Mortgage Rules, The Hidden Code

Article written by Boris Bozic

If you’re in the mortgage industry and you’re not aware of the announcement made by the Ministry of Finance and OSFI last week, welcome back from the other planet you were visiting. If you’re spaceship was delayed in getting back to mother earth, here’s what you missed. Mortgages bad, government very wise. We’re all aware of the changes, amortization period reduced, LTV for refinances was cutback, and GDS and TDS was adjusted as well. And if you can afford a home over one million dollars, who cares about you. All very straightforward and in it of itself not devastating to the housing and mortgage sector. But we cannot look at these changes in isolation. It’s the cumulative effect of all the changes that have taken place in the last three years which gives us reason for pause and be concerned.

We have every right to be concerned because this industry is our livelihood. Unlike “elected” political officials and government “employees” this industry is more to us than a theoretical exercise. As an industry we have a responsibility to support efforts as it relates to the long term viability of the housing sector. Anyone, with a modicum of common sense, understands the concept of short term pain for long term gain. However, stakeholders have every right to call out decision makers if there’s concerns that the decisions made today may have unintended consequences. We also have every right to ask decision makers to articulate, in a clear and cogent fashion, the rationale behind the decisions they made.

When clarity is missing you’re left to your own interpretations and code breaking ability. From my viewpoint these changes mean that interest rates will remain at historical lows for an extended period of time. Given what the US Fed said recently, unemployment rate will be higher than 8% and slow growth until Q4 of 2014, interest rates are not going up anytime soon. The changes also suggest that government is guessing how Canada will fare within the global economic reality. It was three months ago that Fed’s said no further changes to mortgage rules was necessary. So what happened in the last ninety days? Nothing in Canada, but in Europe, the US and China, a whole lot happened. That’s our new reality, Europe, the US and China sneezes, Canada grabs a tissue and wipes its nose.

There’s a risk with every move the government makes. It’s clear that the government cannot slow down the housing market through monetary policy so they’ll attempt to do so through regulations. If the government is too “successful” in slowing down the market which leads to job loss and erosion of wealth, well, home owners will look for someone to blame. It’s one thing for voters to believe that we all fell off the real estate cliff together due to a natural real estate cycle. It’s altogether different when the home owner can say, “we were pushed off the cliff”. 

Until next time
Cheers