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Ottawa tightens mortgage rules to avoid 'bubble'

LORI MCLEOD AND KEVIN CARMICHAEL

From Thursday's Globe and Mail

Latest comment posted at 8:29 PM EST 09/07/08

Finance Department says its aim is ‘to reduce the risk of a U.S.-style housing bubble developing in Canada' ...Read the full article

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  1. Oswaldo I from Canada writes: A smart and needed move which will work as a stabilizer in the long run. In the short run however, it will make homes less affordable to some new buyers and will, therefore, have depressing effect on home prices.
  2. Audible minority from Canada from from Canada, Canada writes: Sad. The first buyers will have to forego the pool, the granit counter and the fully finished basement on their first year of home ownership. Even worse, they might have to start with a smaller, 30 year-old modest semi-detached home like I did. Tsk-tsk-tsk!... Very sad.
  3. Don Portz from Trochu AB, Canada writes: I believe this is a good move. In fact I would recommend maximum of 30 yrs and 10% Down payment. Yes it will restrict a % of people from owning a home for a few years but would encourage savings to meet these new requirements. Some will say they will never be able to save enough due to increases, but if there is a little less demand then prices will not increase at a higher rate.
  4. JM Work from Canada writes: Just in time to help with the housing crash.
  5. Carl Gomez from Oakville, Canada writes: ..an excellent move but at a time when the market is already moving into balance from a crazy sellers market - ironically this move will actually help to accelerate the market cooling off into a buyers markets
  6. M C from Montreal, Canada writes: Wow, this is amazing. Maybe someone is minding the store.

    Funny, the US housing agency is looking into 40 amortization while we are getting rid of it.
  7. Piccolo Voce from Poor Transit, Ontario, Canada writes: It was a bad idea to begin with. Home ownership is a privalege and not a right.

    If a person can't come up with a down payment and make the numbers work on a sensible amortization, then it is simply not thier time to own a home.
  8. CallofDuty . from Toronto, Canada writes: why the heck was my first comment deleted? This is going to help alot of new homers for sure when the market starts declining and homes will be afforable again. To the people who got the giant mortgages and wanted to make a quick buck...sucks to be you.
  9. Duane Freemantle from writes: To reduce the risk. It seems that the finance department did not do there homework. One thing can be said that is more of a paranoid move by the Government. Let us hope that you do not lose your job, or get laid off, because that will damage your credit score.
  10. Yvonne Wackernagel from Woodville, Canada writes: It is like trying to put the fire out after the house burns down. I am tired of being some of the taxpayers who have to pick up the losses of CMHC every year. Even 5% down on a 30 year mortgage is crazy, but then when all the 40 year mortgages go in default, there will be a lot of homes on the market which the banks will be willing to sell at discounted prices.
  11. charles ANTHONY from Canada writes: Knee jerk reaction to a non issue. Another blow hard statement from a department who reacts instead of acts. It's so... easy to work for a government that indexes every benefit imaginable and accepts hyper incompetance. Stay out of the marketplace where government does not belong! Everything you do screws the majority of us.
  12. Winston Smith from Canada writes: It is kind of late now. They should have done this as the housing inflation was taking off. This move now will only help accelerate the downturn.
  13. Anthony B from Maritimes, Canada writes: Audible minority from Canada from from Canada, Canada: Too true.

    But spare a thought for all those parents whose kids and their spouses and grandkids will be moving in with them.
  14. M M from SK, Canada writes: Its too bad that government has to make these types of rules to begin with - when did people become so bad at understanding some basic money management concepts? If you buy a house in your mid-20's with a forty year mortage you will be a senior citizen before it is paid off!!! What sense does that make. If you can't come up with 5% for a down payment, how in the world are you going to manage the month-to-month costs of maintaining a house! It is so sad that people seem to think that their happiness must be linked to a huge, expensive house that they really can't afford.
  15. god bless canada from Canada writes: when people start to find out a house is a home and not a investment is a good thing.and i like the one comments yes maby people will start with a starter home not a 3,000 sq ft house for there first home with the big screen pool and everything you could want in it.we really need a recetion to wake some of these 20-30 something they are getting very smug quit a job today because they can get anouther one tommorrow dont work hard and everything should be given to them
  16. Yvonne Wackernagel from Woodville, Canada writes: Also I think the Government should consider what is being done in Britain. Only those people buying houses in which to live would be eligible for mortgages; the buyers to rent would not: I guess this is putting a damper on the speculators. Remember the Land Speculation Tax back in the early eighties? And this was also the reason why Harper didn;t follow through with his hairbrained scheme of no capaital gains tax if you buy within 6 months of selling. I suppose he found out that it did not work in the U.S. because people could sell 100 acres south and travel 20 miles north and buy 200 acres for the same money; all it did was to increase the value of farm land.
  17. Chris H from Vancouver, Canada writes: This is closing the barn doors after the horses have left. They should have done this two years ago.

    The fact is, Stephen Harper's 'bushaomics' mortgage policies have fueled a pretty large housing bubble in Canada, and it has already started to pop. Vancouver is in for some big trouble, and plenty of other places too.

