In July of this year the final step in controlling mortgages by CMHC and the Office of the Superintendent of Financial Institutions (OSFI) will come into effect. So what does that mean for the consumer in today’s markets?
Effective July 1, lenders will no longer be able to directly place insured mortgages in non-CMHC approved securities. Lenders who rely on asset-backed commercial paper (ABCP), which include a few of the top non-bank broker-channel lenders, will have to find another way to sell their mortgages.
That’s a problem for these lenders. Normal securitization, like NHA MBS, require lenders to assemble $2+ million pools of mortgages that are very similar in character, in that they would all need to be 5 yr terms and mature within a certain date. Currently those pooled mortgages would have a variety of certain features giving the mortgage company the ability to take in some poorer credit score debt than they would normally.
ABCP wasn’t as restrictive. It helped key broker-channel lenders sell off different and odd types of prime mortgages more easily and therefore be more cost effective. There are a few ways around the program but in all it ends up costing the lenders more money. As we all know in any business when more money is needed it eventually comes from the end user which in this case is the Canadian mortgage consumer.
So if you are considering buying a home in the near future it would be prudent on your part to get at the very least a rate locked in with your mortgage broker. Of course if you are buying then you will want to do it sooner than later as the savings exist now may not exist in 60 days. Also the effect on smaller lenders will most likely be that there will be less product offered through the non-bank lender and you may see some of the offering only 3 and 5 year products.