Vancouver Mortgage Broker Responds to OFSI Report Part 1

Cashback mortgages will be eliminated

Right now, I have the ability for clients with good credit and solid provable income to arrange a mortgage that provides people without a full 5% downpayment to receive a “cash back” as a percentage of the mortgage loan from the lender. They pay for this with a much higher interest rate and are obligated to pay it back over the full (usually) 5 year term. They must also qualify at the much higher rate, meaning the payment from the higher interest rate counts against their debt servicing. This ensures that they can afford it, barring some unforseen circumstance such as loss of job or illness.

I do understand the thought behind this, the principle that the borrower should have to bring some token of their own risk into the purchase of a home. However, it again does nothing to really deal with the issue that people will do what needs to be done if they really want to buy a house, and why wouldn’t they? It is considered a dream come true for many people to own their own residence, it is one of the safest, highest returning investments they will ever own and it is an enforced savings program because they are paying it off and building equity in their home.

Further, I have financed people with a downpayment for a house, for example, $25,000 who have $50,000 in unsecured debt, and these people get approved for the mortgage because they are servicing their debt and have 3 months proof of downpayment. The thing that would make sense to many people would be to pay off the unsecured (high interest) loans and then take a cashback mortgage at a lower interest rate to buy. I believe this would be the more responsible thing to do, and better for the client in the long run. However, this will not be possible in the future.

When I was in school, I was taught the principle of the path of least resistance, that electricity will take the shortest route possible to ground. I think it has been noted that the term is also used to basically explain human nature. I do not think that the people making these decisions have ever lived in the real world.

They got their MBA’s, PHDs and are sitting in the ivory towers of academia or government and make decisions that they think solve problems taught in their economics classes, but in reality do not take human nature into account. I am a mortgage broker and the reality I deal with is people want to buy a home and it is my job to do everything within my powers that is legal and honest to make that possible.

They think they are solving a problem, but I will just help my clients work a way around the problem, but it won’t be as ideal as the original solution as it will be more costly due to higher interest charges that the client will incur by keeping the money interest free in their bank accounts while paying 8-20% for 3 months and then call it a downpayment. It is worse for the average person and great for the banks and wealthy. That has been a consistent theme of the government regulations regarding mortgage lending since 2008, and it shows again here.

I had to break this rant into 2 parts as it was getting far too long. Stay tuned for part 2.