” CIBC Deputy Chief Economist Benjamin Tal wrote in a research note, adding that he does not view the introduction of the 200-bps stress test as an error. “Some Canadians needed to be saved from themselves. But given where we are in the cycle, and with policy rates up by 75 basis points since the introduction of the new measures, is 200 basis points still the right number? Not taking a position here… just asking.”

In an interview with the Huffington Post, he added: “It’s not something that has to be set in stone. It should be more dynamic,” he said of any stress test. “You have to assess the damage to the housing market, whether that damage is too severe, and what other forces in the market are leading to slower growth.”

Friday, August 31, 2018

Top 5 Reasons to Refinance

For many Canadians, their home is a terrific repository of wealth. Home equity can build nicely by chipping away at payments and through increasing home values. Accessing home equity through a refinance (min 20% home equity) has for years been an easy, low-cost way to get needed funds. Various new mortgage rules and “stress-testing” has made refinancing more complicated, but it’s a strategy that continues to make good financial sense for certain homeowners that qualify. Here are five reasons why:
  1. Fresh start. If you have too much high-interest debt, you may be able to roll everything into one manageable monthly payment on a low-interest mortgage. Then you get a financial re-set, and can potentially save thousands of dollars in interest.
  2. Dream home. If you’ve found the perfect cottage, chalet, or the retirement home of your dreams, refinancing may be the way to make that purchase happen now if you’re not quite ready to sell your primary residence.
  3. Renovate. Renovating your home is often a less expensive option than moving. And the right renovations can improve the quality of your life and increase the value of your home.
  4. Wealth building. A rental property can give you a great wealth building opportunity and a source of retirement income. Or you may want to invest in a new business venture.
  5. Large expenditures. You may be able to get the funds you need for major expenses (tuition, wedding etc.): a much better strategy than loading it all onto high-interest credit cards.