# OSFI proposals



## Cal (Jun 17, 2009)

http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/guidelines/sound/guidelines/b20_dft_e.pdf

Personally, I don't like that people would potentially have to cough up the difference to renew their mortgage if the equity has dropped below the LTV ratio that they can be lent. I think that the banks should be ensuring that they are lending to people that can actually pay the mortgage back. Obviously that banks don't care, as the loans they make are insured bu CMHC.

It kind of reminds me when Greenspan stated that he didn't think he should have to regulate banks further, as they should be ensuring that people can service their mortgages.

The banks should not be hap-hazardly lending, using the CMHC insurance as a crutch. They should be accountable to strict lending standards to reduce any CMHC risk. As we collectively, are on the hook for that. 

In regards to self employment income, showing a Revenue Canada NOA should suffice to prove income.

Again IMO, I think ensuring that home buyers actually put their own money down, as opposed to borrowing the down payment would go a long way in ensuring we do not have a housing bubble burst. Other options would be to increase the dp needed to purchase, increasing the amount to pay for CMHC insurance, or to reduce the amortization period to 25 years. But none of those would be popular with voters, so it seems to come to one of those things that is probably for our best interest, but not in the best interest of politicians seeking re-election. 

Any other opinions out there?


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## Four Pillars (Apr 5, 2009)

The downpayment is irrelevant - it's all about the ability to make the mortgage payment.

http://www.moneysmartsblog.com/zero-down-payment-on-a-house-is-just-fine/


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## NotMe (Jan 10, 2011)

I agree with FP. Downpayment is irrelevant, it's about the ability to pay. For example, I live in Toronto. Here the average house is say $650,000. A 20% downpayment is $130,000. Given how high rents are, it's very difficult to save that much for a downpayment, even if I can easily afford the monthly payments. I'd rather not rent until my 40s to save a downpayment. I understand a higher downpayment is preferable, but when you consider that when you buy a house in Toronto you don't just pay closing costs and downpayment, you often have (HAVE) to spend $25,000 on improvements (like removing old wiring, getting windows up to code, etc) that you need money aside from that.

Yes I get that I don't have to live in Toronto (even though that's where my job is). I could live in east Oshawa and have a 4 hour commute each day, but it's not my choice. As long as I'm making my payments, that's all that should matter.


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## Just a Guy (Mar 27, 2012)

A downpayment is only protection for the banks. The housing market can decrease by that amount before the banks have to worry about losing money...the homeowner is the only one who loses before that.

That being said, I'm concerned about CMHC financing...

http://www.easysafemoney.com/is-cmhc-insurance-good-for-canadian-real-estate/

I think it can be ripe for abuse.

As for self-employed income, NOAs don't always prove income. There are tax advantages to being self employed that paycheque people don't get. One's taxable income may not be the same as my ability to repay a loan.


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## andrewf (Mar 1, 2010)

Given how much cheaper it is to rent than buy, if you can't save the down payment in 5 years, you probably can't afford to buy.

I save easily double my rent, which has not been increased since I moved in nearly 4 years ago. If I were to buy, I'd be looking at a cap rate of perhaps 2 or 3%. Why buy the cow when you can get the milk for so little? Because someone will pay even more for the cow in the future, despite milk being worth so little?

I'd much rather continue to rent, and get higher returns from other investments. It suits my lifestyle for now, and I can easily and cheaply move if my employment dictates it.


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## NotMe (Jan 10, 2011)

Andrewf - I get it and I advocate renting too but everyone's situation is different. I'm not sure if your logic is sound re if you can't save the downpayment in 5 years, you probably can't afford to buy. Let's say I'm paying $1700 a month in rent/utils + $1000 a month in daycare. I still might be able to save $1,000 a month; in 5 years that's only $60,000. Remember a downpayment of 20% in Toronto is $130,000. Yes at some point daycare costs will go down (assuming no more children) but it's pretty realistic.

Conversely, I could easily pay a mortgage of $2300 (which is $1700+$600 extra, versus $1000 extra). 

Also as for rent, yes I do advocate but once you get married and especially if you have children things like school districts and not moving become important. There is an emotional aspect too that shouldn't get completely discounted.


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## the-royal-mail (Dec 11, 2009)

Very interesting discussion. I appreciate the comments by NotMe even though I tend to agree that for many people renting is an excellent option. I do not live in Toronto. Thankfully I managed to escape that rat race several years ago and live in a far more economical housing market. But things are increasing here too, so what I'm doing is saving my DP now, even though I have no current plans to buy a house. It will take me several years to save enough DP to avoid CMHC. In the meantime, renting works very well for me. I acknowledge it may not work for NotMe. Every situation is different.

I would caution people from using the monthly payment as their determination of affordability, however. Those payments are based on historically low interest rates. They will escalate dramatically once rates eventually start to go up. $2300 a month in mortgage payments is crazy. Lots of people don't net anywhere near that amount in an entire month. Anyone able to make such payments must be fairly well off and in higher positions at work etc.


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## Cal (Jun 17, 2009)

The point was a little moreso that their seems to be a concern that the banks may not be doing a thorough due diligence in ensuring that all property buyers have the long term ability to make teh mortgage payment. At least that is a big part of what I got from the proposals.


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## kcowan (Jul 1, 2010)

I think CMHC should share the risk with the banks so that the bank pays 20% and CMHC pays the rest in a default. This would get the banks doing proper due diligence on mortgage loans for their 20% exposure.


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## Saniokca (Sep 5, 2009)

kcowan said:


> I think CMHC should share the risk with the banks so that the bank pays 20% and CMHC pays the rest in a default. This would get the banks doing proper due diligence on mortgage loans for their 20% exposure.


I would actually prefer that CMHC would only insure the first 20%...


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## Berubeland (Sep 6, 2009)

I think an insurance without a deductible is a bad idea. Banks should have to pay something if they made a bad loan. This would ensure a little more scrutiny on their part. 

I also think that having to requalify on renewal of your mortgage is a very bad idea that could easily create a perfect storm of foreclosures. House values in Toronto and Vancouver could easily go down 25% or more IMHO. It would seem a very bad idea to ask people for a ton of cash money at renewal if they've made their mortgage payments like good little boys and girls. Most people will be unable to pay.


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## Cal (Jun 17, 2009)

I agree w both points above ^.

I don't think the changes will be implemented until later in the year, so hopefully they have some time to get it right.


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## andrewf (Mar 1, 2010)

Selfishly, I want owners to have to stump up at renewal for any negative equity mortgages. I want prices to fall, but I think it would be healthier for the city in the long run.


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