Mortgage Rates & Mortgage Broker News in Canada

Debt Service Ratios Easing

Certain lenders have slowly been loosening their debt service requirements.  That's making it easier to qualify for a mortgage.

Here's why...

Lenders have long relied on two standard measures of one's "ability to pay": 

Gross Debt Service (GDS): The percentage of the borrower’s income that is needed to make all payments for costs associated with housing.

Total Debt Service (TDS):  The percentage of the borrower’s income that is needed to cover housing costs (GDS) plus any other loans that an individual has, such as credit cards and car payments.

The acceptable ratios for both have generally been 32% and 40% respectively.

Now, various lenders are dropping GDS requirements altogether and bumping their acceptable TDS ratios up to 44%.  On an exception basis, clients are sometimes approved with TDS ratios of 46% or more.

If you've got a big enough down payment, at least one lender will even waive their GDS/TDS requirements completely.

It's all a product of competition, and competition is getting fierce in the mortgage biz.

Sources:  Chronicle Herald, CAAMP

BMO Mortgage Share Drops

Canada's mortgage market will grow 11-15% in 2007.

BMO, however, continues to lose market share.  In fact, BMO's banking division has had "strong asset growth in all business lines except mortgages."

In the 4th quarter that just passed, the bank lost 1.36% of market share (versus last year). 

They lost share in the 3rd quarter as well.  That leaves Canada's oldest bank with just 12.17% of the mortgage market.

Year-over-year, BMO's mortgage assets are down 17%.

The losses are largely a result of closing their mortgage broker channel.  That's been an experiment that's yet to bear fruit.  It's also one that BMO's competitors and investors are watching rather closely.

BMO continues to predict that market share gains will follow...once it hires and trains it's "specialized" in-house sales force.  We'll see!

Mortgage Bytes II

• 80% of Canadians expect to retire in debt says Desjardins Financial.  A lot of it will be mortgage debt. 
• 90% say they are deeper in debt than five years ago.
• This Ohio ruling sets a surprising mortgage precedent
• By 2012, online real estate ad spending will exceed ad dollars spent in newspapers.
• Canada's newest mortgage lender, Street Capital, plans to serve both the prime and subprime markets primarily through the broker channel.
• Virgin has launched a new P2P mortgage lending service in the U.S.  They plan to "manage" mortgages between family members, service vendor take back mortgages, and facilitate reverse mortgages.  The company has no current plans to offer the service in Canada.
• Xceed Mortgage has eliminated its rate premiums for refinances, extended amortizations, and high-LTV owner-occupied condos.  Xceed, formerly a subprime lender, is now also getting into prime mortgages (at very competitive rates).  It's an effort to bolster their business--which took a hit when subprime mortgage funding dried up this summer.
• Ontario brokers will need to meet provincial educational requirements next year. FSCO is allowing conditional licenses, though, for brokers who agree to complete this education by 2010.

Mortgage Bytes

• Toronto is North America's "condo king," outselling New York in condos 2-1.  Bidding wars are "becoming common."  The scary part is that 60-85% of buyers may be investors--a trait overly reminiscent of the 1989 market peak.  Last year the ratio was 30-50%.  Nonetheless, CBC tells us to, "relax."  Well OK.
• Doom of the day:  "We haven't faced a [U.S. economic] downturn like this since the Depression," says Bill Gross, chief investment officer of Pimco, the world's biggest bond fund.
• New home buyers only need to pay 5% GST--even if they buy before year end.
• Reliant Home Mortgage is restructuring and may be back in business by month end.  Our question is, will they bring back their 55-year mortgage? ?
• TD is jumping on the bandwagon BMO started.  TD is now also offering to pay the land transfer tax for mortgage customers buying in Toronto.  TD's offer ends later than BMO's:  March 21, 2008.  You'll need to lock into a 5 to 7-year term to qualify. This deal is available through mortgage planners or TD branches.
• Bankers are rushing to meet the Dec. 14 deadline to restructure Canada's commercial paper market.
• The Province says there's no credit crunch in Canada.  They mustn't be reading the papers, or watching Canadian mortgage spreads, or subprime lender pullouts, or credit crunch writedowns.  ATB, for example, just announced a $79 million charge--part of $1.9 billion in big bank credit-related charges in the 4th quarter.

"Right Mortgage" Debuts

Mortgage Alliance has launched it's new à la carte "Right Mortgage."

Customers can choose various mortgage options from a menu that includes:

• Different rate hold periods
• Pre-payment privileges
• Payment frequencies
• Amortization periods
• A "Skip-a-payment" option

Mortgage Alliance agents then price the mortgage based on the client's choices.  Presumably, the more "features" you get, the more you pay, and vice versa.

