Genworth already using potential new mortgage rule
The federal government is considering a new mortgage rule where clients who take out variable rate mortgages must be qualified based on a higher interest rate, according to the Globe and Mail - a practice Genworth Financial already has in place.
"We're approving people at [a rate of] about four per cent now," said Peter Vukanovich, Genworth president and COO, at a recent Finance Summit that was telecast to select groups across the country. He said the measure would prevent mass foreclosures were rates to go up a few per cent, but "if rates go up from two to five or six per cent, then it's that pay shock that might affect more people."
The Globe and Mail, which has been following the government's discussions around mortgage rules closely, said although Finance Minister Jim Flaherty is being urged by some senior banking officials to raise down payment requirements and shorten amortization, qualifying variable-rate borrowers at a higher rate would be a less extreme and more politically favourable option.
It's also something broker Mark Herman suggested in a story here, and while some banks already qualify borrowers on this basis, government rules would be a method of standardization across financial institutions.There is a general weariness towards the government becoming to actively involved in regulating a way out of a potential bubble, and this could be seen as a middle of the road option.
"The pendulum will swing to over-regulation [of the mortgage industry]," said Vukanovich. "It's something we need to watch for."