Some thoughts on the Federal Government’s recent announcements:
Some effects are already apparent as some mortgage companies have stopped taking applications for self-employed clients and rental properties, and refinances have to close by Nov 16 so after that date, they will not be taking refinances either. Other lenders will continue to take the above applications but with a small premium in rate. What this means is that there will be less lenders for clients to choose from which means that consumers could be looking at higher rates for those applications. There will also be longer wait times for the lenders that will process those types of applications.
It’s unclear which mortgage companies will still do refinances, rentals, super-jumbos ($1 million+) and 26- to 35-year amortizations come December. As we’ve seen, some lenders have already announced their (hopefully temporary) withdrawal from these categories. It’s going to be a week or two before we know the bank’s appetite. They won’t rush to load up their balance sheets with non-standard mortgages. That, we know. The biggest issue is lack of competition, and how non-bank lenders compete in the aforementioned categories.
This is also another hit against self-employed applicants, so they are best to get their ducks in a row in terms of documentation, income reporting, financial statements, etc. Because even if the banks are the ones who end up with this business, they are not going to want their book of business to be full of self-employed files as they are usually more risky. So they will either just say no to the file or price it higher. Either way, not great for the consumer.
A good portion of first time buyers will be taken out of the marketplace. If you have less than 20% down, it may be much more difficult to qualify at 4.64%, and many applicants will not qualify. The higher rate qualification means that consumers will qualify for about $100,000 less than with the old rules.
I agree with what Morneau is trying to do but I think that the Federal Government should have consulted with mortgage industry professionals before putting this into effect. (FYI, mortgage brokers originate 50% of first time buyer purchases).
Furthermore, one area that has not been addressed at all is “consumer debt”, such as credit cards, personal loans, etc. These are the real reason consumers have credit issues…they have too much consumer debt, it’s not the mortgage. And yet, with all these announcements, this issue has not been addressed. So if a client cannot refinance, they will just open up another credit card if they need assistance, which will cost them more and leave them more susceptible to higher interest rates and possible cash flow issues.
As I’ve said before, consumers should ensure their paperwork is in order as it will be harder to get approved for financing going forward. So income taxes should be up to date, self-employed applicants should ensure their income taxes are paid and that they have financial statements for their company. Pay attention to your credit – how much you have, making monthly payments on time, etc and keeping your credit score high. And in terms of property, the “odd” property will be harder to finance. So when buying, look for a marketable property.
Consumers should ensure that they are working with a mortgage professional that can help them navigate through this uncertain time. It is critical you have a mortgage professional who will take the time to explain some of these issues to you and who will ensure that you still get the best package in light of all the changes.
Please see my previous blogs for details on documents required for purchasing and other tips when seeking a mortgage approval.