Tuesday, February 16, 2010

Mortgage Lending changes - APRIL 19th

The Federal Government announced moments ago changes to the CMHC backed mortgage program. These changes will come into effect on April 19th, 2010. In a statement, Federal finance minister, Flaherty described the housing market as "healthy and stable" and said that the government's early action can help prevent negative trends from happening.

"Canada's housing market is healthy, stable and supported by our country's solid economic fundamentals," said Minister Flaherty. "However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing."

The three changes are:
1 - A requirement that borrowers will need the resources to qualify for a five-year fixed-rate mortgage even if they go with a lower variable rate.

2 - The government will also lower maximum amounts that can be withdrawn when borrowers refinance mortgages to 90 percent from 95 percent of the value of their homes.

3 - CMHC will require a minimum downpayment of 20 percent for insured mortgages tied to non-owner occupied properties bought for speculation.

Bank of Canada Governor Mark Carney has also recently said he did not see evidence of a housing bubble, downplaying fears of a Canadian version of the U.S. subprime mortgage meltdown. He cited a more conservative mortgage lending practice in Canada protecting our banks from failure and protecting our housing market from wide scale drops.

These changes to the system will not effect my clients greatly, because as a general rule, I suggest 80% LTV on purchases, which falls within the new suggested guidelines. This will protect certain investors from over leveraging themselves and getting into financial hot water.

"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one. Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," said Minister Flaherty. "If some lenders aren't willing to act themselves, we will act. These measures demonstrate the Government is committed to taking action when necessary to support the long-term stability of a sector that is so vital to our economy and the financial well-being of Canadian families."

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