Real Estate

Locked: Mortgage renewals subject to stress tests

  • Last Updated:
  • Aug 30th, 2017 2:32 pm
[OP]
Banned
Aug 10, 2017
198 posts
119 upvotes

Mortgage renewals subject to stress tests

According to Garth today regarding the new proposed B-20 guidelines

But it doesn't say it anywhere on OFSI's draft guideline.
http://www.osfi-bsif.gc.ca/Eng/fi-if/rg ... 0_dft.aspx

Oh Garth..
82 replies
Sr. Member
Jun 19, 2017
581 posts
920 upvotes
I also didn't see any language in the guidelines suggesting that refinancings should be treated any differently than new originations.

Wherever refinancings are mentioned in the guidelines they seem to imply that they should be treated in the same manner as originations.

"The above documentation should be obtained at the origination of the mortgage and for any subsequent refinancing of the mortgage"

"The LTV ratio should be re-calculated upon any refinancing, and whenever deemed prudent, given changes to a borrower’s risk profile or delinquency status, using an appropriate valuation/appraisal methodology."

I'm not an expert in this area. What assumptions are people making regarding refinancings requirements? Why would a bank refinance uninsured mortgages if LTV and income degrades over the time of the loan to a point where underwriting becomes risky if they and they have the option to recover their loan value though a sale of the assets?
Deal Guru
Feb 22, 2011
13188 posts
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I mean aside from being another lie it wouldn't even matter. High risk mortgages were always 5 year fixed 25 year max amortization. After the term there is 20 years left. Extending out to 30 years at renewal would drop the payments by almost 50%. Not that you should do that, but there are always options.
Deal Addict
Oct 21, 2014
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Burlington, ON
They really need to settle on a set of rules. These constant changes to the mortgage market isn't good for anyone.
Deal Addict
Jul 3, 2007
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New B20 rules will be a further wrecking ball in the market , only a fool would buy a property right now. Might as well wait for
6 months after the rules are put in to see the damage first.....

everyone qualifying at 5%+ will drop prices another 10-20%

and if they actually stress test renewals too?? ohhh boyyyy.......game over
Deal Guru
Feb 22, 2011
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joepipe wrote: New B20 rules will be a further wrecking ball in the market , only a fool would buy a property right now. Might as well wait for
6 months after the rules are put in to see the damage first.....

everyone qualifying at 5%+ will drop prices another 10-20%

and if they actually stress test renewals too?? ohhh boyyyy.......game over
Why would stress test effect someone with 5 years of built up equity and the ability to extend amortization and reduce mortgage payments 25-50%?
Member
Jun 12, 2017
373 posts
377 upvotes
joepipe wrote: New B20 rules will be a further wrecking ball in the market , only a fool would buy a property right now. Might as well wait for
6 months after the rules are put in to see the damage first.....

everyone qualifying at 5%+ will drop prices another 10-20%

and if they actually stress test renewals too?? ohhh boyyyy.......game over
How is that 3% interest rate prediction "starting next week" from 2 months ago coming along?

And stress test for renewals? The fact that you even mention that as a possibility shows how little you know. Like the government is going to say "hmm.. these 100s of ks of owners can keep paying for their mortgages... but *maybe* they will default if things get worse.. best thing to do is deny them renewal and force them to default today".

You should go back to posting on Garth's blog where such ridiculous ideas will be entertained and used as proof that prices are going back to 2005 levels.
Deal Addict
Oct 21, 2014
1773 posts
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Burlington, ON
rjg4235 wrote: Why would stress test effect someone with 5 years of built up equity and the ability to extend amortization and reduce mortgage payments 25-50%?
I sent an email to [email protected] directly asking the question if this rule affects renewals. I'll share on this thread if I get a response.
Deal Addict
Jul 3, 2007
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All the banks are over 3% for conventional mortgages, thats how its coming along....any more questions?

http://www.rbcroyalbank.com/mortgages/m ... rates.html

Im not saying there will be stress tests for renewals, that is a rumor ....im saying if true that is a massive bomb waiting to blow in this market.....nevermind what
the stress tests on purchases will already do in 2018

this fantasy RE market is done for a long time , if you didnt sell in 2017 spring you will be flat or losing money for years....



trekkie500 wrote: How is that 3% interest rate prediction "starting next week" from 2 months ago coming along?

