Canadian Mortgage News & Canada's Mortgage Trends

Subprime's Recovery May Take Months

A top mortgage company official we know believes Canada's commercial paper market will not return to normal for at least 3-4 months.  (Non-bank lenders use commercial paper to finance a lot of riskier mortgages.)

By that time, people will hopefully be able to better assess the results of the Montreal Accord and buyers of mortgage-related securities might finally return to the market.

If/when that happens, don't be surprised if Canadian subprime interest rates are noticeably higher.

In recent weeks, some subprime lenders have jacked their rates as much as 2%.

More Canadian Lenders Halt Subprime Products

The snowball is picking up speed.  More Canadian lenders are joining their competitors in discontinuing higher risk subprime mortgages.  This week HSBC and ResMor became the latest to join the trend.

This statement comes from a big lender we work with:

"Commercial paper is practically impossible to sell on the marketplace and sub-prime lenders are shutting their doors. It is getting very difficult for us to encourage investors to take on the added risk of the sub-prime portfolios."

If you have challenged credit, or don't have much to put down on a high-risk property, we again encourage you to contact a good mortgage planner and explore your options NOW.

Mortgage Investors Demand Risk Premiums

Investors are demanding higher rates of return on Canadian mortgage-backed securities.  Here's a great article from MyNext Mortgage's Boris Kogut that explains the repercussions.

According to Kogut, "The commercial paper market, one of the
primary securitization sources of funding for over $30 billion of non-insured Canadian mortgages, has come to a complete
standstill."  Interest rates in this mortgage finance market are up over 1/2% in just a few short weeks.  

What does it mean to homeowners?  Well, for one, Canadians who need "alternative" mortgage products can expect to pay higher rates--at least in the short-term.

In addition, the breadth of subprime Canadian mortgage options available to these borrowers may be limited for a while.

Nevertheless, Kogut says, "Canadian mortgage portfolios
continue to exhibit strong credit performance with relatively low levels of arrears and losses." 

It's still a totally brighter picture up here than it is south of the border.

The Vice is Tightening on Weak Credit Borrowers

It's getting tougher for "credit-challenged" Canadians to get mortgages at decent interest rates.

GMAC Residential Funding of Canada, MCAP Financial and N-Brook have all curtailed or halted lending to home buyers with questionable credit profiles.  In fact, MCAP has suspended it's new subprime products just a few weeks after launching them.

In addition, Xceed--another big subprime lender--has recently been facing challenges of its own in securing capital to loan out.

Much of all this stems from the problems related to Coventree Inc.--which, in turn, stem from the U.S. subprime debacle. 

In short, it's getting harder for non-bank Canadian lenders to obtain money to lend out.  That's because investors--who securitize Canadian mortgages, are growing increasingly risk-adverse (despite there being little evidence of Canadian credit deterioration).

If you need a mortgage and have poor credit, or cannot prove income, there are still options.  However, you may want to be a bit more pro-active in the event the market tightens further.  (Although there is no way of knowing for certain if it will.)

If you have good credit (approximately a 680 Beacon score or above), you have little to worry about for now.  Canada's housing market and economy are still healthy and "A-credit" mortgage rates are holding steady.

Realtor-ese

You rarely see more euphemisms than in real estate ads.   Fraser Beach knows how to cut through it though.  Check out his rather comical translation of Realtor-speak.  (Real Estate Intelligence)

Home Demand to the Moon

The Canadian Real Estate Association (CREA) was a "little" shy on this year's home sales estimates.

In May they forecast that 2007 home sales would rise 3.6% from 2006.  Now, they expect 523,100 homes will sell this year--an 8.1% increase!

As for prices, CREA predicts a jump of 10.4% nationwide in 2007, and 5.5% in 2008.  Price may very well set records in every province this year.

With these kind of numbers homeowners will undoubtedly need more of one thing:  buying power.  Expect demand for long amortizations to continue exploding.

More from the Vancouver Sun...

When Those in the Know Don't Know

Our product knowledge was recently put to the test in a comparison we did on Smith Manoeuvre mortgages.

In cases where we didn't know the answer to a product question we did what mortgage brokers do and contacted the lender's Business Development Manager (BDM).

BDM's are basically salespeople to brokers.  They educate brokers on a lender's products and try to get that broker "on board."

Well, our view of BDM's has now changed.  Not all are created equal.

Accuracy was naturally our prime objective, so we had each lender recheck our data table.  Lender reps were asked to "sign off" on their respective product information.  We thought we were good to go.

Wrong.  As some of our helpful readers noted, a few errors went unnoticed.  In some cases, some of the information provided by BDM's and bank managers was totally off base.  It makes you wonder if some BDM's, especially new ones, spend much time studying their own mortgage products. (Note:  I say "some" because many BDM's are truly exceptional.)

The point is, if a lender's own rep doesn't know their product, who in God's name should?

The underwriters.  That's who.

More and more, they seem to be the most reliable people in the chain of command.  They're the real technical detail experts in many cases.  And they, are who we'll consult on our next mortgage comparison.

When Will Fixed Rates Fall?

5-year bond yields have slid over 1/2% since June 12.   Meanwhile, more lenders are raising their 5-year fixed rates than lowering them!  It's a curious situation that makes you wonder how much lenders' cost of capital has risen because of the recent "credit crunch."

Mortgage Bytes

• Here's another article on how the Bank of Canada is torn between raising rates and not raising rates.  It's amazing how fast things can change.  In July, 13 of 13 major Canadian bond dealers predicted interest rates would increase at the BofC's meeting September 5.  Now 11 of 13 think rates will remain unchanged! (Reuters)
• Traffic on Canadian real estate sites jumped 13% in the past year.  31% of Canadians visited a real estate site during that time.  (Toronto Real Estate Intelligence)
• 37:  The average age of an online mortgage shopper.  (CEG Research)
• Average house prices in various Canadian cities.  (CBC)
• The U.S. feds are talking mortgage bailout and homeowners are starting to sue.  Should Americans be "saved" by their government for signing inappropriate mortgage contracts?  Should they sue?  And should they win?  What say you?
• It was a record quarter for Toronto condos.
• Bravo to Million Dollar Journey on its Telegram coverage!
• There's a business for everything it seems--even mortgage blog writing.  As for CMT, if you want our content, take it--free.  Just link here so we can eat too.  :)

See-Saw Mortgage Rate Speculation

Rates may be going up.  Rates may be going down.  This is the degree of certainty for interest rate predictions in the last two weeks.

The latest crystal gazing comes today from Bloomberg, which quotes ABN Amro as expecting a Bank of Canada rate cut, thanks to benign inflation and credit liquidity concerns.

C.J. Gavsie at BMO, however, adds that, "Traders have started to attach a higher probability to a rate cut this year, but my sense is the bank will stay on hold."

Beata Caranci from TD is more hawkish:  "The central bank could very well return to the table with a [quarter percentage point] rate hike on Oct. 16."

It's worth noting again:  predicting interest rates is almost like playing the horses.  There's a randomness and "house edge" that's near impossible to overcome.  There may be people that can do it consistently well for years, but you almost never hear of them.

The safest bet is always a long-term view, and a mortgage strategy based on that view.