Um, What?

The only thing I know about 2024 is it just seems to get weirder and weirder as the year goes on. I guess it is hard to predict what a government on the edge of losing power can do?

No one, and I honestly mean no one, had the recent mortgage changes on their 2024 Bingo card. I mean, how could you? It is like they are taking ideas, putting them on a wall, and throwing darts to see what the new policies will be? The entire future of the Canadian mortgage market depends on who threw the dart, and where it landed. Sounds like the government plans housing policy like some people plan vacations – throw a dart, see where it lands, and go!!

As we should all be aware, the rule changes will now allow a current homeowner to refinance to 90% to add a rental suite or a laneway house. 6 months ago we needed restraint and prudence, but now we can refi to 90%. Why not? Of course, like every other change in the rules, we will see a lot of ins and outs, and special rules, and special categories. You will need a PhD. in government BS in order to navigate all of the rules. Governments will have to ensure that the exceptions will help the largest voting block in their region.

Now, I am not sure who was screaming at the top of their lungs we needed 90% refi’s? I do know that for the better part of a decade we have been screaming, begging, and pleading for things like getting rid of mortgage fraud, implementing common sense underwriting guidelines, and some changes to the stress test that make sense. But all of those calls have gone unanswered. I guess making sure we have robust fraud systems in place doesn’t win elections? It seems to me like the mortgage market is being run by Rick Harrison from Pawn Stars:

“Can we get mortgage income verification rules?”

“Best I can do is 30 year amortizations”

Let’s put aside that the smartest and loudest personalities in the business have been showing an easy solution to implement mortgage fraud protections. Let’s forget that mortgage income fraud has been a very large contributor to the run away housing problem. And let’s also not even bring up the fact the the USA has had a system in place for decades to stop mortgage fraud, and have a direct link with the IRS. All the Canadian government had to do was basically Copy and Paste. But, of course, as we all know, if we were to easily implement a mortgage fraud detection system, it may lead to house prices going down – and heaven forbid we have that. Housing only going up is about as sacrosanct in Canada as the 2nd amendment is in the US.

As these new rules roll out, we will now switch our fraud sensor from the income verification part of the mortgage, and have to move it on to the property. Now, I am not suggesting that contractors, and builders would in any way help perpetuate fraud, but anyone who has been around the business long enough knows that this is going to be a ticking time bomb. We will now have the BBB index. Now this doesn’t stand for the ‘Better Business Bureau’, but rather the ‘Brampton Basement Building” index. The amount of fraud, misrepresentations, and issues coming out of the GTA will be beyond anything we have ever seen. Funds will be getting refinanced out of houses at the speed of light. Of course, fraud will reign supreme and we will not see the end completed rental units that the program was supposed to bring. I prognosticate that the speed of which homes go from owner occ at closing to rental in order to refinance to 90% will be about 8 hours. Oddly enough, people will now be incentivized to claim the property as a rental. For the last 2 decades it was trying to make it NOT look like a rental. Now we do a 180, and we will see record amount of people claiming property as income properties.

Of course, this won’t be the last change we see, and of course, every change seems to somehow require it to be insured or insurable, thus taking risk off the books of the major banks. I am sure all the banks are breathing a sigh of relief. I know if I had billions and billions of real estate on my books that was dropping by the day, and a rule change came along that allowed me to “refinance” that debt onto the government liabilities side of the ledger, I would do it at the drop of a hat. I may, as the bank, even overlook some minor details, like, oh, I don’t know, but is the rental suite actually being built? Are the funds we dispersed actually going to the intended purpose, or is it buying new cars, paying off other debts, etc.? I am sure in the next 24 months we will see appraisal fraud ramp up. I am sure we will see a lot of stat dec’s that are nothing but works of fiction.

As we go along, I have no doubt the announcements will get wilder. I am confident any future changes will make even less sense as we see a government on the edge throwing everything, including the kitchen sink at the problem. Somehow, any changes will really only have an impact for areas like the GTA or the GVA – the areas that they need the votes from the worst. One thing I do know for sure though – housing can’t go down, or the government goes with it. This will ensure that all the stops are pulled out – good ones or not, to try everything they can think up in a late night bar, to try and stop the housing decline.

If bond yields keep increasing – even as Tiff and Co. drop overnight rates, and try to talk down the yield curve, then the government will have to keep trying new things to keep the property market going. If 2024 has taught us anything it should be that we really know nothing. Rates are trucking back up, you can refinance to 90% LTV, and the insurable value on these is now 2 million dollars. Nothing makes any sense any more.