    Hopefully this won't affect the wider economy the way it has in the US.
  18. this is just my opinion from Toronto, Canada writes: It doesn't tell me anywhere in the article whether my existing 40-year mortgage has suddenly become un-guaranteed or not. Oh, well, never mind, I'll be 90 when it's paid off...
  19. Matt Toma from Vancouver, Canada writes: Yvonne Wackernagel from Woodville, Canada writes: I am tired of being some of the taxpayers who have to pick up the losses of CMHC every year.
    ----------------------------------------------------------------------------------------

    Well, then dont worry about it, because you, nor any other taxpayers, are not picking up any losses from the CMHC, now, or for a number of consective years going back, or likely in the reasonable future based on their operational plans.

    CMHC audited financial statements are publicly available online, and this can be verified should you care to do so. I would encourage it before disparaging an organization with incorrect facts.

    CMHC posted operating surplus', as well as surplus' from all other main areas of business activity (less an insignificant loss for lending in 2007), for the past six consecutive fiscal years. I dont have the data available prior to that at this time, but simply going by the retained surplus and equity items of their financials, they have been operating on firm financial footing for a significant period of time.

    You may or may not agree with what the CMHC does, but it does not incur 'losses...every year' which have to be covered by taxpayers. Not even close.
  20. S.L. S from Small Town, Canada writes: Smart move. Nothing wrong with a 35 year mortgage, although I prefer a 20. As long as prices continue to decline 5% down is pretty good. It'll be a little tough for first time buyers, hard to save the downpayment when rent is sometimes higher than an actual mortgage, but with a little fiscal budgetting young couples should be able to manage. All in all a good move.
  21. that guy from Canada writes: hey just your opinion. you've already paid your premium. mortgages that are already insured are insured. this is a circumstance where such mortgages will 'no longer' be insurable. i.e. can't get one now and insure it.

    a housing bubble doesn't 'begin to pop'...it's either a bubble and it pops, i.e. sudden and precipitous price decline or it simply deflates...i.e. controlled and rational price flattening/decline in response to market conditions.

    there's no popping going on in canada.

    what the article in fact doesn't say is whether the OTHER insurers in the market, i.e. Genworth, United Guaranty (AIG), PMI, are affected by this pronouncement, and if so, how. can they still insure such loans but without the 90% government backstop that they enjoy for similar loans that CMHC can insure?
  22. Aloha Eric from Toronto, Canada writes: Smart move. Look at Fannie Mae stock which is down, oh say 75% this year. FNM actually hasn't lost much on the mortgages it guarantees, but the market ain't stupid and it's feasible that $1 trillion could disappear. But of course we're in Canada, and that could never happen here (ya right).

    http://money.cnn.com/2008/07/09/news/companies/benner_fanniefreddie.fortune/
  23. Rick Drysdale from Canada writes: Matt Toma from Vancouver
    What the heck is an 'incorrect fact'?
  24. Steve Not an Alberta Redneck from Calgary, Canada writes: The primary problem in the US is mortgage interest deductability. This encouraged people to re-mortgage upwards as their property's value increased. Then at the end of the cycle, the financial predators pounced with the nothing down mortgages and dumped this useless paper on the markets.

    Compared to decades ago, people now have real options to pay down their debt. Policies should encourage this and penalize the opposite. This will do a lot to keep houses affordable and reduce the risk on society. Vendors of unnecessary luxuries will likely resist this common sense approach.
  25. Phil M from Toronto, Canada writes: Talk about good news. 40 year mortgages with 1.5% down was a BAAAAD idea. In the end, this is going to help prevent Canadians overextending themselves credit-wise, while removing a lot of inflationary pressure on the RE market. I'm not sure how much of a postive impact it can possibly have on the current correction (I'm inclined to think removing a bunch of buyers from a market in the early stages of a correction is going to accelerate price declines) but in the longterm, this is a great move towards a stable RE market. I suspect even the banks won't mind too much.
  26. Leafs fan from Ottawa, Canada writes: Audible Minority and God Bless Canada... you can almost cut the bitterness with a knife...

    Signed,
    A recent first-time home buyer with a finished basement, granite countertops, hardwood flooring, and a smile from ear-to-ear!
  27. roy f from Canada writes: Aren't they just ressurrecting the old rules here?
  28. D F from Canada writes: this should be done long time ago
    I am a liberal but i 100% support harper on this
  29. Winston Smith from Canada writes: Housing bubbles are the worst kinds of asset bubbles because it involves a heck of alot more people and dollars than...say tech bubble. I am surprised how far this mother of all bubbles was allowed to go on. Let's just hope it doesn't get too ugly on the way down.
  30. Tour de France from Canada writes: Ridiculous. There is no real estate bubble in Canada. All markets are heading south accordingly after record growth.

    This is pure posturing.
  31. Matt Stiles from Vancouver, Canada writes: Wow, these guys are dumber than I thought.

    Yes, 40 year mortgages were a bad idea from the beginning. But this is going to do exactly the opposite of it's intended result. This will further reduce demand for housing, even while the economy slows and home prices roll over with a rising unemployment rate and falling wages.