And stress test for renewals? The fact that you even mention that as a possibility shows how little you know. Like the government is going to say "hmm.. these 100s of ks of owners can keep paying for their mortgages... but *maybe* they will default if things get worse.. best thing to do is deny them renewal and force them to default today".

You should go back to posting on Garth's blog where such ridiculous ideas will be entertained and used as proof that prices are going back to 2005 levels.
Deal Guru
Feb 22, 2011
13188 posts
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joepipe wrote: All the banks are over 3% for conventional mortgages, thats how its coming along....any more questions?

http://www.rbcroyalbank.com/mortgages/m ... rates.html

Im not saying there will be stress tests for renewals, that is a rumor ....im saying if true that is a massive bomb waiting to blow in this market.....nevermind what
the stress tests on purchases will already do in 2018

this fantasy RE market is done for a long time , if you didnt sell in 2017 spring you will be flat or losing money for years....
They always advertise higher than they offer, they have for decades. There's an entire stickied thread of brokers confirming rates are still available at 5 year fixed 2.64%.

Also you have no idea what will happen the next few years. Claiming otherwise is foolish.
Deal Addict
Jul 3, 2007
4090 posts
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rjg4235 wrote: They always advertise higher than they offer, they have for decades. There's an entire stickied thread of brokers confirming rates are still available at 5 year fixed 2.64%.

Also you have no idea what will happen the next few years. Claiming otherwise is foolish.
2.64 is a insured rate, try getting that with 20% down or more with a bank lol

whos foolish now??
Last edited by joepipe on Aug 25th, 2017 9:48 am, edited 1 time in total.
Deal Addict
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Jul 8, 2010
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trekkie500 wrote: How is that 3% interest rate prediction "starting next week" from 2 months ago coming along?

And stress test for renewals?
Why do you assume it is ok to get a mortgage renewal without reviewing your financial exposure based on the current market situation? Lots may have changes in last few years since you got the initial mortgage. If you are saying everything is awesome, what's the problem with stress test? You should be concerned only if you think there is really something smelly there and that may have an overall impact...
Member
Jun 12, 2017
373 posts
377 upvotes
joepipe wrote: All the banks are over 3% for conventional mortgages, thats how its coming along....any more questions?

http://www.rbcroyalbank.com/mortgages/m ... rates.html

Im not saying there will be stress tests for renewals, that is a rumor ....im saying if true that is a massive bomb waiting to blow in this market.....nevermind what
the stress tests on purchases will already do in 2018

this fantasy RE market is done for a long time , if you didnt sell in 2017 spring you will be flat or losing money for years....
All banks? HSBC is offering 2.79:
http://www.hsbc.ca/1/2/personal/borrowi ... loan-rates and I bet you can negotiate lower. I know TD will definitely match that as they matched HSBC for me a few months ago.

As for regulation changes, nothing in B-20 or proposed changes suggests re-assessment. B-20 even explicitly states that re-assessment of risk is to be carried out at the banks discretion and not necessarily at renewal. Just from a logical perspective, there is absolutely no reason for them to do it. How can 100% forced defaults ever be a sensible strategy to mitigate possible X% (where X < 100) defaults?

