Real estate breaths sigh of relief with initial review of new mortgage rules .. no major impact expected

Real estate sector applauds new mortgage rules

As reported by Tara Perkins with The Globe and Mail, April 15, 2014

“The real estate industry is breathing a sigh of relief after seeing the long-awaited set of guidelines for mortgage insurers that many had feared would cause home sales to slow.

The new rules from Canada’s financial regulator contain little to dampen the housing market, industry players say. That is welcome news to real estate agents and mortgage brokers, as home sales have recently turned sluggish.

The guidelines, which came out Monday, have been in the works since 2012. That was the year that the financial regulator, the Office of the Superintendent of Financial Institutions (OSFI), released mortgage underwriting guidelines for banks.

Those guidelines, which were known in the industry as B-20, were mainly broad principles spelling out what banks must to do to ensure they were properly scrutinizing potential borrowers and the properties they wanted to buy.

But B-20 also imposed a cap on the amount that homeowners can borrow on a home equity line of credit at 65 per cent of the home’s value, a rule that real estate players said had a tightening effect on the housing market. As a result, there was concern that the new guidelines for mortgage insurers, known as B-21, might also affect the market.

In an interview Monday, OSFI deputy superintendent Mark Zelmer said he doesn’t expect the guidelines to have a major impact, observing that they’re similar to B-20 except that they are written for mortgage insurers rather than banks.

The guidelines spell out steps that mortgage insurers should take to ensure they’re not taking on too much risk, including assessing the banks that are selling the mortgages. Indeed, many of the guidelines essentially tell mortgage insurers they are responsible for ensuring that banks are being careful.

The general idea is to ensure that mortgage insurers are following strict practices that will minimize defaults of mortgages that they insure. As such, the full set of rules could have a tightening effect, but industry players say any such impact will be small.”

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