    Regardless, without government's implicit guarantee behind the big Canadian banks (that if they get into trouble, they'll be bailed out by taxpayers) the 40 year mortgage would have never existed in the first place.

    Excessive government regulation and oversight, subsidies and tax incentives, are what create these misallocations of capital. The notion that we can perfect the system through a maze of rules and regulations is a utopian fantasy. Get government out of the economy and it will run far smoother. Recessions will come, yes, but the intermitent boom and bust will be a thing of the past.

    Listen to Mises people. He told us all about how these credit problems would occur many decades ago.
  32. steve donald from Canada writes: How does restricting the length of a mortgage help prevent mortgage foreclosures?

    This is just plain ridiculous. The time period of ones mortgage has very little to do with the stability of the housing market. If anything a longer term mortgage is more advantageous to the consumer and will result in fewer mortgage defaults. (especially during higher energy prices)

    I have to go now. If i have time I'll share with you the main reason the foreclosures are way way up in the states, and unfortunately will soon happen here.

    Here's a hint though ... it's the greedy banks fault ... not the rules.
  33. Mike H from Grande Prairie, Canada writes: this is just my opinion from Toronto, Canada writes: It doesn't tell me anywhere in the article whether my existing 40-year mortgage has suddenly become un-guaranteed or not. Oh, well, never mind, I'll be 90 when it's paid off...'

    I'm sure your house is still guaranteed by CMHC...but really...it wouldn't matter to you either way. The CMHC guarantee is a guarantee to the Bank in case you default. It doesn't provide any sort of safety net for you...if you were unable to pay and defaulted on your house you still lose it, whether guaranteed or not.
  34. Don Portz from Trochu AB, Canada writes: Yvonne - Where do you get this Govt paying for these losses? CMHC collects Insurance premiums from the mortgagees which is to fund any losses they may sustain. They are presently sitting on a whole large amount of cash. More than enough to fund any substantial downturn at this time. Govt is changing rules to ensure it does not get out of line. The only time CMHC ran out of funds was in the 1980s crisis and was supported by Govt. Please get your facts straight before commenting.
  35. Rob McCleave from Lower Economy, Canada writes: It's a start, but how about:

    Make interest payments tax deductible but only on first mortgages for principal residences. None of this refinance crap that the US allowed that makes Albanians look like responsible investors, but why not give a break to the people who qualify for real mortgages for property they plan to pay for and live in?

    It could give a boost to the economy at a time when it needs it, without creating some insane bubble.
  36. Captain Ontario from Canada writes: The King and Queen have spoken:

    The petty unwashed masses are not allowed to play.

    Tenant pool is going to increase though!

    I'm happy to get in before the crack-down ;-)
  37. R. M. from Regina, Canada writes: Good move but it is late (let's hope not too late) and 5% I think should be 10% but definitely glad it is not 0%

    May I recommend The New Paradigm For Financial Markets - The Credit Crisis of 2008 and What It Means (Public Affairs, New York) by George Soros.
  38. Mike Z from Canada writes: To those using this post as an excuse to bash Harper -- Why do you blame the current government for this? The regulations have been in place longer than the Conservatives have been around, let alone been in power. I don't blame the Liberals either -- the market moved and changed naturally, and this is merely the government correctly movement that appears to be dangerous.

    This makes perfect sense to me. One of my duties is approving / declining loan applications, and anybody who cannot manage to bring in 5% for a downpayment and handle a 35 year mortgage shouldn't be looking at buying a home. Housing prices may still be going up fast here in Saskatchewan, but it won't last forever.

    This appears to be a good move to attempt to ward off the kind of havoc that happened in the US. Those complaining about it should kindly refrain from adding hot air to the argument unless they can come up with a better solution.
  39. Mike Z from Canada writes: Rob McCleave -- I would love for your idea to become law.
  40. B Johnson from Halifax, Canada writes:
    S.L. S from Small Town, Canada

    hard to save the downpayment when rent is sometimes higher than an actual mortgage.

    BINGO! You nailed this one. Along with that piece de resistence should also come some strict rental controls. Failing that we'll be in a situation where the house ownership speculators will very quickly speculate on rentals and skrew any chances of young people saving enough to actually make the required 5% deposit.

    We're two professionals and could easily pay down a mtg. in 20 yrs. by doubling our payments per month, but we won't. We've been there and lost b/c we don't have the one thing it takes to see a mtg. to it's completion ... job security. Neither do a lot of young people today. We're lucky to be able to forcast earnings for the next 5 yrs. let alone 20 to 40 yrs.

