OSFI's rule changes will hurt small towns

In a bid to quell rising prices in the Vancouver and Toronto markets, the government may be causing irreparable damage in smaller cities and towns across Canada with mortgage underwriting rules, set to take effect January 1.

Shane Bruce, founder of the ACME Group of Companies, says he’s already transacting fewer mortgages; and the drop isn’t just noticeable in his base of St. John’s, Newfoundland,  it’s apparent throughout the region.

“It’s certainly affected all of the markets,” Bruce told Mortgagebrokernews.ca. “A lot of these changes have just made it more difficult for borrowers to get financing. Supply and demand kicks in; if you have more supply than demand, it drives down prices. It’s been more difficult to maintain mortgage volume compared to past years.”

According to Bruce, the new 200-basis-point stress test has caused some lenders to pull out of the St. John’s marketplace, and he anticipates 2018 being slower than this year because monolines are being torpedoed by the government in favour of the charter banks.

“We maintain most of our business through the monolines, and it looks like they’re going to get affected more than charters,” he said. “We’ve always persevered, but it can get very difficult if more monolines pull out. In the smaller markets, I believe people do get more affected because we don’t have as many lenders as bigger metropolitan areas.”

What Bruce calls a “one-size-fits-all” government policy, primarily intended for the country’s largest cities, is a head scratcher.

“We don’t have a real estate supply problem like Toronto does and we certainly don’t have a growing population, and it seems like that’s what the government is focusing on while ignoring things like unsecured credit and credit card debt. There’s no rhyme or reason.”

“We’ve always found that smaller markets are more susceptible to shocks one way or the other. Just as a percentage of the overall supply in the market, they’re just more susceptible to bigger swings,” said Gordon McCallum, founder, president and CEO of Edmonton-based First Foundation, which operates all over Alberta.

“The rule changes by design depress demand and reduce buying power for consumers. When you depress demand in a small market that already has depressed demand, and there are people who have been trying to get out of that market and sell, it doesn’t do good things for that local market.”

Given the oil sector’s decline in recent years, OSFI’s rule changes come at an inopportune time for Alberta, he added. While the province may welcome government intervention for buoyancy purposes, it’s presently intruding with legislation intended for Canada’s two largest housing markets, and there will be collateral damage.

“The legislation wasn’t intended to slow an out-of-control marketplace in Edmonton or Calgary,” said McCallum. “This is the danger of nation-wide policy for a nation-wide housing market that doesn’t exist: We’re such a diverse place, with unique local markets, that it’s a pretty broad brush to be painting with.”