November 2012

We are pleased to advise that a newsletter will be posted during the first week of each month.

Our newsletters will report on a wide variety of financial, tax, estate planning, investment and insurance related topics which we determine will be of interest and value to our clients and readers.

Our subject matter this month is focused on the amended regulations for residential mortgages.

As a direct result of poorly regulated mortgage lending practice in the United States, resulting with the subsequent financial crises, Office of Superintendent of Financial Institutions, (OSFI), the regulator to all Canadian Financial Institutions , has created a new set of guidelines to be adhered to by institutional lenders.

These new regulations will subject these lenders to more scrutiny and will no doubt place more emphasis on due diligence practices.

We outline herein some of those guidelines.

Lenders must assess and satisfy itself as to a borrower’s capacity to service the proposed debt obligation.

Lenders must ensure that property values have been confirmed by an independent third party appraiser(We recently had one case where two where requested).

Borrowers may be required to disclose copy of bank statements, tax returns and additional data to confirm individual qualification for applied mortgage loan.

Borrowers may not extend the amortization period beyond 25 years.

The above, and other restrictions now being imposed upon lenders will obviously necessitate the borrower to a greater element of disclosure, which, after all, is the purpose of the exercise. These restrictions will certainly make it more difficult for Canadians (especially first time home buyers) to obtain mortgages which will almost assuredly have a negative impact on the Canadian housing market. Any significant tailspin in the housing market usually has a negative impact on the economy as a whole. We hope for a “soft landing” in this instance, but can’t help but wonder if the government, in an attempt to avoid what happened in the US, is actually helping make it a reality in our country.

As always, we invite your questions.