Residential Mortgage Underwriting Practices and Procedures
Stricter mortgage considerations are on the horizon as The Financial Stability Board (FSB) released the final version of guidelines for Underwriting practices and procedures, affecting all of Canada’s banking institutions and federal regulated lenders. These Canadian guidelines were broken down into five specific principles for managing risk with residential mortgage Underwriting and acquisition of residential mortgage loan assets.
What are Underwriting Guidelines?
For those of you who aren’t a mortgage broker and don’t plan on becoming one, here’s Underwriting Guidelines spelled out for you. These guidelines help select your loan options when buying or refinancing a house.
When you are ready to start the mortgage loan process, your loan officer will dig up all the qualifying information such as income, savings, credit history, debt and debt vs. income ratio. What gets tricky is, each lending institution has their own set of guidelines that rank your ability to make on-time loan payments. The published document sets out to make these Underwriting Guidelines more consistent across the board, including details that tighten lending regulations for the entire industry.
With changes such as these we can assume some concern and outrage from affected insiders. Since the document wasn’t made for light reading, with 18 fully packed pages, I decided to give you the Cliff Notes version. These regulations will begin later this year, giving you the opportunity to keep up to speed with all the new policies rolling out.
What you need to know
- Shopping around for the lowest mortgage rate might be a thing of the past. Part of the new policies include discontinuing 100% financing and replacing it with a 5% cash back mortgage.
- Get used to more frequent credit checks, which will be performed not just at the beginning of the mortgage process.
- Lenders will be using the five year fixed contract rate or Bank Posted rate when qualifying for variable or conventional rate products. This could make it difficult for some customers to qualify.
- Home Equity Lines of Credit will become limited to 65% loan to value, which is a major decline from 80% loan to value in place now.
The Big Picture
Why all these changes? Is there any evidence to back up all these new government regulations? The answers at this point are inconclusive. These new regulations attempt to combat a potential housing market crash. Basically the government wants to put a kibosh on getting mortgages with $0 in the bank.
What are your thoughts?
Too much mortgage jargon? Get clarification on the new mortgage guidelines, call me.
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