From an objective business standpoint, this product is brilliant marketing for two reasons: 

#1)  For a stripped-down product (i.e. a mortgage with no perks), Mortgage Alliance's rates reportedly compete head-on with the deep discounters.  With this type of ammunition, they can now entice clients in the door and upsell them.

If a client want's pre-payment privileges for example, Mortgage Alliance can add this as a "premium" feature and instantly show the client how much more it will cost.

#2)  This kind of product is key to attracting smart mortgage agents looking to switch firms.  More and more, top talent will demand proprietary products.  It gives them an edge.  That's why Mortgage Architects has it's MyNext mortgages and why Mortgage Centre covets its PC Financial products. 

Incidentally, MortgageBrokers.com was rumoured to have it's own line of mortgages planned as well, but they were reportedly shelved due to "market conditions."

Expect more brokers to offer similar exclusive "white labeled" products in the future (once Canada's credit crunch isn't so crunchy.)

Tal: Stay "on the Sideline"

"Interest rates in Canada will remain stable in the near-term," says CIBC's Senior Economist Benjamin Tal, "with a real possibility of a rate cut in the coming months."

Tal goes on to suggest that "being on the sideline (say by taking a variable rate mortgage) for the next few months is not a bad idea."

He says, "The likelihood that both the prime rate and bond yields will rise during that period is low, and there is a real likelihood that they might be somewhat lower, either via a Bank of Canada rate cut or some easing in spreads."

(Via:  FirstLine)

Mortgage Rate Spreads Explode

We're in one of the most unusual mortgage periods in recent history.

You might have noticed that lenders have all been lowering their rates lately, but only by peanuts (0.05% to 0.10%). 

Meanwhile, 5-year bond yields (on which most fixed mortgage rates are based) have plummeted to 3.75%.  That's almost the lowest they've been in two years!

It's a paradox explained by fear. 

Thanks to the U.S. subprime crisis, the quality of most non-government debt has been brought into question.  As we noted last week, this has led to an abnormal risk premium being built into mortgage lending.

As a result, lenders are being forced to pay skittish investors more for the mortgage capital they lend to you and me.  How much more?  A lot more.  The most since the recession of 1980-81!

The chart below shows mortgage spreads since 1980.  The spread shown is the average 5-year posted mortgage rate minus the 5-year bond yield. 

Today's spread is 3.62.  The typical spread since 2000 has been 2.50.

When comparing discounted mortgage rates versus the 5-year bond, the spread is even wider--over 2%!

Incidentally, the last few times mortgage spreads were this wide our economy went into recession.

Lets also not forget that variable rate spreads and "swap rates" (swaps are used by lenders to switch fixed-rate mortgage payments to variable rate payments) are, or have recently been, at multi-year extremes.

When will things return to normal?  It could be several quarters say some industry observers.  For one thing, the fear is being stoked by U.S mortgage defaults, and those might not peak until the spring.

Second, home sales are still booming in many parts of Canada.  Mortgage demand is therefore "extraordinarily good," says TD's David Fallon, and "continues to defy gravity." 

Scotiabank's Aron Gamel says, "If we are going to see rate relief on the mortgage side, it will come later rather than sooner, and that means probably some time in the late winter or early spring of 2008 at the earliest."
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Ed. Note:  We'd like to thank the Bank of Canada for the rate data used in this story.

MortgageBrokers.com's Earnings

Industry observers have been following MortgageBrokers.com ever since it launched in 2005.  It's one of the only pure-play publicly traded mortgage brokers, and it happens to be a Canadian one.

As a result, the company's latest earnings release was much anticipated.  Shareholders had hoped the company would post good results, given it's recent signings of new agents around the country.  A lot of people also expected its earnings to re-invigorate the company's stock price--which has been wading around $0.35 - $0.40 for six months.

Alas, MortgageBrokers.com's earnings were released last week.  They announced a $1,060,000 loss.  The stock is still at $0.36 today.

In SEC filings the company also disclosed:

• It is "suspending its current expansion plans into the U.S. mortgage market until such time that the full economic effect of the sub-prime lending is known." 
• "The Company's current Canadian operations did not perform as well as expected due to the slower than expected ramp up of the Company's newly recruited mortgage agents."

On the upside, the company did post it's best quarterly revenues ever:  $3.8 million.  We'll see if it can keep its expenses under control and post a profit in its next report (scheduled for late February 2008).

Subprime Explained

Here's a rather insightful analysis of America's subprime situation.  (tongue far in cheek)

BMO Land Transfer Tax Promotion

BMO is one of the more creative mortgage marketers.  In their latest bag of tricks they've pulled out a nifty tax incentive.

If you get a 5+ year fixed mortgage on a Toronto property, and close by February 29, 2008, BMO will pay your land transfer tax (up to a maximum of 1.5% of your mortgage amount).

