Flaherty to toughen mortgage rules, investment properties targeted

[RobMacdonald]

It is not possible to get a negative TDSR calculation.

Here`s how the banks currently work out your TDSR with an 80% offset.

GDSR (includes rent or PITH for your residence ) + other debt payments
Verfiable income (salary or 2 year avg of Line 150 from NOA) + rental surplus 80% offset

It is possible to have a low TDSR, but not a negative.

The rental offset on the portfolio is calculated on the portfolio alone. If the 80% offset results in a negative number, then is takes away from your annual verifiable income, and increases your TDSR.

 

[fumbrunner]

QUOTE (RobMacdonald @ Feb 23 2010, 12:45 PM) It is not possible to get a negative TDSR calculation.

Here`s how the banks currently work out your TDSR with an 80% offset.

GDSR (includes rent or PITH for your residence ) + other debt payments
Verfiable income (salary or 2 year avg of Line 150 from NOA) + rental surplus 80% offset

It is possible to have a low TDSR, but not a negative.

The rental offset on the portfolio is calculated on the portfolio alone. If the 80% offset results in a negative number, then is takes away from your annual verifiable income, and increases your TDSR.

I was referring to CMHC`s current way of determining TDSR. You can find the calculator here:
http://www.cmhc.gc.ca/en/hoficlincl/moloin...olointo_005.cfm

and the formula here:
http://www.cmhc.gc.ca/en/hoficlincl/moloin...olointo_004.cfm

 

[housingrental]

Hi Rob
I`m not sure if I`m misreading what you`ve written but I don`t follow
If the negative offset is greater that your verifiable income than isn`t it possible to have a negative tdsr?
In what cases will the 50% apply and not apply?

QUOTE (RobMacdonald @ Feb 23 2010, 01:45 PM) It is not possible to get a negative TDSR calculation.

Here`s how the banks currently work out your TDSR with an 80% offset.

GDSR (includes rent or PITH for your residence ) + other debt payments
Verfiable income (salary or 2 year avg of Line 150 from NOA) + rental surplus 80% offset

It is possible to have a low TDSR, but not a negative.

The rental offset on the portfolio is calculated on the portfolio alone. If the 80% offset results in a negative number, then is takes away from your annual verifiable income, and increases your TDSR.

 

[RobMacdonald]

QUOTE (housingrental @ Feb 24 2010, 09:40 AM) Hi Rob
I`m not sure if I`m misreading what you`ve written but I don`t follow
If the negative offset is greater that your verifiable income than isn`t it possible to have a negative tdsr?
In what cases will the 50% apply and not apply?

The 80% offset applies against the rental portfolio. It`s really difficult to have a `standard` way of calculating becuase each lender treats the income differently. Some follow CMCH to a `t`, some add in or take away other expenses based on their own risk policies.

The general rule that I follow when consulting a client is to use the 80% offset on the portfolio alone. If the result is positive, then add the figure to the monthly income. If the result is negative, then add that figure to the monthly debts.

The 50% addback rule will apply to any mortgage applicaiton that requires mortgage insurance. So if you`re buying a new principal residence and want to put less than 20% down, then lender must follow the 50% addback rule with CMHC. The other place where this will apply will be with any MBC lender in the market, like Street, Merix, Mortgage Point. So any lender that requires `back end` insurance on their mortgage portfolio must follow the CMHC guidelines. So if you own rental properties, and want financing on either another rental or a residence, these lenders will have to follow the new CMHC guidelines and use the 50% addback.

The result: If you own rental properties, there will be less lenders available that you will be able to get financing from. Even as it stands today, once you get 3 or more properties, your options are pretty much limited to the major banks anyway.

 

[leoduan]

really bad news

 

[housingrental]

Thanks Rob

 

[Thomas Beyer]

QUOTE (RobMacdonald @ Feb 24 2010, 12:16 PM) The 80% offset applies against the rental portfolio...

The 50% addback rule will apply ..
enlighten the audience please re "offset"

is this off the GROSS rent, the NET RENT (after expenses) and/or before or after mortgage payments ?

 

[Nir]

QUOTE (ThomasBeyer @ Feb 25 2010, 09:19 PM) enlighten the audience please re "offset"

is this off the GROSS rent, the NET RENT (after expenses) and/or before or after mortgage payments ?

Hi Thomas, I believe by "80% offset", Rob referred to 80% of the gross rent.

The following formula was copied from CMHC website:

As you can see, 80% of the gross rent offsets the debts. that is why it is called 80% offset.

Regards, Neil

 

[DaveL]

Will Genworth have to follow CMHC or will they still allow for 5% down. I can`t find anything on them on the web with regards to the changes.

 

[kickman]

I think some are jumping at shadow`s Ink hasen`t even made it to paper sort to speak, besides he stated At the press conference Flaherty drew a distinction between rental properties purchased by investors and the strictly unoccupied properties or units that the new rules apparently target. "We`re not aiming at investment properties. So, if a business, or individuals, want to buy an apartment building, or a duplex or something, and they are in the business of renting apartments, that`s fine," Flaherty said. "They can insure that business because that`s a good thing for Canadians. We need a supply of rental housing."

Flaherty also elaborated on his concerns about the "tendency" of real estate speculators to purchase multiple condominium units they do not intend to live in.

"I don`t know how that serves the Canadian people, how it serves the purpose of affordable housing and why the government should insure mortgages like that," said Flaherty. "So that`s something that was happening -- is happening -- in the marketplace that we would like to curb."

 

[RobMacdonald]

QUOTE (ThomasBeyer @ Feb 25 2010, 10:19 PM) enlighten the audience please re "offset"

is this off the GROSS rent, the NET RENT (after expenses) and/or before or after mortgage payments ?

Yes, the offset, or the addback for that matter, are calculated off the gross rent.

 

[RobMacdonald]

QUOTE (DaveL @ Feb 28 2010, 04:42 PM) Will Genworth have to follow CMHC or will they still allow for 5% down. I can`t find anything on them on the web with regards to the changes.
Genworth will have to follow the new rules. Here`s a recent article from `Mortgage Broker News`.


Genworth involved in mortgage rule changes
| Tuesday, 23 February 2010

Although there has been confusion over whether the new mortgage rules imposed by the federal government last week would affect only CMHC-backed mortgages, Genworth Financial Canada has said the new rules will also apply to mortgages it insures.

"We were involved heavily in the consultation process for the new criteria changes," said Genworth president Peter Vukanovich in an interview with CMP. "We don`t feel there is any housing bubble, but we think it`s important to maintain a safe and stable market and we think we played a role in ensuring underwriting processes are indicative of a prime-quality loan."

Vukanovich went on to say that because Genworth Financial Canada is backed by the government, the company is affected by the new rules.

Both Genworth Financial Canada and AIG United Guaranty have a 90 per cent federal government guarantee.

 

[kanabel]

QUOTE (kickman @ Mar 1 2010, 06:09 PM) I think some are jumping at shadow`s Ink hasen`t even made it to paper sort to speak, besides he stated At the press conference Flaherty drew a distinction between rental properties purchased by investors and the strictly unoccupied properties or units that the new rules apparently target. "We`re not aiming at investment properties. So, if a business, or individuals, want to buy an apartment building, or a duplex or something, and they are in the business of renting apartments, that`s fine," Flaherty said. "They can insure that business because that`s a good thing for Canadians. We need a supply of rental housing."

HOW is he (Flaherty) going to distinguish between speculation and investment (less than 6 units!)? Any magic wand? Please explain

Dejan