New government rules put a crimp on mortgage borrowing

The federal government has cracked down on the mortgage industry with new rules that will make it more difficult for consumers to borrow.

One of the key measures the government has introduced is a stipulation that insured mortgage products not have an amortization period that is longer than 35 years.

In the past two years, the amortization period has stretched from 25 years to as much as 40 with some people suggesting a 50-year amortization was soon to come.

Any consumer with less than a 20-per-cent down payment on a home is required to get mortgage insurance if they are borrowing money from a financial institution covered by the Bank Act. The new rules affect those mortgages.

Another key measure being introduced is a requirement that all mortgages have at least a five-per-cent down payment. Competition in the mortgage industry has allowed consumers to put zero money down on a home and still get a competitive rate.

Canadian consumers have actually been borrowing more than 100 per cent of the value of their home. Many financial institutions allow consumers to put closing costs, which include land-transfer fees and legal bills, on their loan. It has led to mortgages that are about 103 per cent of the value of a home.

The government will also require anybody with an insured mortgage product to have a minimum credit score. It is also introducing new loan-documentation standards.

The mortgage-insurance industry is dominated by Canada Mortgage and Housing Corp., a Crown corporation that controls 70 per cent of the market. The other 30 per cent of the market is controlled by Genworth Financial Canada.

New entrants like AIG United Guaranty, a subsidiary of American International Group Inc. or AIG, and PMI Mortgage Insurance Co. have been trying to crack the market.

(Source: Vancouver Province)