Monday, January 17th, 2011 New mortgage rules miss debt management target

http://www.mbabc.ca/?p=505

Source:MBABC

Mortgage brokers say tightening rules on unsecured consumer debt, not mortgage lending rules is the answer to lowering household debt

January 17, 2011 (Vancouver) – Finance Minister Flaherty’s announcement this morning of tighter mortgage rules continues to emphasize mortgage debt as the culprit for record levels of household debt. However, these changes affect high ratio mortgages only, a very small part of the mortgage market. The real issue says the Mortgage Brokers Association of BC (MBABC) is growing consumer lines of credit, consumer loans, car leases and credit cards, and the unsecured lending practices of these lenders, not what homeowners are doing with secured mortgage debt. The new rules will primarily affect new and younger homebuyers, a demographic which does not typically shoulder high consumer debt.

Mortgage lending is not creating the problem of record levels of household debt, consumer debt is, according to the MBABC. By the time consumers need to refinance their mortgage, consumer debt already exists. A mortgage refinance can often be a solution to a homeowner’s debt issue, and these new changes reduce the effectiveness of this solution. It does not, however, resolve the main issue of consumer debt, which started the problem to begin with.

“Household debt loads are directly related to these unsecured debt factors, not mortgage lending”, says MBABC President Joanne Vickery. “Further tightening of mortgage rules is not necessarily the right answer. Consumers need to have the discipline to change their financial habits and to not take on debt that they cannot afford.”

“Consolidating household debt and rolling it into a mortgage is a smart option for an initial solution”, says Vickery “provided that any savings are then used to pay down the mortgage or invested into a retirement savings vehicle. Consumers cannot, however, continue to use their home as an ATM; they must change their habits on acquiring consumer debt.”

Vickery advises homeowners and those looking to buy a home to contact a qualified MBABC mortgage broker for assistance with determining home affordability as well as long-term debt planning and debt management.

About MBABC

MBABC represents member brokers in BC and serves as the province’s industry voice with government, regulators and media. The Association strongly supports and facilitates the highest levels of ethical and professional standards and co-operation in the mortgage industry. Each member must abide by the Association’s strict Code of Ethics. MBABC actively supports its members through professional development and networking opportunities. It supports government policy that encourages small business and home ownership, and is committed to raising consumer awareness about the mortgage broker industry. MBABC is governed by an elected Board of Directors and an Executive Director.

New Mortgage Rules are fast approaching...Here are some changes to look for on March 18th 2011

Below are the new regulations:
Source ~ CBC

~Maximum amortization is decreasing down from 35 years to 30 years.

~Maximum Equity Take out is decreasing from 90% to 85%.
~Government insurance backing on "home equity lines of credit"(HELOCs), has been removed.

FAQ'S

Q: Does the mortgage , either a purchase or refinance , have to close by March 18th ?
A: No, it has to be a firm contract and approved before March 18th, however it can close after.

Q: I have a pre-approval but I haven’t found a home before March 18th, how does this affect me?
A: it has to be a firm contract in place before the 18th, however it can close after the 18th.

Q: I have a 40 year amortization. At renewal will I get a 30 year amortization or 35 year?
A: You will get a 35 year amortization in most cases. **"Depending on the lenders underwriting guidelines at time of renewal."

Q: I’m in a 35 year amortization and would like to refinance/debt consolidate my mortgage?
A: if we get it approved before March 18th 35 year will be available, after the 18th it will be 30 year.

Q: I’m thinking of porting my mortgage over to a new home purchase, what happens?
A: Each lender seems to have a different policy and/or on case by case scenario's, if you are thinking of selling and porting your mortgage please let me know and I would be happy to assist you.

Please note that until you apply to a lender, they have the last word and base their final decisions on each individual application.

**Effective dates may vary depending on the lender, who may exercise to adopt the new mortgage rules prior to the March 18/11 date.

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Here is the link http://www.cbc.ca/news/business/story/2011/01/17/flaherty-mortgage-changes.html

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