Residential mortgage defaults - those homeowners three months or more in arrears on their mortgage payment -was already falling before the federal government tightened mortgage lending rules last summer, according to a Canada Mortgage and Housing Corporation (CMHC) report.
As of June, 2012, just before tighter federal lending rules came into effect, the default rate had fallen to 0.36 per cent, the lowest level in at least 11 years, and down from 0.42 per cent a year earlier, CMHC reports in its 2012 Canadian Housing Observer.
"The government went too far with a blanket change to mortgage lending," suggested Kyle Green manager of mortgage broker Mortgage Alliance of Vancouver, "[the changes] painted everyone with the same brush,"
Green said small real estate investors have been hit particularly hard under the changes, which raise the downpayment on residential investments, such as a second home bought as a rental investment, to 20 per cent and capped the amortization rate at 25 years. "Many investors with good credit ratings suddenly could not qualify," he said.
Those buying a personal residence may still qualify with a 5 per cent downpayment, if they are buying a home priced at under $1 million.
Green said up to half of the residential investment mortgage applications he handled in the month after the new rules came into effect were declined, though volume did recover within 90 days.
The purported reason for the mortgage changes, which impact only high-ratio insured mortgages, was to slow residential mortgage credit, which reached a record of more than $1.2 trillion in Canada in 2012. CMHC notes that the average Canadian homeowner now has a 44 per cent equity stake in their home.
