Real Estate

CMHC CEO wants the stress test to stay....

  • Last Updated:
  • Aug 16th, 2019 6:28 pm
[OP]
Deal Addict
Jul 3, 2007
1694 posts
1755 upvotes
Toronto

CMHC CEO wants the stress test to stay....

savings rate at 1.1% ...wow..... everyone just paying their bills with no money left over ....not good

Last edited by joepipe on Aug 4th, 2019 4:26 pm, edited 1 time in total.
27 replies
Penalty Box
Aug 11, 2005
4124 posts
1357 upvotes
Should also make it mandatory 20% down payment
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Jr. Member
Nov 10, 2014
137 posts
111 upvotes
Ottawa, ON
I agree on the principle of the stress test, but the its implementation and its effects so far have been awful.

The stress test is resulting in record level of market share of private lenders charging anywhere from 5% on the low end, to 10%+ in addition to various fees. This is at a time when banks and credit unions offer 5 year fixed for less than 3%.

The current form of stress test is pushing those who could reasonably service their mortgage at 3%, but cannot qualify at posted rates (5.14%) to borrow from private lenders who charge double of what a bank would. Not only does this substantially increase the debt burden on the individual level, it increases systemic default risks. The winner from the current stress test are private lenders and their investors at the expense of borrowers who just miss out due to the higher posted rates, and may in fact increase systemic risks.

CMHC should crack down on loose lending standards of private lenders/ MICs if they actually want the stress test to work properly. If they are unwilling/ unable, they should at least lower the posted rate to reflect the dramatic decrease in rates for 4~5 fixed year mortgages to stop the proliferation of private mortgages that they are responsible for.
Penalty Box
Aug 11, 2005
4124 posts
1357 upvotes
Tadalafil wrote:
Aug 4th, 2019 1:07 pm
I agree on the principle of the stress test, but the its implementation and its effects so far have been awful.

The stress test is resulting in record level of market share of private lenders charging anywhere from 5% on the low end, to 10%+ in addition to various fees. This is at a time when banks and credit unions offer 5 year fixed for less than 3%.

The current form of stress test is pushing those who could reasonably service their mortgage at 3%, but cannot qualify at posted rates (5.14%) to borrow from private lenders who charge double of what a bank would. Not only does this substantially increase the debt burden on the individual level, it increases systemic default risks. The winner from the current stress test are private lenders and their investors at the expense of borrowers who just miss out due to the higher posted rates, and may in fact increase systemic risks.

CMHC should crack down on loose lending standards of private lenders/ MICs if they actually want the stress test to work properly. If they are unwilling/ unable, they should at least lower the posted rate to reflect the dramatic decrease in rates for 4~5 fixed year mortgages to stop the proliferation of private mortgages that they are responsible for.
Private lenders are charging more because there is increased risk and they are being compensated for it. That’s how a free market works. The reason why the government has to step in for big banks is because they are too big to fail. If they go bankrupt due to lax lending standards, the economy will grind to a halt. If a private lender fails, nobody cares and it won’t even register as a blip.
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Sr. Member
Sep 9, 2014
538 posts
461 upvotes
Vancouver
Tadalafil wrote:
Aug 4th, 2019 1:07 pm
I agree on the principle of the stress test, but the its implementation and its effects so far have been awful.

The stress test is resulting in record level of market share of private lenders charging anywhere from 5% on the low end, to 10%+ in addition to various fees. This is at a time when banks and credit unions offer 5 year fixed for less than 3%.

The current form of stress test is pushing those who could reasonably service their mortgage at 3%, but cannot qualify at posted rates (5.14%) to borrow from private lenders who charge double of what a bank would. Not only does this substantially increase the debt burden on the individual level, it increases systemic default risks. The winner from the current stress test are private lenders and their investors at the expense of borrowers who just miss out due to the higher posted rates, and may in fact increase systemic risks.

CMHC should crack down on loose lending standards of private lenders/ MICs if they actually want the stress test to work properly. If they are unwilling/ unable, they should at least lower the posted rate to reflect the dramatic decrease in rates for 4~5 fixed year mortgages to stop the proliferation of private mortgages that they are responsible for.
Agreed. Also the issue that you aren't tested if you don't change lender. This is ridiculous and unfair. This is literally giving those lenders an incredible bargaining power.

