Thank you, Mr. Chair.
Good morning, ladies and gentlemen.
My name is Mark Kerzner. I am the immediate past chair of the board of Mortgage Professionals Canada. Along with me is Paul Taylor, who is the president and CEO of Mortgage Professionals Canada.
Mortgage Professionals Canada is the national mortgage industry association representing 11,500 individuals and 1,000 companies, including mortgage brokerages, lenders, insurers and industry service providers. Our members make up the largest and most respected network of mortgage professionals in the country, whose interests we represent to government, regulators, media and consumers. Together we are dedicated to maintaining a high standard of industry ethics, consumer protection and best practices.
The mortgage broker channel originates more than 35% of all mortgages in Canada and 55% of mortgages for first-time home buyers. That equates to approximately $80 billion in annual economic activity.
With this diverse and strong membership we are uniquely positioned to speak to the issues impacting all aspects of the mortgage origination process. We are pleased to lend our collective membership's recommendations for how the 2019 federal budget can ensure Canada's competitiveness and help grow the middle class. We have previously provided a written submission outlining nine recommendations that, if implemented, would strengthen the middle class, the Canadian economy, and increase competition within the Canadian mortgage market.
This morning we will outline just some of those recommendations.
First, the government should implement an exemption to the guideline B-20 stress test for mortgage holders who have completed and met their obligations of their original mortgage term and who wish to switch to a different lender upon renewal. Additionally, individuals who need to port their mortgage to a different property should also be exempted if no additional funds are required. We propose that a technical adjustment be made for consumers who have a proven history of credit worthiness evidenced by paying all obligations as agreed through their original mortgage term period, exempting them from stress test qualifications when they port their mortgage or when they renew their mortgage to a different lender.
These individuals are responsible borrowers who have a proven track record, have not accumulated additional mortgage debt and have prudently managed their financial obligations. They are not the high-risk borrowers the government is concerned with. Restricting these individuals from accessing competitive mortgage rates from other lenders at renewal time only serves to ensure more Canadians are paying higher interest carrying costs than they otherwise could be.
The next recommendation is to adjust the November 30, 2016, change to allow for refinances to be included in portfolio insurance up to a 75% loan to value. This adjustment would alleviate some of the competitive disadvantages the recent changes place on many non-bank lenders. With this amendment, which could be made with a simple technical clarification document rather than an official announcement, non-bank lenders would be better positioned to adjust to the other required changes while remaining adequately capitalized. This adjustment would also ensure greater marketplace competition by assisting smaller lenders to fund their mortgages and would positively benefit competition within the mortgage market.
This would only account for a small portion of the recently seen 76% reduction in government-supported portfolio insurance, and would keep intact the integrity of the vast majority of mortgage insurance changes.
The next recommendation is for both insured and uninsured mortgages. It is to decouple the stress test from the posted Bank of Canada rate and instead set it at 75 basis points, or 0.75% above the contract rate. According to calculations conducted by our chief economist, Will Dunning, a 75 basis points stress test achieves an appropriate protection to consumers in the event that rates rise, while not unduly pricing too many consumers out of the marketplace.
It's important that a market-based rate be used to calculate the stress test to ensure the appropriate balance between stability and affordability is found for Canadians. According to our analysis, reducing the stress test to 75 basis points would allow an additional 37,500 Canadian families to qualify for a mortgage each year in today's interest rate environment. Noting that as interest rates rise, as we suspect they may continue to, fewer and fewer people will qualify. Making this minor adjustment to the stress test ensures that the policy intent of the stress test is maintained while improving the competitiveness required to sustain a healthy and robust housing market.