On a $400,000 house, that would save you $3,725.

For buyers rushing to avoid Toronto's new tax by December 31, 2007, this gives them another option.

Here's the fine print:

• To qualify (according to 680 News) you apparently have to do your primary banking at BMO, or switch to BMO. 
• It remains to be seen if BMO's interest rates will be competitive during this offer. The Toronto Sun quotes the interest rate as a "special promotion" rate of 6.38%.  (Rates are currently under 6% at most non-bank lenders.)
• Since Toronto's land transfer tax doesn't take effect until February 1, 2008, this deal mainly applies to people who close in the month of February.
• BMO will pay a maximum of $15,000 in tax.

One more thing to remember:  If you're a first-time buyer you'll pay no land transfer tax on the first $400,000 of home value.  BMO will reportedly pay your tax anyway in this case, and let you keep the rebate.

Ed.:  Read the comments below for further opinions.

Rate Cut Speculation

A week or so ago most people thought the Bank of Canada would keep rates unchanged for a while.

Things can change fast.

Many now feel the Bank of Canada may soon need to cut rates to keep our economy growing.

Why?  Well, the BoC's David Dodge says risks to the world economy are more serious today than one month ago.  Dodge says he'll need to take this "into account" at upcoming interest rate meetings. 

In addition, our economy is increasingly being weighed down by a strong Canadian dollar.  1/3 of Canada's GDP is based on exports to the U.S., and it's got 16% more expensive for Americans to buy our products since Jan. 1, 2007.

J.P. Morgan economist Ted Carmichael says, “We now expect that the Bank of Canada will need to cut its policy rate by 25 basis points on each of its next four decision dates through April."  If he's right, rates could drop 1% by next spring.  A more consensus view is probably 1/4% to 1/2%.

Despite the worry, some still feel that consumer spending, demand for our raw materials, and a strong housing market might offset the global weakness threatening Canada's economy.  If so, rates will likely stay put.

Whatever the case, almost everyone can now agree that there is no longer any urgency to lock in mortgage rates.

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Upcoming BoC Interest Rate Meetings:

• December 4, 2007
• January 22, 2007
• March 4, 2007

The Debt Monster

21% of Canadians have between $20,000 and $200,000 of non-mortgage debt. 

28% don't even know the interest rate of their most-used credit card.

If this sounds like you, and you have over 20% equity in your home, debt consolidation may be worth a look.  A line of credit at or near prime rate (currently 6.25%) can often do the trick.  In some cases, though, it makes more sense to refinance your whole mortgage.

If you're curious about your options, let a professional mortgage planner analyze your credit profile and see what's right for you.

Partial Source:  CTV.ca

U.S. Mortgages for Canadians

The American real estate meltdown is no news to most Canadians.  Neither is the soaring loonie.  The two have combined to make U.S. real estate temptingly attractive.

News stories of U.S. condos going for 50 cents on the dollar can get your juices flowing.  The question is, as a Canadian, can you get a mortgage?

The answer is yes.

Chase Brodsky, a Florida mortgage advisor at LynxBanc, says getting a mortgage is straightforward for most Canadians.  "Typically you'll need 25% down," says Brodsky. 

You need no proof of income and you don't need to prove where your down payment came from.  You don't even need a credit check.  According to Brodsky, all you basically need is a completed application, photo ID, a U.S. bank account, and proof of available funds.  Naturally, the property appraisal must be also consistent with your purchase price.

If the "numbers make sense," LynxBanc says Canadians can generally close on U.S. property financing in about 45 days.

For more information about getting a mortgage on a U.S. property, including closing costs and interest rates, simply email us.

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Side bar:  Before you scrounge up a down payment keep in mind that real estate prices in parts of the U.S. may get worse before they get better.  For example, as of yesterday, CME futures traders were predicting that Miami home prices will sink another 12% in the next 12 months.  This U.S. rate reset chart helps explain why.  As millions of teaser mortgage rates reset, a lot more inventory will likely hit the U.S. market as borrowers can't afford their new (higher) mortgage payments.  When will it end?

Mortgage Rates Come Down

Several lenders dropped their 5-year fixed mortgage rates this week by 0.05% to 0.10%.  That's thanks to falling bond yields, which are hovering near 7-month lows. 

It's a little surprising rates aren't lower, however.  Last time bond yields were this low, posted 5-year fixed rates were 0.75% lower than they are today. 

In addition to the typical slowness in which lenders lower rates, today's higher rates are also reflective of ongoing subprime concerns.  The credit market is still building an abnormal amount of risk premium into mortgage rates.

