Under the B-20…

November 20th, 2012

For anyone outside of the mortgage industry or financial sector, I’m sure if you said B20 they’d probably think BINGO and not mortgage rule changes that… finally?… went into effect November 1st.

I say finally with a question mark as, the rules were announced and then enforcement began a week later all the way back in June of this year. I wrote a post or two back at the time as for months prior Flaherty and the BoC were all singing the same tune. No mortgage rule changes!

Just goes to show you, never trust what a politician says directly.

Well, there was some political maneuvering and suddenly CMHC was “re-org’d” under those famous initials OSFI (Office of Superintendent of Financial Institutions (i.e. banks primarily). No one paid much attention at the time as it seemed to make sense to have CMHC fall in with the folks who monitor and make up the rules for banks.

What usually happens when there is a restructuring? Well someone typically wants to put their stamp on things. That “stamp” was called B20.

The immediate things that happened, if you recall, were the shortening of amortizations to 25 years (back to what they were historically pre-2002 ish). 30 year amortizations are still available for non-insured or conventional mortgages or those that fall to less than 80% of the property value (LTV). And for the first time, the limits for GDS/TDS were officially set in stone… err given a value. 39 & 44 are the new norms (previously only a guideline of 32/40).

Two MAJOR items that they stated, but no one really reacted to at the time were the changes to 1) limiting secured lines of credit to 65% (HELOC) and eliminating 2) cashback options used for downpayments.

The initial changes that happened in June kinda took the wind out of the sails (sales?) for the summer market. My broker explained it to me this way. Six first time home buyers are reading about the new changes to the mortgage market and automatically assume that they no longer qualify. These 6 don’t buy 6 homes. That means those currently in those six homes also don’t buy 6 other bigger/taller/shorter/cheaper homes. Continue this a couple deep until you get to the folks who are moving to retirement homes or renting. Quick math… 6 new buyers X 6 upgrading X 6 lifestyle moves = 216 transactions taken out of the real estate market (and/or overal economy). That’s just in any small town that has 6 new buyers.

Those were the first changes that were adopted. Now we have 2 more significant changes. The one that will have the biggest physiological impact will be the elimination of the zero down or no cashback option.

People will not be required to find 5% to put down on the purchase of a home. Personally I think this is a good thing. I think the zero down thing was abused by to many. Not naming any BANKS of course, but there were brokers who did this dis-service to their clients as well. I’m not perfect. I did a couple as well, but thought they would stay at least 5 years before moving, which is the only time this becomes an advantage to the owner.

Bottom line all aspects of B20 are now in force. Zero down is now a thing of the past. Cashbacks are still available, but cannot be used toward downpayments.

My thinking is if you can’t save 5%, how likely are you to be able to fix any major problems in your house without going into further debt? Or better, if you can’t save 5% how are you going to be able to sell your house and pay your real estate commission fees if you are forced to move?

So many topics to cover since my last post. Life’s been a little busy on this end. I’ll try my best to catch up and comment on the latest goings on in the mortgage space.


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