Mortgage lending tightens for self-employed, immigrants
February 01, 2012
Susan Pigg
It’s going to be tougher for the self employed, new immigrants and higher-risk borrowers to get a mortgage as concerns continue to mount over the state of Canada’s housing market.
CIBC’s wholesale mortgage arm, FirstLine, quietly announced Tuesday that it will no longer accept new applications from “stated income” homebuyers who can’t prove they have the annual net income to qualify for home loans.
FirstLine also set a $1 million cap on what it will lend for a home purchase.
The major change in policy, which is bound to pique the interest of other major lenders, came on the same day it was revealed that the Canada Mortgage and Housing Corp. could be forced to cut back on the mortgages it insures.
The moves are seen as among the clearest indications yet that Canada’s hot housing market and record levels of household debt are a concern far beyond just the Ottawa offices of Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney.
That’s despite a Bank of Montreal report this week that says Canada’s housing market is more balloon than bubble and more likely to deflate than pop.
“The signs are there that everyone is worried, with the exception of BMO. It’s not like there is just one person saying there is a problem with the housing market,” said Jason Friesen, a mortgage consultant with the Callum Ross Team.
“It’s impossible to know, given all the doom and gloom in the rest of the world, what will happen over the next three months or the next six months, but lending institutions are looking for ways to protect themselves.”
The CIBC was unable to comment last night on the changes, other than to say FirstLine’s decision “reflects the normal course of business.”
But that, coupled with CMHC’s predicament, is sure to raise concerns.
CMHC has traditionally backstopped loans, especially to first-time homebuyers who can’t raise the traditional 20 per cent downpayment for a home.
But the housing corporation has recently received “an unexpected level of requests for large amounts of CMHC portfolio insurance” that has pushed it close to the $600-billion cap on insurance set by the federal government.
Those requests have come from financial institutions looking for, in essence, taxpayer backing on pools of previously uninsured low-ratio mortgages.
While a CMHC spokesperson insisted this “does not affect the availability of CMHC’s mortgage insurance for qualified home buyers and will not impact the cost of buying a home,” the federal housing company may inevitably be forced to take a harder look at who it insures down the road, housing experts say.
That’s led to speculation that CMHC, too, could back away from self-employed home buyers who often need insurance to get a mortgage.
CMHC declined to comment on those suggestions Tuesday, other than to say “CMHC continues to manage its mortgage loan insurance business in accordance with the $600 billion insurance in force limit.”
FirstLine’s announcement is “a pretty substantial change in thinking” from the second-biggest mortgage lender in the country, said Friesen.
The question is whether other institutional lenders will follow suit.
CMHC’s situation is equally worrisome in that the federal limit could see a tightening of lending conditions that leads to a cooling of a market many housing experts consider “overheated.”
As of Sept. 30, CMHC had insured $541 billion in loans, up from $501 billion a year earlier. Just three years ago, CMHC was insuring $450 billion in loans and asked Ottawa for approval for the $600 billion cap.
The increase in insurance-backed loans is not only evidence that increased prices are pushing houses further out of reach of many homebuyers, but that people are still so keen to get into the market, they’re willing to pay for mortgage default insurance, said TD Bank economist Sonya Gulati.
Maintaining the cap could have a dampening effect on demand for hosuing, but would be “an indirect way of making it tougher to get a mortgage,” she said.
Ottawa has raised concerns about record levels of household debt, fuelled by high-spending baby boomers and historically low interest rates.
But restricting CMHC “is a bit trickier,” said Gulati, than having Ottawa tighten up mortgage rules yet again by insisting on higher downpayments and shorter amortization periods.
