The rumor mills are buzzing.  Global News and other media outlets are reporting some new details on the new First-Time Buyer Incentive, also referred to as an Equity Participation Mortgage.  What is being discussed by the media is mostly the same information as was disclosed in the budget.

CMHC has just released some details found here.  The program is expected to be ready to receive Incentive applications starting September 2, 2019. If approved for the Incentive, the purchase transaction must close on or after November 1, 2019.

The First-Time Buyer Incentive (what we know so far)

• The government will provide an equity participating mortgage of up to 5 % for an existing house and up to 10 % for a new construction home.
• No interest or principal reduction payments required on the participating mortgage portion.
• Can be repaid early, no details on the mechanics.
• Must be repaid within 25 years.
• When the house is sold the government will participate in the increase in value, or decrease,  proportionately with the initial participating mortgage granted.
• Maximum purchase price is $480,000.
• Maximum family income is $120,000.

The Good

• First time buyers will have slightly lower mortgage payments, with likely interest savings of up to $60 to $120 per month ( depends upon the amount, new or used house, and interest rates.)

The Bad

• The Home Buyer will have the Federal Government as a partner in the ownership of their property through a participating mortgage.  Read that twice.
• The total home purchase price the borrower qualifies for under this program is less than if the borrower does not use it, because there are different qualifying guidelines.
• The Government will, if the home eventually goes up in value, recoup an equity dividend, the repayment could turn out to be more than what mortgage interest would work out to be, especially if we eventually see a strong rebound in our depressed Alberta markets.

The Unknown (Possible Risks to the Borrower)

• The program has been announced and promoted without any details on how it will be managed whenever life offers changing circumstances for the homeowners.
• Perhaps the participating mortgage will have no rights except passive acceptance of whatever 5 % is paid to the government.
• What about a private deal with a family member or friend or investor over a “gifted or provided down payment”?  Is that allowed, what documentation will be accepted.
• Who will determine what are allowable capital expenses? What documentation does the homeowner have to provide for maintenance and upgrades and renovations? What bureaucracy is going to administer any dispute over costs? What costs are legitimate?
• Does the government want 5% of the gross lift or will maintenance, operating or capital expenses factor?  What about real estate fees, legal fees, closing costs? What if the homeowner operates an illegal suite? What if the homeowner has an encroachment argument with a neighbor or with the city?  Will the government as mortgage holder have for a voice in any dispute before a court?

The Editorial 

• Since the government became convinced that the bureaucrats know how to underwrite mortgages, hundreds of thousands of deserving Canadians are being denied access to mortgage liquidity.
• Let bankers be bankers, and let the government bureaucrats provide high level oversight.  Mortgage underwriting should be an industry derived process, not a government dictated and controlled approval.
• Every month at Jencor we see hundreds of people denied access to a mortgage.  Most of whom would have qualified for that requested mortgage before the Stress Test was implemented.
• If the government wants to incentivize first time home purchase activity, they could simply make mortgage access reasonable.  Instead we get an intrusive program costing taxpayers $1.3 Billion dollars over the next 3 years.

Watch for our updates on this when the government announces program details.