HELOC LTVs Could Drop From 80% to 65%

[james99]

There's a good chance we might see new restrictions on HELOCs, possibly within the year.

Last week, Canada’s top banking regulator Julie Dickson explained why to BNN:

[jshel101]

This is a good idea. People are using these way too much and treating their houses like banks.

[hugh]

This is crazy. What consenting adults do with their money (and what they do in their bedrooms) is none of the government's business!

Banks and private credit agencies should decide a customer's credit worthiness not the Harper government.

From the article

HELOCs present no taxpayer risk because they’re not backed by the government. They also impose minimal insolvency risk to banks, to the extent that borrowers are well-qualified and maintain 20%+ equity.

If someone defaults on a HELOC then the banks take the borrowers house and they lose a bit of cash. Is the Harper Government protecting Banks from their own stupidity?

What next, is the government going to start deciding what my credit card limit should be?

[Jake]

It’s not a coincidence then that OSFI’s proposed guidelines talk about using the 5-year posted rate to qualify a much broader range of borrowers.

I don't understand. Are they saying they want more people to qualify? Are these the same people who can't qualify under today's guidelines?

[james99]

The 5 year rate is currently being used now for people to qualify. So, in other words you're paying a lower interest rate but the banks are using the higher 5 year rate for you to qualify.

What doesn't make sense to me is how the government can say you can only borrow 65% for a heloc but 80% for a mortgage. The customer is pledging the same security.

[Jake]

Maybe it is for people who would over "leverage" their heloc that traditionally would not rack up traditional debt (i.e. mortgage, CC, car loans).

[james99]

Any move to increase minimum equity requirements for HELOCs could block vulnerable clients from consolidating debt and remaining in their homes, said an agent, also concerned those changes fail to address unsecured credit.

[Bunkhouse]

This is crazy. What consenting adults do with their money (and what they do in their bedrooms) is none of the government's business!

Banks and private credit agencies should decide a customer's credit worthiness not the Harper government.

The big issue is that the Federal Government is guarenteeing most of that risk through CMHC (which utlimately means taxpayers will foot the bill). CMHC is appreaching it's limit of $600 Billion of high risk guarenteed mortgages from the banks.

Households with HELOCs are rising in debt levels as they spend whatever equity they gain on the market value and this is a dangerous trend.

Also people can still get 100%+ financing on home purchaes, plus some banks offer cash back of 5-7%, so you can buy a house and use that cash back to cover your mortage payments for the first year and a half without a dime out of your pocket. Market price goes up and everyone's a winner.

The best couse would be to stop CMHC but this would mean a hard market crash as banks would refuse to lend to anyone without a 25%+ downpayment (or more depending on the market) which.

The whole lending market in Canada is a scarey mess as lending standards have significantly deteriorated since 2007 to encourage consumers to borrow and spend to stimulate our economy. Banks lend irresponsibly and have been dumping all risk on CMHC, and enjoying risk free profits. The people end up with record high debt levels and are servicing them at historically low interest rates. We need massive changes ASAP but the government doesn't want to be seen to be at fault for the consequences of correcting their mistakes.

http://www.bloomberg.com/news/2012-0...te-canada.html

[hugh]

Again from the article.

HELOCs present no taxpayer risk because they’re not backed by the government. They also impose minimal insolvency risk to banks, to the extent that borrowers are well-qualified and maintain 20%+ equity.

The Harper government needs to get the hell out of deciding who should and shouldn't get credit. If they are concerned about the solvency of banks then they should raise reserve requirements.

If the Harper Government has a problem with the CMHC and how its run then it should shut it down or severely limit its lending practices NOT tell individuals how they can spend their money.

[james99]

Most HELOCs are not being used to purchase a house.

The customer usually owns his house with or without an existing mortgage attached to it.

HELOCs are between the customer and the bank. If the HELOC goes poof then the bank takes the hit.

The Canadian banking system has a good worldwide reputation that it(OSFI) wants to maintain. I can only assume that the government is afraid of a housing bubble and people will walk away from their house if the value of the house is less than the HELOC.

This leads to the question, why not reduce the LTV for mortgages?

[jokeDR]

Good idea, but too late to save housing. They probably should have showed the same concern before they encouraged the debt bubble by allowing 40 year mortgages, "cash back" mortgages, and stated income mortgages. All this at the same time as historically low emergency interest rate policy.

Canadians have been spending like drunken sailors on the back of cheap debt.

The reckoning has started and there is no stopping the consequences now.

[jokeDR]

Originally Posted by james99

This leads to the question, why not reduce the LTV for mortgages?

If I understand correctly, that is also being proposed.