I do agree with you that the he crazy growth days are gone though, and good riddance to it. I am glad it happened now rather than after a year or more of continued crazy appreciation.
Deal Guru
Feb 22, 2011
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Isostar wrote: Why do you assume it is ok to get a mortgage renewal without reviewing your financial exposure based on the current market situation? Lots may have changes in last few years since you got the initial mortgage. If you are saying everything is awesome, what's the problem with stress test? You should be concerned only if you think there is really something smelly there and that may have an overall impact...
Yes a lot has changed since I bought my rental property I am in the process of renewing. It's now worth 100% more and my interest rate will be much much lower. Oh and the rent I am charging is up over 25%.
Member
Jun 12, 2017
373 posts
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Isostar wrote: Why do you assume it is ok to get a mortgage renewal without reviewing your financial exposure based on the current market situation? Lots may have changes in last few years since you got the initial mortgage. If you are saying everything is awesome, what's the problem with stress test? You should be concerned only if you think there is really something smelly there and that may have an overall impact...
The problem is that the stress test is intended to lower possible defaults and it is a perfectly reasonable solution to doing it *before* a property is bought because at that point there is no risk of loss.

If it is done at renewal time, 100% of those who are below the threshold will be forced to liquidate (at a possible loss) whereas not 100% of may have defaulted. Even if 99% do end up defaulting, it is still a bad strategy because the 1% who could have made it will now be without a home. Stress test at renewal will always have a worse, or at best, equal effect to that of no stress test, so why implement one?
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Jul 8, 2010
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trekkie500 wrote: The problem is that the stress test is intended to lower possible defaults and it is a perfectly reasonable solution to doing it *before* a property is bought because at that point there is no risk of loss.

If it is done at renewal time, 100% of those who are below the threshold will be forced to liquidate (at a possible loss) whereas not 100% of may have defaulted. Even if 99% do end up defaulting, it is still a bad strategy because the 1% who could have made it will now be without a home. Stress test at renewal will always have a worse, or at best, equal effect to that of no stress test, so why implement one?
So the banks should give money, no matter what? Because you are entitled to a house that you can't afford anymore?

See 2 posts above, that is the perfect example for what happened in last 10 years, so why worry for a stress test?!?
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Jul 8, 2010
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rjg4235 wrote: Yes a lot has changed since I bought my rental property I am in the process of renewing. It's now worth 100% more and my interest rate will be much much lower. Oh and the rent I am charging is up over 25%.
And your answer has nothing to do with my post, except pumping RE again and again...

Let me put the question again: If everything is awesome, why the concern of stress testing at renewal?!?
Deal Guru
Feb 22, 2011
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Isostar wrote: And your answer has nothing to do with my post, except pumping RE again and again...

Let me put the question again: If everything is awesome, why the concern of stress testing at renewal?!?
I have no concerns at all, that was my point. Expecting stress test at renewal to have an impact is crazy. People can always extend amortization and drop payments 25-50%. That plus people renewing now from 5 years ago have obscenely higher equity AND almost certainly will get a lower rate.

I couldn't care less if they make this change. Just another pointless measure with no impact or solution to any real problems.
Deal Addict
Dec 21, 2011
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Isostar wrote: And your answer has nothing to do with my post, except pumping RE again and again...

Let me put the question again: If everything is awesome, why the concern of stress testing at renewal?!?

Stress test at renewal would hurt the banks big time, it would be the most foolish thing they could do. Dumbest thing I ever heard.
Member
Jun 12, 2017
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Isostar wrote: So the banks should give money, no matter what? Because you are entitled to a house that you can't afford anymore?

See 2 posts above, that is the perfect example for what happened in last 10 years, so why worry for a stress test?!?
Banks are never required to renew. Banks absolutely have the right to deny renewals today. Heck according to today's standard mortgage terms, banks actually have the right mid-fixed-term to force additional payment or foreclose.

If no one renews, a homeowner has to liquidate. Banks have always had that right and B-20 specifically states/encourages them to periodically re-assess risk (though not necessarily at renewal). Banks don't do it at renewals for the same reason that the Govt. shouldn't enforce it: Why would they do something that guarantees a 100% default when they can renew and risk a (likely significantly) < 100% default?

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