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Paul Taylor
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Paul Taylor
2020-08-17 15:19
Thanks, Elaine.
Switching gears somewhat, the industry, with government support, has been providing mortgage payment deferrals to many mortgage holders. Current Canadian Bankers Association statistics suggest that 16% of all mortgage holders have at some point since March deferred at least one payment. In testimony to FINA, CMHC president Evan Siddall warned that this number could reach 20%, or one in five, and that these deferrals may all become mortgages in arrears when these programs expire in September-October.
I'm happy to report that the experience of our member mortgage lenders is much more optimistic. Many borrowers who took advantage of the deferral program have since voluntarily resumed their payments and opted out. Participation numbers are falling, not increasing. Public records of these results are available in recent releases by Equitable Bank and Home Trust to their shareholders.
While this is encouraging news, we do, however, anticipate that there will be some mortgage holders who will find themselves unable to meet their mortgage obligations when the deferral period expires. The general expectation is that these families will be forced to sell their homes and that this influx of housing inventory to the market will create price softening as more housing options are available to buyers. It's with this expectation that we make two requests.
First, consider extending the deferral period for those who are truly unable to meet their obligations but expect to return to work in the near term. If OSFI were to implement a portfolio percentage maximum permissible to continue to not be considered a non-performing loan, lenders would ensure appropriate means testing and targeting of this continued support. Permitting lenders this capital relief of 5% of loans within their portfolio will assist those Canadians most affected by the pandemic to stay in their homes. We would recommend extending this provision for at least another six months.
Second, given the possible price softening expected in some markets, and with the recent and unambiguous assurance from new Bank of Canada Governor Tiff Macklem that interest rates will stay low for a very long time, we ask for the immediate implementation of the previously announced, but postponed, adjustments to the insured and uninsured mortgage trust tests. Today's uninsured mortgage qualification requires borrowers to show that they're able to manage their mortgage payments at a fictionally higher interest rate, either two percentage points above the negotiated contract rate or the Bank of Canada's posted five-year rate, whichever is higher.
In the past year as interest rates have fallen, and recently as the Bank of Canada has significantly reduced its overnight rates, the posted five-year rate has not moved in lockstep. In fact, it's only moved incrementally, as is evidenced by the very small 15 basis-point reduction last week. Today many borrowers are having to prove mathematically that they can manage a mortgage payment at an interest rate of almost 3% higher than their contract rate. If the proposed changes were enacted, really simply, the stress test would effectively be reduced from what is currently almost 300 basis points to 200 basis points, or from 3% to contract plus 2%. Remembering that this test is in addition to existing debt service ratio maximums, this implementation will permit would-be owner-occupiers to purchase their first home while still ensuring that stringent underwriting and qualification mechanisms are in place.
If real estate prices do come down in the upcoming months, that's exactly the time we should be encouraging young and aspiring middle-class Canadians to purchase a home. Excluding them from the marketplace will only serve to widen the wealth gap, leaving more homes for investor purchases rather than would-be owner-occupiers.
Lastly, Mortgage Professionals Canada has additional recommendations related to housing finance, insurable 30-year amortization options specifically to support first-time buyers, increasing the maximum insurable value of a property, and creating an exemption to the aforementioned stress test for renewing borrowers who wish to change lenders.
We'll continue this discussion, and we'd be happy to elaborate further on some of those during the question period, but for the sake of brevity today, in our opening statements we'll stick strictly to the implementation of the previously announced test adjustment and the extension of the deferral program, if possible.
Thank you very much indeed to everybody for your attention and for the opportunity to present today. We look forward to your questions.
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