    Must have been really nice for the people who bought their homes in the 1960s and 70s. Twenty five year mtgs. with fixed interest rates and job security. At this rate of decline in opportunity, our grandchildren will be living in cardboard boxes and eating out of landfills. Lovely.
  41. voltaire hemingway from Victoria, Canada writes: I trust all these comments about 20/30 somethings with 3000 sq' homes, and pools must be from people living on Prince Edward Island, or perhaps Moose Jaw. Here in Victoria you are lucky to find a home 1000 sq' detached home within a 20 min drive of downtown for under $400,000, more likely you would be looking at $500,000. All of you baby boomers griping about my generation should try and have a little more empathy. Picture yourself trying to get into the market on wages that have only gone up marginally over the last 10yrs, while tuition at university has skyrocketed at an even greater rate than housing, and perhaps you wouldn't be so smug. Do I want a 40 yr mortgage? Hell no, but at least I could get into the market, and as my wages go up as all the baby boomers vacate the more senior posts, reduce my mortgage to a more reasonable 20-25 yr amortization schedule. Amen.
  42. Soft Landing from Toronto, Canada writes: With the anti-money laundering act becoming affective soon, we have a perfect storm ahead of us. The real estate party is over.
  43. Joseph Whistle from Canada writes: Not aggressive enough. When two incomes pay for the house, they ought to be able to survive losing one income for at least one year.
    When getting variable, they should be able to cope with a 7% interest rate for at least 2 years.
    There has to be a cushion, a contingency plan, and dramatically reduce risk.
    This is not nearly aggressive enough and people will continue to borrow well beyond their means.
  44. RR Mac from Toronto, Canada writes: Mike Z - respectfully, I think people rightfully should be bashing ALL government for letting this watering down of lending take place, but starting with the party in power as they let this through on their watch.

    10% down / 30 yr / 45% DSR SHOULD have been the absolute minimum but it's a little late now isn't it?
  45. John the Pragmatist from Vancouver, Canada writes: Just click your heels and you'll be back in Kansas, where there is no bubble either.
  46. John McMortimer-Boyles from An Undisclosed Underground Location Safe From Nuclear Attack, Canada writes: steve donald from Canada writes: 'How does restricting the length of a mortgage help prevent mortgage foreclosures?'

    Simple. The whole reason for 40 year mortgage amortization was so people who couldn't afford a house with the standard 25 year amortization could get a house. That is, home ownership becomes an options for a more marginal group of purchasers when you extend the amortization.

    Shortening the amortization means someone has to have a somewhat better credit rating before they can buy a house.
  47. John McMortimer-Boyles from An Undisclosed Underground Location Safe From Nuclear Attack, Canada writes: Chris H from Vancouver, Canada writes: 'The fact is, Stephen Harper's 'bushaomics' mortgage policies have fueled a pretty large housing bubble in Canada, and it has already started to pop. Vancouver is in for some big trouble, and plenty of other places too. '

    Hate to burst your bubble Chris, but house prices were already rising sharply long before the Conservatives were elected. When I bought my humble abode in Edmonton in 2005, house prices had already climbed sharply over the year before. Something like 20% to 30% IIRC.
  48. Bryce Richards from Calgary, Canada writes: Boy I can hardly wait till all those baby boomers put their over inflated real estate on the market in 5 or 10 years expecting to get $500 or $600k. They might be in for a surprise. Demagraphics will rule with housing prices approaching more acceptable norms.
  49. John McMortimer-Boyles from An Undisclosed Underground Location Safe From Nuclear Attack, Canada writes: Winston Smith from Canada writes: 'It is kind of late now. They should have done this as the housing inflation was taking off. This move now will only help accelerate the downturn.'

    No argument from me here. Eliminating insurability on 40 year mortgages and increasing the downpayment to 5% and requiring a half decent credit score before you can buy is going to take a bunch of marginal purchasers out of the market.

    On the plus side, keeping some of these marginal purchasers out of the market means a few less bankrupties with the marginal purchasers getting to keep their shirts for a bit longer.
  50. Pablo W from Middle Ontario, Canada writes: So are they amitting that the policy was wrong, returning to the old policies. I know several people who bought with no money down and a long morgage. The real winners are the lenders, run the numbers and see, renting from the lenders.
  51. Winston Smith from Canada writes: Bryce Richards from Calgary, writes: Demagraphics will rule

    That is why the Feds have to keep admitting thousands of immigrants a year into Canada.
  52. William Hughes from Vancouver Island, Canada writes: We purchased our first home in 1979. All we could afford was a 950 sq. ft. Panabode, but then our definition of 'affordable' was that we had saved enough that we could buy it without a mortgage.

    Just think about how interest payments lower your standard of living!
  53. i coffey from Oakville, Canada writes: 'Simple. The whole reason for 40 year mortgage amortization was so people who couldn't afford a house with the standard 25 year amortization could get a house. '

    Why the hell would I want a 25 year mortgage when I can instead take a 35 or 40 year mortgage and invest the surplus cash flow in something where long-term I'm going to beat the mortgage rates? This isn't necessarily about 'bad credit ratings' or 'stretching oneself too thin'. When properly applied a longer mortgage term is a SMART INVESTMENT. Who cares if it's not paid off until I'm 90 if I'm sitting on a higher net worth as a result?
  54. B to the A to the R to the T from the left coast, Canada writes: Piccolo Voce from Poor Transit, Ontario, Canada writes: It was a bad idea to begin with. Home ownership is a privalege and not a right.

