Relaxed Mortgage Rules in 2019?

Stuart Levings, President and CEO, Genworth Canada

Those who think the government went overboard on mortgage tightening may have a glimmer of hope.

In a presentation Wednesday, Stuart Levings, head of Canada’s largest private default insurer, Genworth Canada, said the company will be urging policy-makers to improve housing access, particularly for younger homeowners.

“The only reason we think there’s an opportunity is because it’s an election year,” and millennials (a huge block of voters) demand better housing access, he said.

He was careful to add, “We don’t want to suggest things that would look like [the government] made a mistake [with mortgage policy] because there will be zero appetite for that.”

Instead, Genworth is suggesting these tweaks:

• Creating housing supply incentives
  • Critical given that the stress test created more demand for “entry-level” homes, he explained
• Capping the stress test rate (which he called “the biggest opportunity…in 2019”)
  • Left as is, the current stress test could “overdo it,” in a rising rate environment, said Levings
• Allowing insured borrowers to access 30-year amortizations
  • This used to be allowed, until Ottawa made 25 years the maximum in 2012.
  • Levings positioned this proposal as a “welcome” one-time “relief” measure to improve affordability for first-time buyers. He conceded that the benefit of longer amortizations would not persist, however, as the market eventually adjusts to such policy.

Levings said the industry as a whole is largely in support of these proposals.

His proposals follow comments by CMHC’s CEO last month, where Evan Siddall speculated on:

• Limiting the stress test rate
  • In our view, this change is a near certainty given enough time, and it’s not the first time a federal agency has discussed it.
• Increasing the maximum home value allowed when a mortgage is default insured.
  • Currently, the maximum home value to qualify or default insurance is $999,999.99, well below average single-family prices in our biggest cities.

Policy Outlook

In short, there’s a chance we’ll see one or more mortgage policies loosen up in 2019. At the very least, the odds of further significant policy tightening have dropped—save for in the HELOC market.

Offsetting looser credit in 2019/2020 are potential mortgage insurance premium increases. Genworth hinted that this is a possibility next year due to recent regulatory capital changes. (As if default insurers didn’t charge enough already.)

Meanwhile, Genworth stated its “risk of loss has diminished dramatically.” So essentially, the government is encouraging insurers to make lower-risk borrowers pay more—an insurer’s dream, but a consumer letdown.

Sidebar: According to Genworth, from 2007 to 2018, a whopping 83% of default-insured borrowers (largely first-time buyers) chose 5-year fixed rates. That’s despite all the research supporting floating rates. Only 16% chose a variable rate and a piddly 2% chose a 1-, 2-, 3- or 4-year fixed.