The bank of Canada, true to their word, have not adjusted their prime lending rate. It’s a good thing they don’t listen to the media or the economist or any other nay sayer. It seemed like everyone and his brother were warning of impending doom from the central bank. They “have to” raise rates and they list various reasons why. One of the biggest reasons they all clung to was the recent announcement to the changes in the guidelines for CMHC by Mr. Flaherty (who’s name I constantly have to look up to spell correctly). Often wonder if he’s at all related to the comedian Joe Flaherty. It’s OK there’s already a precedent with former MP “Yukon” Eric and Leslie Nielsen. Some argue Parliament sometimes is a laughing matter at times.

I digress.

Yes, changes to the “guidelines” for CMHC. I emphasize guidelines as the media likes to spin this and announce they are changing the laws for CMHC. CMHC has a mandate, to put people into houses. For the most part they do a pretty good job of it. In the last year, they have become the golden boy as they were the ones who all the foreign investors saw as the only safe haven from toxic mortgages. Which would you rather invest you money in, a mortgage backed by a big US company (GE or AIG) that might at any moment stumble or collapse, or would you be happier with a mortgage backed by a government institution who is sitting on several billion in the bank? Hm. Tough call.

What the government is concerned with, and rightly so, is all the speculators in the real estate investment world. The thinking is, if you only put down 5% and things go wrong, you are more likely to write off 5% as a bad debt than you would 20%.

I sent out a missive earlier this week to my real estate investing group warning them that since the announcement, life has gotten a little more challenging on my end as CMHC is now only accepting the best of the best as far as rentals are concerned. I love the term “they ain’t stupid”. They know that as soon as you make such a dramatic announcement that everyone and their dog will be trying to buy a rental with 5% down before the change comes into effect. So, they are doing their best to cut this off at the knees as it were.

Personally, I had several deals come back that were 10% down with CMHC asking for just a little bit more info. The lender was surprised. I certainly was. Usually if the lender and their tighter guidelines are happy, CMHC just reviews the submission for glaring errors. Now they are making sure that the clients can afford what they are getting themselves into. And so the change has begun.

The word this week is make sure your networth is positive and you have capacity before considering purchasing that rental. Anything that is close will automatically be rejected. They’re pulling out of the game and the ramp up or down has begun. There will not be a sudden switch overnight from 5% down to 20% on April 19th.

The incoming rush of rentals has started. Unfortunately there are going to be some disappointed customers in the very near future if the downpayments don’t increase.

The alternate lenders are also seeing the trend and are saying they are ready and willing to fund deals up to 85% without CMHC and some even use 100% rental offset. Naturally there are fees and slightly higher rates. The fees are much less than CMHC premiums and rates are around bank posted (not discounted).

For the investors I deal with, we’re looking at 15% down and what the rates were about 18 months ago. Shouldn’t be a real shock. Reality has come to the investor market. Hope you enjoyed dreamland while it lasted.