Local Mortgage Crisis

Real Estate Agent with Sutton Group - West Coast Realty

Well not exactly, there are some recent local challenges. In light of the mortgage practices and subsequent disaster in the US, the Canadian Government has taken action. They have passed legislation that is intended to protect the Canadian economy from a similar turn of events. I won’t bore you with my take on this beyond suggesting the mortgage industry in Canada was behaving responsibly and had a great example of why they should carry on with their sufficiently thorough lending practices. In a nutshell my opinion is the legislation was a token effort to guard against perception not reality.


The ‘crisis’ is in the number of people trying to beat the deadline of October 15th (see below for the new guidelines). Unfortunately for many would be home buyers, lenders are already beginning to align their guidelines with the new legislation. These buyers are under the impression they have some time to take advantage of ‘existing’ guidelines...Wrong. On top of this there are many buyers who are trying to get ahead of the rush come October...Too late.


Mortgage providers are becoming overwhelmed with applications and live deals and are experiencing a significant backlog. What use to take a few days is taking over a week in some cases. The Underwriters are where the bottle neck seems to be occurring as they are the ones who utilize the most scrutiny as in the end it is their money on the line. What really puts the cherry on top is the number of applications that are ‘flaky’ as one mortgage professional described them. It seems many are just ‘taking a shot at it’ which is bogging down the system. I have two deals which may not have the subjects removed on time; in both cases we had allotted a week to remove the subject which is normally more than ample.


If you are buying and plan to utilize zero down, longer amortization or have a credit score below 620 you should get in writing confirmation from your lender that they will honour your preapproval up until a specific date regardless of any internal changes they make to align with new guidelines.


Cut and paste from

On October 15th legislation will take affect setting the following guidelines:

Canadian Mortgage and Housing Corporation or “CMHC” controls 70% of the mortgage insurance market and they will be implementing new lending guidelines effective October 15, 2008 that will affect those who are purchasing a home with less than a 20% down payment and who are purchasing a home after this date.

Here below is a summary of what is coming.

- the zero-down mortgage program will be removed. You can no longer buy a house unless you have a down payment and enough money to cover your closing costs.

- mortgages can only be amortized up to 35 years as a maximum. The 40-year amortization program will also be removed.

- probably the biggest and most important change is this. Individuals who are planning to buy a house, and who only have 5% of the purchase price available plus their closing costs, are also going to need to have a minimum credit score of 620 to qualify for an insured mortgage.


Amen to that.  Now if we can do something to educate our fellow Realtors.  I am always embarrassed when I hear another Realtor something like "They should have never borrowed the money to purchase a home if they couldn't afford it".   I am sure that every Real Estate Agent has sold a home to a family that was made possible only by the use of a so called "Subprime Loan Product".  Without loan products designed to help the average American working class family get into a home, we may see future home sales drop like a rock and you may then find yourself in the same boat, so get ready!

Mar 29, 2009 02:29 AM