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New Mortgage Rules Positive for Canadian Banks: Moody’s Investor Service

10 February, 2011 / by Bryan Jaskolka

The debate over Canadians’ mounting household debt has gone
on for a while now, with the government as well as financial experts agreeing
that measures must be introduced to curb debt. With this in mind, the
government recently announced new mortgage rules.

The maximum amortization for new mortgages will see a drop
from 35 years to 30 years (effective March 18, 2011). Canadians looking to
refinance their mortgages will now be able to refinance up to 85% of their home
value from a previous 90%. Finally, the government will not back HELOCs (home
equity lines of credit) moving forward.

In a report,
Moody’s Investor Service said that in their entirety, the measures put forward
by the government are positive for Canadian banks. As the exposure of banks to
consumer debt has risen rapidly over the last few years, the new rules will
contribute to the stability of Canada’s
financial system.

Senior VP of Moody’s Peter Nerby said that the country’s
banks hold high quality capital. He added that it was important to consider
many risk measures such as stress testing to evaluate the adequacy of banks’
capital. Mr. Nerby also said that such measures have been put forth to prevent
risk layering that had a role to play in the poor state of the United States
mortgage market and asset quality of US banks.

On a different note, the new rules spell opportunities for
Canadian borrowers. According to some industry experts, the number of specialty
lenders offering second
mortgages
and uninsured refinances of up to 90% can grow, though the rates
charged can be expected to be higher.

 

          

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