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The latest in mortgage news: The head of OSFI applauded the efforts of lenders to reduce the length of amortization

The head of Canada’s banking regulator says he’s encouraged by the progress Canadian lenders have made in shortening mortgage lending times across their lending institutions.

As the pandemic continues, mortgage originations have increased by more than 40 percent compared to pre-pandemic levels, with many borrowers taking out subprime mortgages that come with fixed payments.

As interest rates rose, so did the interest component of those payments, in many cases reaching a tipping point that ate into the borrower’s monthly payment, and amortization periods of more than 35 years in many cases.

But last week, Peter Routledge, head of the Office of the Superintendent of Financial Institutions (OSFI), reported that banks have made good progress in bringing those costs down to their original levels.

He noted that federally regulated lenders now have approximately $220 billion in loans with amortization periods exceeding 35 years, down 27% from nearly $300 billion at their peak.

“Despite that risk, I’m amazed at how Canadians and their lenders continue to manage it,” Routledge said during a speech at the National Bank of Canada’s financial services conference. “That’s a good sign and I’m encouraged by that.”

Routledge’s words reflect a more optimistic view compared to previous comments he made where he intended to pay a variable tax on housing products and the risk OSFI says it poses to the financial system.

In his November testimony before the Senate Standing Committee on Banking, Routledge expressed serious concern about the price of variable-rate mortgage products, describing it as “dangerous.” He suggested that the market would benefit from a decrease in the growth of this type of mortgage.

Of Canada’s Big 6 banks, RBC, TD, BMO and CIBC offer variable rate mortgages, although RBC does not allow negative financing. As we reported in first quarter earnings, banks saw periods of cost reductions continue to be typical of the past year.

For example, RBC reported that the percentage of mortgages with maturities over 35 years fell to 20% of its portfolio from a peak of 26%. Similarly, BMO said its share of extended financing fell to 24.7%, down from about 33% a year ago.

Government budget measures aimed at helping renters become home owners

Last week, Prime Minister Justin Trudeau unveiled several plans in the upcoming federal budget aimed at making home ownership more affordable for renters.

This includes:

  • Employer Defense Fund: A $15 million allocation aimed at strengthening legal aid and advocacy for employers, strengthening employers’ rights and access to justice.
  • Canadian Employers’ Bill of Rights: An initiative that seeks to establish common employment practices across Canada, ensuring fair treatment and clear rights for employers.
  • Making rent a credit score: Amendments to the Canadian Mortgage Charter designed to recognize rental payment history as part of a credit score, potentially easing the path to mortgage eligibility for renters. (More on that here)

The initial response to these measures has been overwhelmingly positive, including from Mortgage Professionals Canada.

“The MPC is pleased to see that the federal government has heeded our recommendations to facilitate access to home ownership,” the email to members said. “While much work remains to be done, these measures represent an important step in the right direction, making homeownership easier for Gen Z, Millennials, and younger Canadians with less credit history.”

In its statement, the Canadian Bankers Association said it is working with the government to explore new ways to serve Canadians and will assess the impact of the new measures as more information is revealed.

94% of entrepreneurs say that housing is the biggest threat to the economy

An overwhelming majority (94%) of business leaders believe housing is the biggest risk to the economy, says a new survey from KPMG.

Another 81% of Canadian business leaders say that the high cost of housing and the lack of resources are hindering their ability to attract and retain talent.

“Young and young Canadians are being shut out from shopping and finding employment scarce and expensive,” Caroline Charest, an economist and Montreal-based partner at KPMG, said in a statement. “Those who were able to enter the market a few years ago due to record low interest rates now face the risk of defaulting on their tax payments when their rates are restructured to more than three times what they are paying now.”

Charest adds that this is “a big concern for business leaders who are struggling to attract and retain key workers and talent,” especially in urban areas with housing shortages and high housing costs.

The survey found that business leaders want to see new solutions to solve the housing crisis, as 89% believe that public-private partnerships will be needed.

Some 85% of leaders believe the government needs to introduce “new payment tax measures” to help homeowners facing payment shocks when they renew to avoid an increase in defaults.

Last minute exemption for filing blank tax returns

Just days before the 2023 tax filing deadline for bare trusts, the Canada Revenue Agency announced a freeze on reporting requirements amid confusion over the new rules.

“Recognizing that the new reporting requirements for bare trusts have had an unintended impact on Canadians, the Canada Revenue Agency will not require bare trusts to file a T3 … for the 2023 tax year, unless the CRA makes a specific request to do so added,” the tax agency said in a statement.

Bare trusts, not specifically defined under the Income Tax Act, are a type of trust where the trustee manages the property or assets of the beneficiary without additional duties, powers or obligations. The trustee’s role is to hold title to the property, but all rights and obligations of ownership are exercised by the beneficiary.

As part of the newly announced federal tax (UHT), which imposes a 1% annual tax on foreign-owned residential property that is considered underutilized or vacant, Canadians who own property through partnerships or trusts may be required to file a UHT tax return to obtain an exemption from paying the tax .

The CRA said it will “work with the Department of Finance to continue to clarify its guidance on this filing requirement” and that it will contact Canadians “as more information becomes available.”

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