Similarly, you can get sub 3% fixed rate for 10 years of I remember correctly. So not sure it makes sense to stress test those people. They'll literally not be tested for 10 years
[OP]
Deal Addict
Jul 3, 2007
1694 posts
1755 upvotes
Toronto
BryanBreguet wrote:
Aug 4th, 2019 3:23 pm
Agreed. Also the issue that you aren't tested if you don't change lender. This is ridiculous and unfair. This is literally giving those lenders an incredible bargaining power.

Similarly, you can get sub 3% fixed rate for 10 years of I remember correctly. So not sure it makes sense to stress test those people. They'll literally not be tested for 10 years
yep this is the one part of the stress test that is stupid..... people should be able to shop for renewals, instead the banks have them by the you know what....lol

again , just more proof the government and its agencies just throw things together without thinking , all the time...
[OP]
Deal Addict
Jul 3, 2007
1694 posts
1755 upvotes
Toronto
Luckyinfil wrote:
Aug 4th, 2019 1:59 pm
Private lenders are charging more because there is increased risk and they are being compensated for it. That’s how a free market works. The reason why the government has to step in for big banks is because they are too big to fail. If they go bankrupt due to lax lending standards, the economy will grind to a halt. If a private lender fails, nobody cares and it won’t even register as a blip.
you would be surprised how many people are lending privately from secured LOCs on their house, theres A LOT.

borrow at 3.95% , lend at 9% - 14%, write off the interest, not bad....

I know people churning millions in loans every year...... amazing returns
[OP]
Deal Addict
Jul 3, 2007
1694 posts
1755 upvotes
Toronto
Interesting stats ....

Member
Nov 5, 2018
365 posts
381 upvotes
Scarborough
I think that the mortgage stress tests are a good thing, despite being such a severe action. They have to prevent a housing market bubble implosion.

But, it is interesting how this situation favours the rich as they have the ability to get financing from big banks to purchase pre-construction condos, allowing them to benefit from the housing shortage. I don't think there is any way to prevent that and preventing the rich from buying would probably cause the market to become even less affordable.

That's why I am buying real estate. It is a very exclusive investment that can offer leverage, potential price appreciation from a housing shortage, and the ability to refinance in the future. Although, it doesn't come without risks and its own set of headaches.
Money, Common Stocks, Credit Cards, Coupons, Condos (MCCCC)
Member
Feb 19, 2019
336 posts
271 upvotes
Stouffville ON
CondoMan98 wrote:
Aug 4th, 2019 4:30 pm
I think that the mortgage stress tests are a good thing, despite being such a severe action. They have to prevent a housing market bubble implosion.

But, it is interesting how this situation favours the rich as they have the ability to get financing from big banks to purchase pre-construction condos, allowing them to benefit from the housing shortage. I don't think there is any way to prevent that and preventing the rich from buying would probably cause the market to become even less affordable.

That's why I am buying real estate. It is a very exclusive investment that can offer leverage, potential price appreciation from a housing shortage, and the ability to refinance in the future. Although, it doesn't come without risks and its own set of headaches.
I agree, IMO it served the purpose and did the trick, 2017 was a dangerous time, currently, 2 years later we are experiencing healthier, more balanced market and at the same time it allowed the wealthy to use leverage even more to their advantage.
Full Time & Full Service Cash Back Realtor.
Sr. Member
Sep 19, 2012
897 posts
749 upvotes
Calgary
Unless you have absolutely terrible credit or no income (or this is a 2nd mortgage) you aren’t paying 10%+ with a private lender. Honestly, if your only problem is the the stress test you could probably get 3.x% with “subprime” lenders.
Deal Addict
Dec 4, 2016
1352 posts
552 upvotes
As a Canadian taxpayer, I agree that stress test should stay. 1.1% savings rate is perfectly reasonable when considering that federal and provincial governments in Canada are not running massive deficits and Canada is still a somewhat attractive place for capital inflow. Countries with strong institutions and low perceived risks tend to have low overall saving rates, when household and government saving/borrowing are combined.
Deal Fanatic
Oct 7, 2010
8597 posts
1014 upvotes
CMHC CEO is dumb. They should had stress test earlier more like near 2013. Low saving rate is not the fault of the citizens and home owners, it is the fault of the government.

Either remove or lower the stress test or lower citizens' tax burden. So citizens can keep more of their local earnings since government is wasting our money on refugees and other useless programs.
Newbie
Jun 3, 2018
63 posts
86 upvotes
spike1128 wrote:
Aug 10th, 2019 9:25 pm
Low saving rate is not the fault of the citizens and home owners, it is the fault of the government.

First, I love the distinction between citizens and homeowners, as if there is some significant distinction.

Second, how the hell is it the government's fault that people can't exercise self-control?

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