Thursday, June 21, 2012

New limits on CMHC backed mortgages July 9

I had a feeling given the watering down of new OSFI rules that Flaherty would be forced to take some other action to limit growth in mortgage debt. And he's smart enough to make the timeline short so as to not goose the market too much in anticipation of the punchbowl getting yanked. (As noted on other blog comments, will this juice listings more than sales? Possibly. Depends on where we are in the in the general perception of a bubble. We might be about to find out where we are.)

Max borrowing against the home 80% down from 85%
(I presume this is under a re-finance, not HELOC, which is covered under OSFI at 65%)
maximum gross debt service ratio to be 39%
maximum total debt service ratio 44%
CMHC cap of $1 million
Max CHMC insured amortization of 25 years

Annoying the articles like this one credit Flaherty for his rounds of tightening without pointing out he was the one to loosen them in the first place.

Financial Post coverage
The reduction to a 25-year from 30-year period is equivalent to about a 0.9 ppt mortgage rate increase (assuming a 3.3% 5-year fixed rate and a $290k mortgage after 20% down on an average-priced $363k home). Notably, the impact is bigger than the switch from 35- to 30-year mortgages, which at current mortgage rates, would be equivalent to about 0.6 ppts of tightening. It’s also important to keep in mind that the amortization change won’t impact affordability across the entire market, but rather those that would be taking a 30-year amortization—according to the Canadian Association of Accredited Mortgage Professionals, that made up 40% of mortgages for purchase during 2011/12 (up to May).
Just out of curiosity. Why didn't they take action before household debt levels reached crisis point (as defined by where the U.S. crashed). It's not like they couldn't have known. And it's not like they didn't have 5-6 years of warning.

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