Changes designed to help keep borrowers responsible and prevent instability

Today, the federal government announced changes to the rules for government-backed insured mortgages.  That includes all mortgages where the home buyer is putting a down payment of  less than 20 percent.

Here are the changes:

• All borrowers will be required to meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter terms
• Reduced maximum amount that can be withdrawn in refinancing a government-backed insured mortgage to 90 per cent from 95 per cent of the value of the home
• Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner occupied properties purchased for speculation. Borrowers purchasing owner-occupied residential properties will still be able to access government-backed mortgage insurance with a 5 per cent down payment

These changes will come into effect on April 19, 2010 although exceptions would be allowed after this date in order to satisfy binding agreements of purchase and sale, financing or refinancing entered into before April 19, 2010.

These changes are part of the government’s pro-active strategy to help prevent instability in the market place and to ensure that Canadians borrow responsibly.  These changes are meant to enhance existing minimum standards established in October of 2008 which include:

• Fixing the maximum amortization period for new government-backed mortgages to 35 years
• Requiring a minimum down payment of five per cent for new government-backed mortgages
• Establishing a consistent minimum credit score requirement
• Requiring the lender to make a reasonable effort to verify that the borrower can afford the loan payment
• Introducing new loan documentation standards to ensure that there is evidence of reasonableness of property value and of the borrower’s sources and level of income

Additional details are available through the Department of Finance Canada website.

A week ago the Globe & Mail ran it’s latest subprime “expose,” entitled “Canada’s Dirty Subprime Secret, to which the Vancouver Sun replied Friday: “There is no secret subprime mortgage problem in Canada.”

The Globe’s story was largely anecdotal and attributed a big number of defaults to subprime lenders.  It used seemingly large foreclosure statistics (e.g. “10,000 foreclosure proceedings”), in a way that would make a layman think Canada had a virtual foreclosure epidemic.

Like so many stories before it, it was a completely one-sided, and dare we say irresponsible, article that offered absolutely no context whatsoever.  For example, it gave no mention of how record job losses are contributing to Canadian foreclosures.  “Everyone knows unemployment is up, everyone knows we’re in a recession, everyone knows that real estate has dropped – by definition you’re going to get higher defaults when any of those things happen,” said Xceed Mortgage’s Ivan Wahl to CMP.

See original here: 
Canadian Subprime in the Globe…Again