    Wrong, home ownership is a right. Approval for a mortgage is a pivaledge, given at a bank's discretion. These are wise moves by the gov't. But I think there may be a run on entry level properties as people try to sneak in before the Oct 15th deadline.

    You're right but I think most people taking the longer terms were in fact stretching themselves thin.
  55. james dean from Vancouver, Canada writes: I work in the mortgage business, and its a real shame they're back-tracking just as the market is starting to cool down to a reasonable pace. A few observations:

    1. 35 or 40 years, it doesnt matter. Lower payments mean easier to pay, so take the 40 year.
    2. Being forced to put 5% down typically results in kids borrowing from parents, which spreads the risk from insurance company to parent. Nice one, canada...
    3. Good credit is already required to get any mortgage. In order to qualify for 100% financing you needed full income verification and EXCELLENT credit. NOBODY with bad credit or no job was getting zero down financing - unlike in the USA, who's collapse has nothing to do with canadian lending practices.

    So basically this is a total and unnessary waste of time. The main loss is to the rental pool - rents are going to skyrocket as first time buyers don't buy, and at the same time the option to buy rental properties for zero down is getting axed. Prepare to pay rent for the rest of your lives people. Talk to your MP next time your landlord evicts you.

    JD
  56. Bill Wall from BC, Canada writes: I don't find the 40 year mortgage so evil or irrational but it should have been limited to people under 35. The toughest time in life to pay the mortgage is in the child rearing years when expenses are the highest and income is the lowest, about a 15 year period. When the kids are gone or almost gone and income is up, the rational mortgagee will either change the amortization when the term is up, or start making lump sum payments each year. The 40 year mortgage was a good idea for young people.

    What's bad is the super low down payments. When house prices drop a bit, it encourages marginal borrowers to dump en masse and damage the market even worse. This change to 5% is good as well as the minimum credit score. I had no idea that CMHC would accept someone with less than 620, which is comfortably less than stellar.
  57. Marcus Leja from Calgary, Canada writes: This is fantastic news. As a potential first home buyer with a 10% down payment ready on the sidelines, I'm pleased to hear many previously competing buyers without real resources to buy a home are being forced to sit on the bench. Now that there will be less approved buyers knocking on starter home doors, where can I find a hard-nosed vicious negotiator real estate agent? ;) Let the bubble burst!! :)
  58. Michael Peters from Canada writes: For the people who like the idea of 40 year mortgages, you do understand the concept of the blended payment, right? Under a 40 year amortization period, substantially less of that blended payment goes towards the priniple of your loan and there is a significant risk of getting caught with your pants down should mortgage rates ever go up. If you're under a 40 year am and barely making ends meet now, add another 1% to your mortgage rate and see what happens. That's why these things are a bad idea.
  59. bill k from Canada writes: Without the 40 year mortgage you just taken 40% of the buyers out of the market. With inventory at record highs and sales falling every month for the past six months you will see prices fall even harder now. No one should be able to buy a home unless you have 10-15% down and only 25 year mortgages. Canada's housing drop will get worse and from reading the fear from those who are trying to sell in this falling market you can see just how bad the crash can get.
  60. Cat Cat from Burlington, Canada writes: bill k: Getting rid of the 40 year am means 40% of the buyers in the market are out? Where did you get that number from, a Dr. Zeus book? Its more like .40% - just do your own due diligence with CMHC stats...
  61. Yves Farges from Vancouver, Canada writes: A surprisingly smart move from our federal government, at last realizing that without regulation, our Canadian Banks will hoist up the jolly roger and behave in their usual 'profits first' mindset. A person only has to look at the credit card interest rates once to realize that this regulation-free market is little more than loansharking. Actually, it would be a good move if the government enshrined into law the obligation for banks to make loans completely clear for the consumer. I had a good laugh at the phase 'in order to avoid a real estate bubble ...' since clearly the real estate market is well on its way to hell in a handbasket. That said, great move and hopefully the first of good, practical government for a change.
  62. B. Goode from Canada writes: Tour de France from Canada writes: Ridiculous. There is no real estate bubble in Canada. All markets are heading south accordingly after record growth.

    This is pure posturing.
    ___________________________________________________
    Yeah, I have to agree. The Cons just got in under the wire to make political capital.
  63. michael moore from toronto, Canada writes: The feds are soft-pedalling this, but actually it has a big impact. Remember that housing has no intrinsic value, just what people are willing to pay. Nothing down and long amortization has meant that people can pay more -- a lot more than they could have a couple of years ago -- and this has been driving house prices. Now they'll not be willing to pay as much, so house prices will fall. As house prices fall, rents will have to fall too, to stay competitive. In the end, most of the same people will get housing, but fewer dollars will change hands. It will hurt people like me who paid for their houses long ago and now will get less than we might have hoped for -- but it's a good policy in terms of society.
  64. Dave S from Canada writes: My wife and I qualified for a 20 year mortgage but opted instead for a 40 year for the lower payment. Yes it costs us more in interest but we decided it was worth it for several reasons. Payments are lower, and it allows us to save and invest at the same time, and since the payments are lower, if one of us loses our job, we stand a better chance of still being able to make the mortgage payment and keeping our house.

