Mortgage Rates & Mortgage Broker News in Canada

Bank Turn Down Referrals

We're hearing sporadic cases of banks giving their turn-down business to subprime lenders--without the client knowing that another lender is working on their deal.

The banks may get "finders fees" for sending declined customers to partner lenders, but there is a downside for the homeowner.  The rates, terms, and choices offered by the bank's "partner" lenders will often be worse than if the client instead consulted a mortgage planner after getting turned down.

Keep this in mind if you're declined by a bank and get another offer from an affiliated lender.

CAAMP Expo Notes

Here's a smattering of new product news from this week's annual CAAMP Expo in Toronto.

• CHIP is now offering an annuity payment option on its reverse mortgages.  That way borrowers don't have to take a lump sum at closing (and pay interest on money they don't use).
• Peoples Trust is launching a subprime readvanceable mortgage in the spring (for borrowers with weak credit)
• Solidifi will soon let mortgage brokers rate appraisers
• InContact will roll out an online version of it's client management software, called Nexa, in "early 2008."  At last, it will synchronize client data automatically.  No longer will brokers need to manually import client updates from Expert.  Unfortunately, the price is increasing 75% to $69.99 a month.
• ING Direct plans to offer 100% financing in Q1
• Abode Mortgage is going live in Ontario and plans to launch a 1-year subprime mortgage "soon"
• Desjardins just rolled out its new equity lending products
• InterBay is starting its "InterBay Academy" in January 2008 to train brokers on its products
• ResMor now offers 120-day rate holds
• Street Capital is launching "A-credit" products in early 2008

CAAMP Expo 2007

The Canadian Association of Accredited Mortgage Professionals Conference & Expo is now over. 

The event is the Canadian mortgage industry's biggest annual convention and a place where mortgage brokers come to learn about lenders and network. 

The show was fun and informative as usual.  Here's what we liked about the Expo itself:

• It's "one-stop shopping" for mortgage product information (a big time saver)
• It's a convenient way to cultivate relationships in person with all the lenders (good relationships get hard deals done)
• Sunday Expo hours (some brokers find it hard to take off weekdays)
• High-quality give-aways and written materials (including Filogix's/CAAMP's tote bag and PMI Canada's leather portfolio)

In the spirit of constructive feedback, we would have liked to see:

• An Exhibits-only ticket (Charging people $683-$948 just to walk around the convention hall is excessive. Not everyone wants to attend the sessions and events.)
• More new product announcements (few exhibitors had anything groundbreaking to announce at the show)
• More mortgage-specific seminars (practical seminars on mortgage origination and marketing techniques would have been nice)
• Longer Expo hours on Sunday (Some people can only attend on Sunday and four hours isn't always enough)

Overall, however, we commend CAAMP on another entertaining and well-run show.  We look forward to next year's Expo in Vancouver.

Prime Rate Falls to 6%

The Bank of Canada gave mortgage shoppers an early Christmas present today.  They lowered their target lending rate, and by default prime rate, by 1/4%.

It was a surprise to most surveyed economists who expected no change at the BoC's meeting today.  It's also the first BoC rate cut in over 3 1/2 years, and a reversal of the bank's July rate hike.

Based on the average Canadian home price of $308,214, the 1/4% cut will save a new mortgagor $46 a month on a variable-rate mortgage.*

Fixed-rates should hopefully fall soon as well given that 5-year bond yields are at a new 2-year low of 3.66%.

The Bank's reasons for cutting rates included subprime-related "difficulties," weakening exports, and lower than expected inflation.

The BoC gave few hints of it's next move, to be announced at its January 22, 2008 rate meeting.  However, they did say "there has been a shift to the downside in the balance of risks" to inflation through 2009. 

Lower inflation typically means lower interest rates.

____________________________________________________

* With 0% down, 25-year amortization, and 6% interest.

Benjamin Tal on Mortgage Rates

CIBC's noted economist, Benjamin Tal, spoke at CAAMP's annual Mortgage Conference today.  He offered several perspectives and prognostications.  Among them:

• He predicts December (this month) will be the peak of U.S. mortgage rate resets. 

(A rate reset is when a homeowner's promotional mortgage rate is replaced with a much higher "normal" rate. Promo [aka.  teaser] rates were widely used in the U.S. and were a key contributor to the subprime crisis.)

• U.S. resets will continue in large numbers until at least Q3 2008.
• He calls 2006 the "worst [mortgage] underwriting year in American history."
• 40% of homeowners who took out mortgages in 2006 will have negative equity (owe more than their house is worth) by the end of 2008
• The average rate reset on U.S. mortgages is a whopping 4% higher than the promotional rate!
• 55% of U.S. subprime defaults are in just 5 cities.

How will all of this affect Canada?  Tal says:

• There's no longer much correlation between U.S. and Canadian real GDP growth.
• As such, there's been "no sign of a [housing] slowdown in Canada"
• Canada's housing market is stable because "we did not play [games] with exotic and risky mortgages."
• We'll move from a sellers' market to a "balanced" market by mid-to-late 2008.

Where are Canadian mortgage rates headed?  Tal says:

• If Alberta were a country they'd need to raise their interest rates to tame inflation.
• If Ontario were a country they'd need to lower interest rates to spur growth.
• The Bank of Canada is starting to realize that it's "time to pay attention to this disparity." (We can assure you the BoC is already watching this closely.)
• The Bank of Canada "cannot justify to raise interest rates" on a national level--presently at least.
• Homeowners should therefore be "safe with variable mortgages" for 6-8 months.
• Inflation will likely start rising in 1-3 years, however, bringing mortgage rates up with it.

Rental Property Overload

With today's new rental programs it's tempting, and much easier, to accumulate income properties quickly.  That sometimes has a downside though, as this Globe & Mail piece illustrates. 

Picking up rental properties with zero down can seem like easy money.  Unless you have adequate cash reserves, however, it's a roll of the dice.  What happens if you're overleveraged and barely covering carrying costs, and then the furnace dies, or you have uninsured water damage, or you get a prolonged vacancy?

Worse yet, what happens if property values decline, your personal finances deteriorate, and you're in a negative amortization scenario (i.e. you owe more than the rental is worth)? 

Tools like CMHC's new 100% financing program are a boon to prudent investors.  Unless you plan for the worst, however, overexposure to rental real estate can be your undoing.

Talk to a mortgage planner openly about your ability to carry multiple properties.  A good planner will help you create contingency plans if your real estate investments don't pan out.

CAAMP Expo Starts Sunday

Canada's biggest mortgage trade show starts tomorrow.  That's where we'll be, hunting down the latest and greatest mortgages and reporting back on Monday.

Lenders sometimes wait until this annual show to launch new products so hopefully there will be lots to report!