Canadian Real Estate Magazine – November 29, 2011

CMHC report highlights slip in refinances, new policies

Refinances remain down from pre-mortgage rule changes introduced this spring, according to a Q3 report from CMHC — highlighting further easing in consumer demand for debt.

“Homeowner Refinance activity initially fell by nearly 40 per cent (in the second quarter) and by the end of September was approximately 25% below the pre-implementation levels for an overall year-over-year decrease of 31%,” says the Crown corporation in a Q3 report released Tuesday.

CMHC, and the mortgage industry, as a whole, has also seen a significant slowdown in new purchase activity, according to the quarterly report.

The decline in market activity as well as changes to mortgage lending rules resulted in an 11% drop in insured volumes for the first nine months of the year compared to the same period in 2010, according to the Q3 CMHC report.

That slowdown in the rate at which consumers took on new debt may actually be a good thing: “The level of household debt remains a concern but there are encouraging signals,” said CMHC.

Still, critics of the government remain concerned that this spring’s mortgage rule changes – specifically, the reduction in loan to value maximums on refinances – have unfairly limited the options of homeowners struggling to keep a roof over their heads.

“It’s a repeat of what we saw when the government increased the down payment requirements for CMHC insurance on rental properties,” Curtis Cannon, a sub-mortgage broker with TMG The Mortgage Group in Prince George, B.C. “By decreasing its maximum loan-to- the government is basically saying, ‘We’re out of the refinance business.’ That’s regrettable because CMHC seems to have forgotten what they’re there for – to put and help keep Canadians in their homes.”

Earlier this year the Crown corporation announced that its insurance activity for refis fell 40 per cent for the quarter ended June 30, compared to “pre-implementation levels.” Moreover, the report adds, that activity has “continued to remain around this level.”

That translates into bad news for homeowners, who through no fault of their own, need to pull equity out of their homes in order to cover debts racked up by a death in the family, divorce and/or illness, said Cannon, concerned the government has abdicated its responsibility to aid those Canadians in its move to keep consumers from “using their homes like an ATM.”

“I don’t think that the new refi rules are good, at least not across the board in that the difference between accessing a LTV of 85% instead of 90%  may force someone who is in a tough situation out of their home,” said Cannon.