Government concerned about stated income financing

Government tightens stated income mortgage lending

The Department of Finance tightened lending rules in two sets of changes 2010 and 2011. In a continuing effort to control lending practices, the Office of the Superintendent of Financial Institutions (OFSFI) is increasingly worried about business for self underwriting practices at the country’s big banks. These practices include products targeted at business owners and new immigrants who both may have difficulty showing accurate proof of income. The increased attention and audits by OFSFI has resulted in some banks scaling back or (for the time being) eliminate their current programs.

In the case where a self employed person claims lower net income for tax purposes or where a new immigrant has not established income in Canada – some of the major banks and other lenders would “waive” the income requirement or allow “stated” income with the condition the borrower has good credit and a minimum down payment of 25%-35%. This guideline allowed those with the limited ability to show income to qualify for a mortgage the opportunity to access financing where they might otherwise not qualify based on income.

Earlier this week one major lender stopped access for this program. However, lenders such as TD Bank, Scotia and First National are still offering the program. CIBC also offers this program through the Mortgage Centre brokers only (which is good for me :) There are also other B side lenders with reasonable rates for these kinds of applications.

So – what will happen moving forward. I think we will continue to see rules tightening. For those people who have a unique situation or need a little special care for financing – talk to your independent mortgage professional to review your specific needs and to understand your options.