Canadian Mortgage News & Canada's Mortgage Trends

Mortgage Bytes

• The U.S. Federal Reserve has cut interest rates 1.25% in the previous 8 days. That's almost unheard of.  Moreover, they're suggesting further rate cuts may be needed. Meanwhile, U.S. core inflation isn't exactly tame at 2.7%. That's got some economists uttering the fearsome S-word (stagflation).
• As for us up in Canada, RBC expects "five-year fixed mortgages to drift about 1/2% to 3/4% lower through 2008." 
• TD predicts a 1/2% Bank of Canada cut March 4 followed by a 1/4% cut April 22. Bloomberg's 17-economist survey predicts a 3/4% rate reduction by June.
• 5.89 must be a magic number. A slew of non-bank lenders are now bunched together at 5.89% on 5-yr fixed mortgages.  Most brokers are now quoting this as their best rate but there are lower rates to be had.
• 2007 was the worst year for affordability in BC since RBC started tracking it in 1985. Expect improvement in 2008 they say.
• "A household moving from Vancouver to Winnipeg would save nearly $1,000,000 in purchase and mortgage costs for a median-priced house." CTV
• RBC says 85-90% of its first-time BC buyers are choosing 40-year amortizations.  But what about all that extra interest?  John Zieman of Mortgage Depot says, "Nobody goes into a 40-year mortgage with the intention of paying it off in 40 years."
• This new page from FSCO tallies mortgage broker complaints in Ontario. From July to September 2007 it shows only 13 complaints--not bad for tens of thousands of deals. 17 letters of caution were issued to brokers and only one Ontario broker was investigated for violating the Mortgage Brokers Act.
• Over 1% of U.S. homeowners were in foreclosure in 2007, up 75% from 2006. Meanwhile, U.S. home prices dropped in 2007 for the first time in 40 years.
• The Muslim Canadian Congress feels Sharia mortgages are a sham. They say "Islamic banking is nothing more than an attempt by Islamists...to scare Muslim Canadians into believing that they should pay more...and demand less in return, as an act of religiosity."
• Many Vancouverites are renting out suites illegally to help pay their mortgage.

Xceed Trims Uninsured Products

Xceed has made big cuts to its alternative lending offerings.  According to a company email, the mostly-subprime lender will no longer offer the following uninsured mortgages:

• 100% financing (Xceed’s new maximum uninsured loan-to-value is 95%)
• Variable and adjustable rate mortgages
• Absence of Credit solutions
• 1 & 7 year terms

It seems, as one industry executive told us, that no subprime lender's business model is safe in this environment.  There's just very little profit and funding right now to support higher risk mortgages.

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Seperately, Xceed is lowering rates on some of its remaining three and five-year uninsured products by 40-60 basis points "across the board."

MCAP's FlexStar Shelved

Much to our surprise, MCAP has pulled its outstanding FlexStar mortgage from the market.

In a statement today, MCAP said:

FlexStar has generated excellent activity for us and acceptance of the product has been increasing. Unfortunately, FlexStar has not met our expectations in terms of its overall profitability and we have therefore made the difficult decision to withdraw it from the Canadian market temporarily.

The company says it expects to bring back FlexStar "to the market as soon as possible" and existing client commitments will be honoured.

It's disappointing news because the product is so new and has features no other mortgage has.  Perhaps it was "too" flexible to be securitized (resold to investors) at good returns.  If so, there's a chance FlexStar will be stripped of some features when it returns to the marketplace. 

The other questions is, how long will MCAP take to work out the kinks.  A lot of times when lenders pull products they don't come back for a very long time.  Hopefully that doesn't apply in this case.

FirstLine Matrix to Go Variable

We're hearing that FirstLine's popular Matrix mortgage will finally get a variable rate option.  The ETA is supposedly late May.

Clients have been asking for this for months--probably because of all the information on the Internet pushing variables.  As a result, this new option should significantly increase the Matrix's popularity (assuming FirstLine discounts it sufficiently).

Accredited Home Lenders Finished

According to a contact at the company, Accredited Home Lenders has ceased operations permanently in Canada.  Apparently it was effective Friday and supposedly everyone has been laid off.

Their website seems to have been taken down as well.

Accredited Home Lenders Canada was a subsidiary of U.S.-based Accredited Home Lenders Holding Co.  The company specialized in Alt-A and subprime mortgages and billed itself as the "common sense" lender.

Mortgage Bytes

• Most lenders have now moved under 6% on their best 5-year fixed rates.  There's still a way to go, however, before fixed rates return to their normal 1.10% spread over 5-year bond yields.  5-year yields are currently at 3.47%.
• Bankers Acceptance rates (which impact variable mortgage rates) have fallen from 4.70+% in December to just above 4% today.  That's the lowest they've been since April 2006.
• 60 Minutes shows how Americans are increasingly leaving their keys on their lender's doorsteps.  Howe St. Article
• Banks may start heavily scrutinizing powers of attorneys thanks to a recent court decision.
• Core inflation is at a 2-year low.  That enhances the odds of a March rate reduction by the Bank of Canada.
• Stewart Hall, market strategist at HSBC Canada agrees.  He says, "I don't think anyone in Canada is particularly worried about inflation getting in the way of a March rate cut."
• Canadian home resales will remain near record levels in 2008 says CREA.
• The Bank of Canada might lower rates 1/4% to 1/2% on March 4 says TD Securities' economist Eric Lascelles.
• Moshe Milvesky, author of Canada's best known interest rate study, says banks would probably lower variable-rate discounts instead of holding up their prime rates.
• AIG has relaxed the approval requirements of their new immigrant program.  AIG Announcement
• AIG has also increased the maximum loan-to-value on their rental property program to 95%.  95% can't touch CMHC's 100% financing program, however.  Now we're waiting to see if Genworth also ups their income property LTV.  Currently Genworth is at 90% but insurers have been following the pack pretty closely in terms of pricing and features.  AIG Announcement

