Like the chicken and the egg, the Realtor and the Mortgage broker are fundamentally connected! Regardless of who you call first, the financing has to be in place before the shopping can begin. Mortgages aren’t something I talk much about on the blog, because I believe there’s a lot of other people who cover it better… say for example – mortgage brokers!
Last week I came across a tweet from @MortgageJake which warned of CMHC nearing it’s limit. For those unfamiliar with what CMHC is, here’s a quick lesson:
Canada Mortgage and Housing Corporation (CMHC) is Canada’s national housing agency. Established as a government-owned corporation in 1946 to address Canada’s post-war housing shortage, the agency has grown into a major national institution. CMHC is Canada’s premier provider of mortgage loan insurance, mortgage-backed securities, housing policy and programs, and housing research.
Their most common use in a real estate transaction is insuring mortgages where less than 20% down-payment is given… and speaking from my own experiences, something many first-time buyers bank on using. So hearing that they’re nearing their allotted peak is somewhat alarming!
Here’s what Jake had to say about it on his mortgage blog:
I get the BNN market commentary email every day and it has a slew of great info both economically and with respect to the various markets at play. This morning I nearly spilled my tea when I read the following:
The Canada Mortgage Housing Corporation is bumping its head up against the ceiling and may need to apply for renovations to its $600-billion mortgage insurance cap. The Financial Post reports this morning that the CMHC is cutting back on the number of mortgages it insures as the value of its portfolio swells towards the limit of its government-backed mandate. And by government-backed, I mean tax-payer backed, by which I mean you and me. With debate still not settled over whether the Canadian housing market is a bubble, a balloon, or merely a little bloated, Canadians will be talking about this story today and asking about the risks of a $600-billion portfolio going suddenly bad and what it would mean for them. Granted, mortgage defaults in Canada sit at a puny 1 percent so the risk to the portfolio is next to nothing, but what happens when the CMHC hits the $600-billion limit? Would the government say “no” to a request to increase it, running the risk of killing a booming housing market? Can the CMHC change its business a bit to stay under the cap, say stop insuring loans with more than 20 percent equity? Calls for comment are in to the CMHC.
This is simply insane news. A number of things may happen in this case, one of which I am already seeing:
1. CMHC will cut back on the number of loans it insures. Although traditionally the lender ratios are maxed at 44/44, I have seen numerous files declined by CMHC at this max ratio.
2. The Government will not open the taps for a higher limit, thus killing many CMHC applications, and thus many turn-downs for your clients. This can have a drastic effect if you’re going “all-in” with no conditions.
3. GENWORTH and CANADA GUARANTY stand to profit big-time if #2 occurs. They are both direct competitors to CMHC and do not operate under the Federal Government, but rather are privately-run or publicly-owned companies. I have placed a call to my Genworth rep to see if they also operate under a ceiling, and how close they are.
What’s my take on this?
This is just another example of a housing market that is… dare I say… overheating. As long as rates remain this low, people will feel that affordability is within their grasp (even as prices continue to zoom upwards). What I’m more concerned about is what will happen when rates go up at renewal time? I wrote about it in my blog and you may be surprised to find out that many people will face higher payments.
It’s hard to say what will eventually come out of it, so at this time I’d like to ask your opinion on where you think the Canadian Real Estate market is: