Mortgage refinancing drops under new rules: CMHC

Tara Perkins

Globe and Mail Update

Last updated Monday, Aug. 29, 2011 11:02AM EDT

Canada Mortgage and Housing Corp. says that it has seen mortgage refinance activity drop nearly 40 per cent since Ottawa brought in new rules.

The crown corporation, which must now issue quarterly financial results as a result of a new law, issued its second-quarter results on Monday and they include insight into how Canada’s housing industry is faring.

CMHC said that refinance activity fell by almost 40 per cent and has continued to remain around that level since Finance Minister Jim Flaherty made changes to the mortgage insurance rules earlier this year. One of those rules was to reduce the maximum amount that Canadians can borrow in refinancing their mortgages from 90 per cent to 85 per cent of the value of their homes. That rule kicked in on March 18.

Among the other rule changes, Mr. Flaherty cut the maximum term of new mortgages where the home-buyer’s down-payment was less than 20 per cent from 35 years to 30 years.

CMHC said Monday that after the rules took effect purchases of CMHC homeowner mortgage insurance initially fell by about 10 per cent, and by the end of June was still about five per cent below the level of sales before the rule changes.

But CMHC’s profits still rose by $61-million or 19 per cent, to $383-million, for the three months ended June 30 thanks to earnings from mortgage-backed securities, gains from selling financial instruments, and lower expenses.