Mortgage Bytes

• 20% of Canadian mortgage consumers are unaware of mortgage brokers and the services they provide.  CMHC 2007 Housing Observer
• A new electronic market started today for commercial paper.  It's something that could potentially add liquidity for the paper, and theoretically lower interest rates on certain mortgages.  So far trading is slow, but that's not unusual for a new trading market.  Prior to its crash a few months back, commercial paper was widely used by certain non-bank lenders to finance mortgages.
• GMAC has completed its purchase of ResMor
• U.S. brokers are threatened by a new bill
• Million Dollar Journey has another great article on investing in 2nd mortgages.
• Xceed is recognizing a $17-$20 million loss on its future mortgage profits.

MGIC Canada Coming Soon

From 1995-2006 Canada had only two mortgage insurers.  By next year the 6th will be on their way, U.S.-based MGIC.

MGIC Canada will offer "a unique alternative to business as usual" in the Canadian mortgage default insurance market, according to the company.

MGIC applied with the federal government this summer and is expected to launch sometime in 2008. 

Mortgage default insurance is something that's required of most borrowers with less than 20% down.  That encompasses roughly 1/2 of all Canadian mortgagors.  This stat has helped make Canada the 2nd largest, and one of the most profitable, mortgage insurance markets in the world.

As a result, insurers have been clamoring lately to hang up a shingle and grab their piece of the pie.  The resulting benefits to borrowers are more choice in mortgages, lower insurance fees, and easier qualification standards (although some would term that a risk instead of a benefit).

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Side Bar:  Reuters' article (linked to above) states that Canada "doesn't allow" teaser rates.  Teaser rates are short-term rate discounts designed to lure in borrowers.

In fact, Canada does allow teaser rates.  The difference, however, is that borrowers are qualified on the higher "reset" rate instead of the lower teaser rate. 

Qualifying homeowners on the lower teaser rate is what caused much of the U.S. subprime trouble.

HSBC Variable Rate Promotion

HSBC is running a special rate promotion until November 17, 2007.  For 5-year variable mortgages their rate is prime minus 1.00%. 

This is much better than you'll find almost anywhere else.  But, you'll need 20% down and decent credit.  To qualify you must apply at the branch.

CAAMP Mortgage Statistics

81% of Canadians are happy with their mortgage says the Canadian Association of Accredited Mortgage Professionals (CAAMP).

CAAMP's findings are based on their annual mortgage survey.  Here's more of what they found:

• 43% of Canadians consulted a mortgage broker when arranging a new mortgage.  Overall, 28% of homeowners with mortgages used brokers.
• The average broker discount from bank posted rates was 1.31%.
• Low rates are typically the most important element of satisfaction, but 58% of Canadians cited improved payment options and more flexible mortgage terms as additional key factors.
• Only 13% of those who renewed or refinanced changed lenders.  This implies that many homeowners are paying more interest than necessary by not shopping around.
• 37% of mortgage takers in the last year chose long-term amortizations (30, 35, or 40-years).
• 3/4's of Canadians know about America's subprime crisis but only 9% are "highly concerned" about it.
• 4.8 million Canadian home owners have mortgages.  Canada has 8.8 million owner-occupied homes.
• 72% of mortgage takers chose fixed rates.
• Mortgage credit is accelerating.  It grew 6.9% a year for the past 15 years, but 11.4% over the past two years.
• Ontario accounts for 41.6% of Canada's mortgage market.
• In the last 12 months, 17% of mortgage holders took out home equity loans or increased their mortgage.  The average equity loan was $35,400.
• Canadian mortgage arrears were 0.50% in the 1990s and just 0.25% in the past two years.
  

Source:  CAAMP's Annual State of the Residential Mortgage Market in Canada report.

Merix HELOC Get's Better

Merix's HELOC is one of the more popular readvanceable mortgages.  Now Merix has improved it:

• Maximum loan-to-value has increased from 90 to 95%.
• It's now easier to qualify with 40-year Ams.
• The mortgage segment can be split into multiple portions, each with their own term, rate type, and amortization. 

For example, you could have a $100,000 mortgage with four portions to hedge rate risk and maximize interest savings when you can't afford a straight 25-year Am.:

• $20,000 5-year fixed with 25-year Am.
• $20,000 5-year variable with 30-year Am.
• $30,000 1-year fixed with 40-year Am.
• $30,000 3-year variable with 35-year Am.

Since every dollar of principal you pay down is added to your available line of credit, Merix's HELOC is well suited for:

• Self-employed borrowers that need a backup cash source
• Investors that need a readvanceable mortgage with a variable rate
• Anyone who wants the security of a line of credit for unexpected expenses, education costs, etc.

CMP Magazine Coverage

We'd like to thank Canadian Mortgage Professional (CMP) for their recent coverage of Canadian Mortgage Trends.

CMP is Canada's top independent magazine for mortgage professionals and it's an honour to be included in their publication.