Xceed Update

Subprime lender Xceed Mortgage lost $4.5 million in 2007, despite its volume increasing 30.6%. The company's biggest challenge might be finding low-cost sources of funding.  The ABCP market is still frozen so Xceed has had to rely on it's more expensive Deutsche Bank AG warehouse credit facility to fund new business. 

Regarding the state of ABCP, CEO Ivan Wahl says, "We’ve no idea what’s gonna happen in the Montreal Accord...nor does anyone else in the marketplace I suggest."

Like so many other injured subprime lenders in 2007, Xceed has turned to insured mortgages to generate revenue.  Xceed's diversification into CMHC insured prime mortgages has been slow, however, and volumes are relatively small.  Moreover, prime mortgages are much less profitable than subprime mortgages in general. 

On the upside, CEO Ivan Wahl says, "We've taken steps to improve our profitability, namely increasing our pricing and eliminating some products." Moreover, Xceed's default rate is still pretty reasonable at 2.62%.  

Transcript courtesy of Seeking Alpha.

Street Capital Adds Prime

Street Capital has diversified its mortgage offerings by adding prime insured mortgages to its subprime lending mix.

Street's prime products will initially be available only through mortgage planners in Ontario, BC, and Alberta.  In a release the company said: "Street Capital is a strong advocate of the mortgage broker origination channel and believes that the expertise and advantage a mortgage agent brings to the consumer is fundamental."

Street is using CMHC as its mortgage insurer and is launching the new products with fairly competitive pricing (within 20 basis points of the deepest discounters in some cases). The company is also offering various broker incentives and promotions.

Street's announcement comes in the steps of other lenders who've made similar moves in recent months, namely MyNext and Xceed.  All of them are now trying to capture share in the increasingly competitive, decreasingly profitable, "A-market."

On the subprime front, the company is tightening up its pricing somewhat.  This basically reflects the liquidity risks and "customer risks" currently associated with this segment. Street's "Alternative Mortgage Lending Program" approval guidelines remain unchanged.

Mortgage Bytes

• All but one of Canada's primary security dealers expect another 0.25% rate cut from the Bank of Canada on March 4. Reuters
• BMO senior economist, Sal Guatier, says the Bank of Canada "is certainly on track to cut rates again in March."
• All the big banks have followed RBC's lead and cut their prime rates to 5.75%.
• FSCO wants your comments on its new Ontario mortgage broker legislation. You have until Feb. 15.
• The average homeowner obtains 12 mortgages in their lifetime.  Source: Mortgage Architects.
• Sources tell us the elimination of withholding tax on cross-border interest should increase U.S. investment in Canadian subprime mortgages.  That could mean better terms and more choices for mortgage shoppers.
• Seniors Money now offers reverse mortgages in Western and Atlantic Canada.  Facts of note:
  • Their average reverse mortgage is $75,000
  • According to what we hear, the company pays about 75 basis points on broker referrals
  • 93% of seniors 65 and over live in private households
  • Those aged 60+ own over 2.35 million homes in Canada.  60% of those are mortgage free.
• We had a feeling it might happen... Toronto home sales spiked 21% in the 4th quarter as buyer raced to beat the new land transfer tax deadline.
• Straight from the grape vine (don't quote us)...
  • We're hearing unconfirmed chatter that HSBC may be paring back it's broker business--and focusing primarily on their top producing brokers.  They're supposedly also building up their own national sales force.  Could it be a pre-cursor to them exiting the broker channel?  We hope not!
  • Within six months Maple Trust, Dundee, and Scotia Express could all be merged together.
• National Bank is reportedly revamping its All-in-One mortgage in April.  It will become fully readvancing with the ability to lock in different portions at low fixed and/or variable rates.
• The average property tax in Ontario is $1,270 per $100,000 of assessed value according to a recent BMA Management Consulting study.
• Scam artist gets one year for mortgage scheme.

RBC Follows Bank of Canada

RBC has lowered their prime rate from 6.00% to 5.75%.  That's good news for variable rate mortgagors.

Last week TD, for one, seemed unsure if they'd follow the Bank of Canada (BoC) and lower prime.  The other big banks will now most likely follow suit.

RBC, the biggest lender in Canada, announced their cut swiftly.  That's probably to head off any speculation that the big banks would defy the BoC's wishes.

With prime rate falling to 5.75%, most variable rate borrowers can now look forward to a $14.79/month savings per $100,000 mortgaged.  (assuming a 25-year amortization)