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Should we need to Re-qualify when we Renew?

22 May 2012

After the OSFI released their proposed guideline changes to the way banks and other lenders handle mortgages, everyone started talking about all the new rules being applied to mortgages in Ottawa. Changes are nothing new for us of course; Finance Minister Jim Flaherty has changed the rules three times since the beginning of last year. But there’s one proposed change that, according to many Canadian and Toronto mortgage brokers, isn’t necessary. And if it goes through, it could end up being a significant threat to our housing market and our economy.

The new proposed rule change involves those that need to renew their mortgage with their lender. Currently, only payment history is looked at on the loan and generally, renewal is not a problem. However, under the new proposed guidelines from OSFI, homeowners may need to qualify all over again when it’s time to renew their mortgage.

The new proposed guidelines state that upon renewal, borrowers would have to re-verify most of the information obtained when the original mortgage application was completed. This includes things such as employment status, income levels in the home, and a current value of the home. It would mean that appraisals of the property would need to be done again; and that if a person lost their job or became self-employed during their last mortgage term, they could lose their mortgage altogether at the end of the term.

And it’s this that mortgage brokers are now taking issue with.

“This would be a significant change,” said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals (CAAMP) said in a letter to the OSFI regarding the new rule changes. “CAAMP strongly recommends that this concept be clarified so that mortgages continue to be renewed at maturity without requalification. If not, homeowners who have been in compliance may no longer qualify. This would result in a number of properties hitting the market at the same time and thereby driving down prices.”

But is that the grand master plan? After all, the federal government has reiterated time and time again how home prices are overvalued in some areas, even if none of them will utter the word “bubble.” So perhaps this handling of lenders through OSFI is just what Ottawa is trying to do.

That doesn’t mean it’s a good decision, though. People who fall into hard times, or are who will have trouble verifying figures like their income could end up losing their homes when it’s time to renew – even if they still have the money to be able to pay their mortgage and even if they have a good repayment history. And leaving Canadians homeless just isn’t the answer to the housing or debt concerns within the country.

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