    I think 40 year amortizations are a logical response to the new reality; cost of living is up and wages aren't. If we base everything on standards from 50 years ago then eventually no one will be able to afford a house. I think a smarter move would have been to qualify people on a 25 or 30 year amortization and give them the OPTION of going as high as 40 if they wanted to. But no more qualifying the deal on a 40 year amortization. That would signifcantly reduce the risk factors that everyone is so concerned about, imo.
  65. diane marie from Canada writes: This is a very good move and it may serve, somehow, to encourage the kind of housing that will be better for the environment: more density, smaller footprint, more energy-efficient, etc. It is a sad thing to say, but some consumers need to be protected from their own unbridled consumption, and some lenders need to be prevented from victimizing those who aren't that astute. I recall that, before he retired from the Bank, Mr. Dodge wasn't very impressed with some of CMHC's proposed policies and had an informal chat with them, but this formalizes what needed to be done. A nation can be judged by how it protects those who some might think should know better, but to quote the late George Carlin, if you think the average person isn't very smart, 50% are even dumber.
  66. Dr Strangelove from Tonga writes: Marcus Leja from Calgary, Canada writes: This is fantastic news. As a potential first home buyer with a 10% down payment ready on the sidelines, I'm pleased to hear many previously competing buyers without real resources to buy a home are being forced to sit on the bench. Now that there will be less approved buyers knocking on starter home doors, where can I find a hard-nosed vicious negotiator real estate agent? ;) Let the bubble burst!! :)
    ---
    Sure, some people will drop out of the market, but others will simply switch their sights from more expensive to so-called starter homes. Hard to tell what the net effect on that particular market segment will be.
  67. Michael Kalus from Canada writes: I would also be one of those who is going to say that this is a bit late to make the changes.

    Much more so that the market seems to see a slight correction already, this change will probably thin the pool of potential buyers which will mean the correction will be faster though may end up being less painful than when the whole thing would pop.

    The kicker here though is the 5% down (though 10% would have been better), as this will require people to safe up some money first.

    For the 'Real estate Guy' who says that this requirement moves the danger from the CMHC to the Parents (and thus 'punishes' them). Bollocks. If someone wants to play a risky business and their parents are up for it, that's their problem, but why should society as a whole be exposed. Is it that hard for people to wait and safe up some money? If it is, then maybe they should tie a loan over several hundred K to their leg in the first place.
  68. M. Brockington from Canada writes:
    Harper brought in these 40 year, 0% down mortgages under his watch. Now he's taking them away. Should we assume that, as a trained economist, he has no sense of what effect this might have?

    In the medium term, as has been pointed out here, this will accelerate the real-estate collapse by taking those marginal buyers out of the market. Anyone following the stats knows about 40% of first-time buyers have been taking these dodgy mortgages for the last year or 2.

    In the short term, though, this may prop up the bubble just a little longer, as people rush to sign up for their 0/40 mortgage before the new rules take effect in October.

    It's a pretty desperate gambit. We should expect to see an election called in the next few months, it looks like.
  69. CM Chen from Hollywood North, Canada writes: A prudent move, somewhat late, but better than never.

    I dont understand how anyone would buy a house with zero down payment. After all, this is not like buying furniture based on a commercial jingle 'No down payment, and don't pay until 2010'.
  70. Dave C from Canada writes: I definitely agree, this is a very good decision to reign in reckless lending and borrowing which in the end costs the government and tax payers a ton of money. If you can't save for a down payment or COMFORTABLY handle a mortgage, YOU ARE NOT READY TO BE A HOME OWNER!!! Bottom line, become responsible, save for a decent down payment and buy a house or condo that you can comfortably handle even if interest rates go up or you become unemployed for awhile. Allot of homeowners today have got in WAY over their heads by taking on mortgages that are much more than they ever should have taken on. Credit cards are just as bad.

  71. J K GALBRAITH from Canada writes: Is everyone making a mountain out of a molehill. What percentages of mortgages are actually for 40 years? What are the average amount of those mortgages? Has there been a higher percentage of defaults or foreclosures for these mortgages compared ot other ones. What are the average incomes of 40 year mortgage holders?

    Do we have a real problem or a perceived problem? Did we hand out mortgages to all these people who had no income or any assets with no payments or variable interest payments? Our mortgage and housing sector is not the like the United States and this is really a non-issue.
  72. Jim T from Toronto, Canada writes: One thing to keep in mind is that CMHC is not the only firm/agency offering insurance on 40 yr zero down mtges. It is a free economy and as such we will still have the Genworth's and AIG's of the world offering these insurance products regardless of what CMHC does.
    These firms make a huge profit off the insurance (an even bigger profit on the zero down 40 yr amortizations). They charge a 3.75% premium for these products!!!!!!! And with defaults at less than .02%, its big proftis.
    One final thought: as tax payers, we have never paid to support CMHC. CHMC makes positive profits.
  73. james dean from vancouver, Canada writes: One thing that hasn't been mentioned is that there are actually very few mortgages that are currently in arrears - the lowest in almost 20 years. If the 40 year amortization and zero down was a problem, wouldn't the number of arrears increased, not declined?

