Wednesday, July 23, 2008

New Rules for Government Backed Mortgages

Although the Canadian real estate market has softened in recent months, its overall condition is nowhere near the current if not worsening plight of the U.S. market. The sub-prime mortgage mess south of the border is the result of lending practices that are not part of the Canadian mortgage landscape and the Government of Canada has annouced further rules to ensure that it never does.
Amongst the new lending measure that will come into effect are:

1.) The maximum amortization period for new government backed mortgages is capped at 35 years.
2.) A minimum down payment of five (5) percent is required for all new government backed mortgages.
3.) A new minimum "consistent" credit score requirement has come into effect along with new loan documentation standards.

While attending a real estate conference in the U.S. where considerable dialogue took place regarding the melt-down of the sub-prime mortgage market, it was learned that in many instances credit checks were not done on borrowers. Even worse, lenders granted mortgages without obtaining verification of the borrower's income. In many instances a borrower simply signed the mortgage application after which the lender filled in the person's income to whatever level was required to secure the desired mortgage amount.
The new regulations come into effect this October and only apply to new mortgages. Private mortgage lenders/insurers are still free to offer mortgages with amortization periods of 40 years and 100% mortgage financing should they so desire however the lack of government backing on these loans will result in higher risk and increased costs to consumers in order to insure these loans.
Through these initiatives, the government intends to ensure that the Canadian housing market remains strong while reducing the risk of a U.S. style housing castastrophy, something for which we will all benefit.

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Rick relocated to Collingwood from Toronto in 1985 through a transfer with Goodyear Canada. In 1987 Rick was recruited by a major client of Goodyear’s, managing their Canadian business based in Barrie before moving to Chicago in 1992 as Vice President of Sales & Marketing. Upon returning to Canada in 1996, Rick ran an industrial products manufacturing company in Stratford, Ontario. In 1998 Rick returned to Collingwood with his two children. Rick is a licensed real estate Broker with Royal LePAGE Locations North in Collingwood and holds his MVA designation (Market Value Appraiser-Residential). He is an active volunteer in the community serving several years on the Board of Directors with the Collingwood Chamber of Commerce as Treasurer, 6 years on the Board of Directors for the Southern Georgian Bay Association of REALTORS® of which he is the Past President (2008) and currently serves on a committee with the Ontario Real Estate Association. Rick is a diverse executive manager with extensive experience in strategic planning, manufacturing, finance, human resources and quality assurance management.