The 2023 federal budget’s discussion of housing affordability largely focused on previously announced housing and housing affordability measures. There was one new housing measure: an additional $4 billion over seven years, starting in 2024-2025, for Indigenous Housing. Some other measures, while less immediate, will be of interest to mortgage brokers.
1. Lowering the criminal rate of interest
The federal government intends to amend the Criminal Code to lower the criminal rate of interest to 35% annual percentage rate (APR), and to conduct consultations on whether the criminal rate of interest should be further lowered.
While this would not appear to have an impact on housing finance, this provision may affect bridge loan financing. When there is a gap between the closing date of a new property purchase and the sale of an existing property, lenders may offer bridge financing. When the bridge loan is structured with a fee, and the bridge is for a short period of time and for smaller loan amounts, the equivalent APR can get above 50%, even though the fee on an absolute basis isn’t that large. Brokers should understand how these bridge loans are being calculated and look for lenders to make changes to their loan agreements to be compliant with the Criminal Code.
2. Disaster insurance
Generally, home insurance policies do not cover events such as earthquakes, landslides, or floods. The government is looking to address the gaps in natural disaster insurance protection by providing funding to set up a low-cost flood insurance program aimed at protecting those at high risk of flooding and without adequate insurance coverage. The government is also looking at solutions for earthquake insurance. This is expected to be a multi-year effort.
This may improve lending options in flood prone areas, but it could take years before we see any concrete developments.
3. Code of conduct to protect Canadians with existing mortgages
The government announced that it was taking steps to ensure that federally-regulated financial institutions (FRFIs) provide existing mortgage holders with fair and equitable access to relief measures. These measures include extended amortization periods, adjusted payment schedules and lump-sum payments. This will require coordination with the frameworks already in place with default mortgage insurers.
In addition to this announcement, the Financial Consumer Agency of Canada (FCAC) issued a proposed guideline on existing mortgage loans for consumers vulnerable to mortgage delinquency. The guidelines lay out three principles that FRFI’s must follow: fairness, appropriateness and accessibility. FCAC expects FRFIs to monitor their borrowers and identify those who might show early signs of mortgage hardship. Lenders will be expected to record, track and report on the relief measures.
4. Changes to the funding of the CMB program
The Canada Housing Bonds Program (CMB) funds around $40 billion of insured single and multifamily mortgages each year. These bonds are issued from Canada Housing Trust (CHT), a special purpose entity created by the Canada Housing and Mortgage Corporation (CMHC). The government is proposing to fund this program directly, as its inclusion in the government’s debt program could reduce funding costs. 5-year CMBs are the bulk of the issuance and currently trade around 30 basis points wider than 5-year Canada bonds. Historically, 5-year CMBs have traded with a spread as low as 6 basis points to 5-year Canada bonds. Directly funding this program could represent a potential annual savings of $120 million at a 30 basis point spread, or $24 million at a 6 basis point spread. The intent is to “reinvest savings into important affordable housing programs.” The government will be consulting on the possible program changes. For brokers, it will be important for the government to ensure that creating financing for affordable housing is not at the expense of housing affordability for Canadians.
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