    The funny thing is this move by the government follows the largest government-backed-mortgage auction that has ever happened, just a few weeks ago. I wonder what was really going on. See the article here:

    From the FP june 18th:
    Canada Mortgage Trust, the issuer of Canada Mortgage Bonds, has, yet again, raised the bar higher.

    The issuer priced a $12.5-billion three-tranche offering Wednesday, a deal that broke the previous financing record, also held by CMT. CMB's are government insured mortgages that are sold to CMT by mortgage providers, typically chartered banks. To fund that purchase CMT raises capital. The bonds have a timely payment guarantee from the federal government.

    JD
  74. Dave C from Canada writes: ' J K GALBRAITH from Canada writes:...........Do we have a real problem or a perceived problem? Did we hand out mortgages to all these people who had no income or any assets with no payments or variable interest payments? Our mortgage and housing sector is not the like the United States and this is really a non-issue.'

    If you need a 40 year mortgage you should not be buying a house! It's as simple as that. It enslaves people to a mortgage debt for most of their lives. People in these situations will probably have little or nothing saved up to retire on and heaven forbid Interest rates steadily track higher over the years. They would be paying mostly interest and they would more than likely not knock much off the original principle. As others have said, 40 year mortgages and such encourage people to take on much more debt and much more house than they ever should. Their first home does not have to be 2000 sq ft and loaded to the gills with custom finishing.
  75. Ceecee Wynn from Toronto, Canada writes: jame dean from vancouver wrote: 2.' Being forced to put 5% down typically results in kids borrowing from parents, which spreads the risk from insurance company to parent. Nice one, canada...'

    How is this canada's fault? parents have a choice to help their kids or not. and if a kid cant save 5% then the parents should be more cautious! it's called aiding and abetting then blaming the country - foolish! And people complain kids dont take responsibility these days...
  76. Jim Tourloukis from Toronto, Canada writes: Disagree. With prices going up 4-5 % a yr, it becomes more difficult for one to get into the housing market with every passing day. A home in Toronto going for $700,000 was going for $400,000 just 5 yrs ago. Without the 40 yr amortization, some folks would not have been able to get into the housing market at $400,000 and definately would not be able to get in at $700,000.
    Banks in Canada do not just give people mortgages without fully qualifing. The US will not happen here!!!!! Our defaults ratios are .02%!!!!!!!!
    This is a Conservative political play. That's all!!!!!
  77. David Gibson from Canada writes: '''“The changes are more about optics, in comparison to a fairly modest impact upon the economy, housing markets or financial markets,”'' 'Optics?' Optics is a field of science. Literacy check, big guy.... These changes WILL make a difference. The people who default on their mortgages are usually those who barely qualified in the first place. These changes will disqualify a number of those people, which will result in a few fewer sales, but certainly fewer defaults, as well. Lesson learned from the USA, where they bent over backwards to give mortgages to any biped who wanted one.
  78. R. M. from Regina, Canada writes: For those people who might minimize the seriousness of the situation take a lot at two orgs publicly traded in the US....Fannie Mae and Freedie Mac.....the talk on the streets (CNBC reporting) is that public money to the tune of $1 TRILLION might be required to bail these two agencies out of serious problems and US home owners along with it. Now obviously we are not the United States but if you do the comparative math it should be enough to keep you up at night.
  79. Marv M from Canada writes: ' Jim Tourloukis from Toronto, Canada writes: Disagree. With prices going up 4-5 % a yr, it becomes more difficult for one to get into the housing market with every passing day. A home in Toronto going for $700,000 was going for $400,000 just 5 yrs ago. Without the 40 yr amortization, some folks would not have been able to get into the housing market at $400,000 and definately would not be able to get in at $700,000.'

    Don't you see, that is the Whole problem with 40 year mortgages. It doesn't make housing cheaper, it drives prices up and makes housing even less affordable. People who would never qualify for a 700k house at a 25 year mortgage are than able to qualify with a 40 year mortgage causing prices to go even higher. What's next, 50 year 100 year mortgages?? It becomes runaway home prices and a whole generation become slaves to their mortgage. This new change had to be put into place, prices have already gotten out of control, especially in BC and Alberta. Sky high home prices would destroy a generation because they would be spending most of their income servicing their mortgage. Hopefully this will now slow the buying and bring prices back to more normal levels. It should have been done a long time ago!!!
  80. The Middle Finger ..I.. from Canada writes: 0, 5, 10, 15, 20, 25, 30, 35, 40, 45, 50 .....................100 year mortgages. What does it matter? How many people stay in their home for the duration? There is no cost advantage to rent vs own particularly in the early years. Also, it costs the same to own a home whether it is bought outright with cash or mortgaged to the hilt. There is no such thing as free living.
  81. Yvonne Wackernagel from Woodville, Canada writes: Matt Toma from Vancouver and Don Portz from Trochu AB, Canada writes: Yvonne - Where do you get this Govt paying for these losses?

