Why are so many documents need for a mortgage approval?
You finally purchase the dream property, and your mortgage broker gets the file approved!
Great, first step of the process out of the way. But wait! The mortgage broker or their bank is asking for too many documents, and you have already provided what you thought would suffice.
“Not so fast Robin” says Bank-man, because your 90 day statement shows 4 large deposits, we need to slow down and ensure those are legitimate transfers. Well, you get the idea.
Anything and everything even slightly out of the ordinary these days make the lenders get their magnifying glass out and dive-in. They even have a Sherlock Holmes unit that does just that.
But why? You may ask.
The real answer is that banks, brokers or any lenders do not want more documents. Like you, they want to get the job done smoothly, in an expedited fashion, and preferably without a mountain of papers they would rather do without.
So, who wants all the endless list of documents? The answer is OSFI (Office of the Superintendent of Financial Institutions), and FSRA (Financial Services Regulatory Authority of Ontario). They are the Federal regulators of the Canadian Banking System
Are they protecting the bank, the broker, or the client? The short and simple answer is not really. Their mandate is to protect the Canadian Banking System, to ensure that the institutions adopt prudent lending practices.
This is the reason why over the last few years we have seen the tightening up of the mortgage rules due to fears of a Banking system failure. Hence the introduction of the stress test along with a more rigid document trail to support an application.
But the real test was during 2008-2009 period when the global financial system collapsed, but the Canadian Banking System came through mostly unbruised. That was when the lending rules and practices were far more lenient than it is today.
Fast forward to today, and we are seeing the fruits of constant tweaking and ratcheting up of the rules, to the point where many consumers are finding themselves moving to alternate lenders, including higher interest rate and fees.
This gradual tightening down of the flow of capital into the market is already causing significant stress in the real estate market, prohibiting many from entering the market or moving up in property.
The real fear is that by trying to slay the imaginary Goliath, David may inadvertently caused a self-inflicted wound, and Canadians will pay for it.
The mortgage default rate is very low, and since their existence CMHC has not been required to open their coffers to bail out the system. We can only hope that the chokehold on the system will lessen in the near future, and the market will be allowed to make adjustments.
As we have stated before, the real issue that needs to be addressed is that there are simply not enough dwellings. So why not have our Governments (both Federal and Provincial) do away with un-necessary bureaucratic red tape to help create the supply that is needed?
Now that is the $64000 question. Until we have addressed this as a nation, the crazy unpredictable markets and the impulsive government rules to stifle the run-away home prices will be a never-ending cycle.
We hope you found this information useful.