Concerned of mortgage professionals are calling on banking regulators to shift their focus away from tightening mortgage lending rules and toward strengthening the underwriting on unsecured debt.
The argument may be loss on the Office of the Superintendent of Financial Services as it prepares to bring in a slew of new, more rigid guidelines for banks and other mortgage providers.
Of immediate concern to brokers is its intention to increase the equity requirements for homeowners seeking HELOC (Home Equity Lines of Credit) – something that could remove that option for Canadians in desperate need of debt consolidation.
“This guideline change (moving the equity minimum from 20 per cent to 35 per cent) would create an artificial crisis by removing the recourse some homeowners now have to consolidating unsecured, high-interest debt into secured, low-interest debt,” said Ad Lakhanpal, an Oakville-based broker with Mortgage Alliance. “Lenders are already asking borrowers questions about what they intend to use HELOC funds for to ensure it’s not being abused.”
The comments jive with those of other brokers reacting to proposed guideline changes now being floated by the Office of the Superintendent of Financial Services. The watchdog wants to lower the maximum loan-to-value of uninsured home equity lines of credit to 65 percent from 80 percent. This will reduce the temptation for the borrower to continue to borrow to the maximum of the home's value, but it will also reduce the ability for individuals to borrow to INVEST.
“The federal government already instituted tougher guidelines for qualifying for HELOCs and lenders already use stricter lending guidelines, including net worth tests, property valuation tests, and credit scoring to ensure that HELOC borrowers are the best of the best,” Gord McCallum, owner of First Foundation Residential Mortgages, told MortgageBrokerNews.ca.