    Let's get this straight: CMHC is a Govt. agency, acting on behalf of the Govt. Who is the GOVT? YOU AND ME AND ALL THE OTHER TAXPAYERS. The Banks work hand in glove with the Govt. on ALL Programmes. When the Banks make a profit, they keep the money, when they lose, they either recover it from the Govt. through insurance or from you and me by increased fees, etc. There is no free lunch for you and me. You could take whatever you want to take from the websites and their financial information, but I did the legal work.
  82. Nick Palas from Canada writes: Getting rid of the 0 down, 40 year mortgage will cause prices to fall in the short term....
  83. The Middle Finger ..I.. from Canada writes: I thought the experst said that Canada would not suffer the same fate as the US regarding sub prime mortgages as they didn't exist here?

    My son bought a townhouse last week for 255K - 0% down. Then CMHC added about 7K to the mortgage for insurance. He doesn't move in for another month but is already underwater according to the CNN experts. But Canada is immune, right? Gurgle, gurgle.
  84. James C from Shenzhen, China writes: 'Don Portz from Trochu AB, Canada writes: Yes it will restrict a % of people from owning a home for a few years but would encourage savings to meet these new requirements. Some will say they will never be able to save enough due to increases, but if there is a little less demand then prices will not increase at a higher rate.'
    __________

    here's a suggestion for those people: stop driving your car so often and you'll find out it is possible to save more money for other things.
  85. Rob Florio from Vancouver, Canada writes: This is a GREAT move - although I agree it should have been done two years ago. Good job Harper. (I'm a liberal)

    Clearly most of the commentators do not have a clear perception of current prices from the perspective of new home buyers. To get a modest 650 sqft 1 bedroom condo in Vancouver costs about $350 000. This is TOO SMALL to raise a family. The smallest detached houses are all $600 000 and up. This is extremely disheartening to new buyers and young families. It sure doesn't feel like anything is being handed to me on a silver platter. My parents bought a place after one year having one full time job. I've been working for a decade and have been priced out of the market even though my partner also is also a professional.

    Home prices have been exacerbated because of 40 year amortization periods, thus forcing everyone to consider longer amortization periods just to get a foot in the door.

    By the way, rentals in Vancouver are also ridiculous so there's no easy option.
  86. Winston Smith from Canada writes: According to Statistics Canada (Your government) inflation has been hovering 1-2% in the last 5 years and that is why everyone's purchasing power is getting hammered to the point where signing up for 40 year slavery contracts with the banks is the only way to put a roof over one's head. Don't you love the B.S. from our public servants?
  87. James C from Shenzhen, China writes: 'Yvonne Wackernagel from Woodville, Canada writes: Remember the Land Speculation Tax back in the early eighties? And this was also the reason why Harper didn;t follow through with his hairbrained scheme of no capaital gains tax if you buy within 6 months of selling. I suppose he found out that it did not work in the U.S. because people could sell 100 acres south and travel 20 miles north and buy 200 acres for the same money; all it did was to increase the value of farm land.'
    __________

    PM Harper accepts your heartfelt congratulations LOL
  88. Sue W from Canada writes: We're on the same economic path as the one taken during the late 80's which led to the recession in the early 90's.

    Saving someone $41 on their monthly mortgage payment won't prevent what is, and will happen in the Canadian housing market.
  89. Rosehill Avenue from Toronto, Canada writes: There seems to be a lot of uneducated disgruntled baby boomers on here ranting at generations Y'ers because they had to save diligently for 10years before they got a home. Grow up. Try plugging in some numbers in a spreadsheet and you'll discover to your horror that both downpayment and amortization are not what matters. For individuals it is NET WORTH. If i can earn an return on excess cash in excess of the compounded mortgage interest I would otherwise be paying, then the homeowner is better off. (grade 9 math here, yes?) Obviously the allownace of 40's have pushed prices higher and this will in the short term depress them in a market that seems to have already topped. But making broad statements such as 'min 10% down/30yr max amortization' is pretty ignorant and probably coming from the mouth of someone sitting on 80% equity in their home. For the posters that say 40's are irresponsible, well how is it irresponsible to build in a cushion of safety if one is temporarily out of work? How is it irresponsible to start building equity in urself when rents are sometimes higher than mortgages? (i.e. in Toronto) In any case, Generation Y will have to tap their parents to get (help with) the down payment, and the difference b/w 35 and 40 years is next to nothing ($50/mo.) Yeah the market is going down, but its because we passed the tipping point in terms of domestic affordability long ago and NOT b/c of foreclosures and irresponsible lending.
  90. Alexander Slimnich from Canada writes: Good news, IMHO. 40 year mortgages with little/no money down was a disaster waiting to happen - especially with historically low interest rates.

    Hopefully, this move will push some people (who really have no business buying at this time, given their finances), out of the market (to wait until they have saved more).. hopefully lowering prices.
  91. Chilled One from Canada writes: james dean from Vancouver, Canada writes: I work in the mortgage business...........snippage.............................................................
    So basically this is a total and unnessary waste of time. The main loss is to the rental pool - rents are going to sk