The banks will have to sweeten the terms of the “covered” bonds they sell in the market. In the past these bonds, backed by a portfolio of mortgages, had a lot of appeal to investors due to the fact that those mortgages were guaranteed by CMHC and, ultimately, Canadian tax dollars.
With the plan to reduce banks access to portfolio insurance through CMHC for their conventional mortgages, banks are going to have to increase the yield for investors to buy these new bonds that will not contain mortgages backed by guarantees from CMHC. This is going to result in increased rates. Also with these changes there will be a shifting of greater responsibility for bad mortgages back to the banks that originated the mortgage. This will result in the bank tightening up their lending decision in an effort to reduce risk.
As the lending terms of the banks get tighter and banks get pickier on which borrowers they want to offer mortgages, the alternative lending market will gain momentum as more borrowers get pushed further out of the mainstream bank lending comfort zone. It’s currently estimated that banks are rejecting as much as 20 per cent of the mortgage applications they receive because they are no longer insurable by CMHC. This is only going to increase over time.
As an independent Mortgage Broker I deal with a large number of lenders besides the major banks. All of these lenders offer mortgage solutions that go beyond what the traditional banks can offer, and many of these solutions are at rates under 4%. Just because the bank says no to a deal does not mean that the clients cannot find a suitable mortgage at a very attractive rate. Please give me a call or email if you have a client that has been turned down by the bank….I am sure I can find them a mortgage solution whether they are BFS and need stated income or if they are first time home buyers with less than perfect credit.