Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.
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LEXPERT MAGAZINE | JANUARY/FEBRUARY 2017 59 other debt payments as a percentage of in- come) must be less than 44 per cent. e maximum amortization period for an insured mortgage has been slashed from 40 years to 25. And government-backed mortgage insurance is available only on properties that have been purchased be- low $1 million. Moreover, to discourage a spate of foreign buying, a property must be owner-occupied to qualify for mortgage insurance. It could all leave credit-poor new homebuyers in a pickle. BURNING THE BROKERS e federal government, in conjunction with CMHC, is also considering regula- tory changes that are less visible to consum- ers, but critically important to lenders and the mortgage brokers serving them. New rules have been issued by Canada's banking watchdog, the Office of the Superinten- dent of Financial Institutions (OSFI). ey require lenders to hold increased levels of capital in order to share more risk when it comes to mortgage insurance. at's a risk currently borne by taxpayers through the mortgage insurance programs guaranteed by the federal government. ese changes will make it more expensive for financial institutions to lend money against housing. It also, needless to say, makes life difficult for mortgage brokers. Samantha Gale, Ex- ecutive Director of the Canadian Mortgage Brokers Association (CMBA), is clearly troubled by many of the changes. A lawyer by training who previously worked in regu- lation with the Financial Institutions Com- mission in British Columbia, Gale says the market-chilling tactics of various govern- ments will have a profound impact on more than 4,000 members of the CMBA. "ese rules are a broad brushstroke. … It was a mistake to launch such broad, sweeping changes without consultation." e Vancouver market, says Gale, was already slowing down, even before British Columbia decided, on August 2, to im- pose its 15-per-cent foreign buyers' tax on residential property transfers in Vancouver. (at move, incidentally, triggered a class action lawsuit by foreign buyers, claiming that BC has no jurisdiction to impose it, that the tax is discriminatory, and that it breaks a host of free-trade agreements.) "At the end of the day, the market always takes care of itself. We knew it wouldn't keep going at that rate," says Gale. Mort- gage brokers, she contends, were instru- mental in putting downward pressure on mortgage interest rates and making hous- ing more affordable for Canadians. "at's healthy. But some of these mortgage rules are going to impact that competition." In October, Gale fired off a letter on behalf of the CMBA to Bill Morneau and to former economics professor Jean-Yves Duclos, now Minister of Families, Chil- dren and Social Development. In her let- ter, Gale cites a report by Cameron Muir, Chief Economist for the British Columbia Real Estate Association. e new rules, the report states, especially the new stress test, will "cause the sharpest drop in the pur- chasing power of low-equity homebuyers in years. At a time when housing afford- ability is a critical issue, deliberately chop- ping millennials' purchasing power by as MARK MCELHERAN STIKEMAN ELLIOTT LLP On the one hand they're trying to encourage lenders to take some of the government's exposure to the housing market. But by the same token you may ultimately reduce competition in the market because there are only so many institutions that can actually shoulder some of that risk. The big banks might be able to do that and might be quite happy about that. | IN-HOUSE ADVISOR: MORTGAGE REGULATION |