{"id":12392,"date":"2019-05-08T15:15:14","date_gmt":"2019-05-08T22:15:14","guid":{"rendered":"http:\/\/www.roryc.ca\/blog\/?p=12392"},"modified":"2019-04-20T08:35:59","modified_gmt":"2019-04-20T15:35:59","slug":"canadians-are-turning-to-riskier-lenders-because-of-the-mortgage-stress-test","status":"publish","type":"post","link":"https:\/\/www.roryc.ca\/blog\/2019\/05\/canadians-are-turning-to-riskier-lenders-because-of-the-mortgage-stress-test\/","title":{"rendered":"Canadians are Turning to Riskier Lenders Because of the Mortgage Stress Test"},"content":{"rendered":"<p style=\"text-align: justify;\">Some Canadians who aren\u2019t qualifying for mortgages at Canada\u2019s big banks because of tougher mortgage rules aren\u2019t taking no for an answer; they\u2019re turning to less-regulated lenders, and that should trigger a response from policymakers.<\/p>\n<p style=\"text-align: justify;\">That\u2019s according to CIBC Deputy Chief Economist Benjamin Tal, who in a new report explores the flight to private lenders some 15 months after federal regulators brought stress testing to the uninsured mortgage segment.<\/p>\n<p style=\"text-align: justify;\">The rule change meant that even borrowers who could muster a downpayment of 20 percent \u2014 the minimum for an uninsured mortgage \u2014 had to qualify at a rate 200 basis points higher than their contract rate.<\/p>\n<p style=\"text-align: justify;\">Such a borrower today could attain a five-year fixed-rate mortgage for 3.5 percent, but as per the tighter lending rules they\u2019d have to qualify at 5.5 percent. For some, the barrier has been two high, so they\u2019ve taken advantage of a loophole of sorts: the rules only apply to federally regulated lenders, such as big banks. Private lenders are provincially regulated and therefore not subject to the federal mandate.<\/p>\n<p style=\"text-align: justify;\">\u201cBehind the scenes, there is a transfer of risk from the regulated to the less regulated segment of the market\u2014from where there is light to where it\u2019s dark,\u201d Tal writes in a new report titled \u201cMortgage Stress Test: The Operation Was a Success, But\u2026\u201d<\/p>\n<p style=\"text-align: justify;\">In 2018, the first full year of the expanded stress testing, the total value of new mortgages dropped 8 percent, or $25 billion, though Tal notes mortgage originations were already in decline.<\/p>\n<p style=\"text-align: justify;\">Meantime, \u201chigh-quality mortgages\u201d \u2014 that is, ones with borrowers who have credit scores greater than 751 \u2014 are making up the greatest share of originations on record at a whopping 52 percent. But the data from Equifax doesn\u2019t capture credit scores of borrowers choosing non-traditional lenders.<\/p>\n<p style=\"text-align: justify;\">\u201cSo, to the extent that more borrowers use alternative channels, due to policy changes in general, and B-20 in particular, the market might be riskier than perceived,\u201d Tal notes.<\/p>\n<p style=\"text-align: justify;\">Looking to Ontario and using info from the province\u2019s land registry, Tal says 12 percent of recent transactions were tied to an alternative lender, compared to 10 percent last year.<\/p>\n<p style=\"text-align: justify;\">\u201cAlternative lending is an integral part of any normally- functioning market. But a fast-growing alternative lending market is not,\u201d Tal writes. \u201cThat was certainly not the intent of B-20 (stress testing), and any other mortgage-related change to regulations,\u201d he continues.<\/p>\n<p style=\"text-align: justify;\">Given the growth of so-called \u201cshadow banking\u201d sector, Tal has some advice from policymakers.<\/p>\n<p style=\"text-align: justify;\">\u201cAccordingly, regulators should revisit B-20. We need a more flexible benchmark, potentially a narrower spread over the contract rate when interest rates approach cyclical peak, and perhaps to establish a reasonable floor under which the qualifying rate will never drop below,\u201d he concludes.<\/p>\n<p style=\"text-align: justify;\"><a href=\"https:\/\/www.livabl.com\/2019\/04\/canadians-mortgage-stress-test.html\" target=\"_blank\" rel=\"noopener noreferrer\">Canadians are Turning to Riskier Lenders Because of the Mortgage Stress Test<\/a> by Josh Sherman | Livabl<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Some Canadians who aren\u2019t qualifying for mortgages at Canada\u2019s big banks because of tougher mortgage rules aren\u2019t taking no for an answer; they\u2019re turning to less-regulated lenders, and that should &hellip; [<a href=\"https:\/\/www.roryc.ca\/blog\/2019\/05\/canadians-are-turning-to-riskier-lenders-because-of-the-mortgage-stress-test\/\">read more<\/a>]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-12392","post","type-post","status-publish","format-standard","hentry","category-mortgage"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Canadians are Turning to Riskier Lenders Because of the Mortgage Stress Test &#8226; 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