Canadian Mortgage News & Canada's Mortgage Trends

Mortgage Broker Statistics From Filogix

If you want a great source of mortgage broker stats head over to Filogix's website and check out their Mortgage Broker Market Report.

Their latest report highlights some interesting trends.  For example, from January 2007 to January 2008:

• Overall broker-funded mortgage volume increased 5.37%
• Deal volume sent through chartered banks dropped almost 1%
• Volume at mortgage banks (e.g.  First National, MCAP, etc.) grew over 36%
• Brokers sent 12% less volume to credit unions
• Subprime volume plunged 49%!

The above statistics are based on broker-originated mortgages that funded and were processed through the Filogix network.  Volume processed through other avenues (by bank reps at branches for example) are not included in the above figures. 

Filogix is the leading provider of mortgage connectivity software in Canada.  These stats are therefore a good proxy for the Canadian broker industry.

U.S. Fed Chops Rates. Now It's Canada's Turn

America's key lending rate fell another 3/4% today, and economists expect the Fed to keep on cutting.

Now the ball's in the Bank of Canada's court.  Most economists are looking for another 1/4% to 1/2% cut in our prime rate on April 22.

Some of their reasons:

• There's a 1.25% difference now between central bank rates in Canada and the U.S.  That's the biggest spread since 2004 and an upwards influence on our dollar.  A rising dollar is bad for Canadian manufacturers and exporters.
• Inflation is now at a 6-month low of 1.8%--below Canada's 2% target.
• U.S. auto sales are projected to fall to their lowest level since 1994.  80% of Canadian-built cars are exported to the U.S.

Canadian rate projections of note:

• TD's Dina Cover expects three 1/2% reductions at the BoC's next three meetings
• BMO's Doug Porter expects a 1/2% cut on April 22.
• 13 major economists surveyed by Bloomberg predict the BoC will lower rates a total of 3/4% by June 30.
• HSBC's Stewart Hall says, "it is not unreasonable to expect another 50 bps [cut] again" on April 22.

So what should mortgage shoppers do now?  Dan Eisner of True North Mortgage has this advice: 

"You may want to sit in the variable for six to eight months. You can float the whole time - five years - just ride it out and you'll probably average something better than anything you'll lock into right now. But that's not a risk everyone's willing to take."

Oddly enough, an RBC poll suggests only 15% of Ontario homeowners planning to buy in the next two years would choose a variable-rate mortgage.  That seems low.  By contrasts, we've seen over 75% of our clients requesting variables the past few months.

Merix Altering its HELOC

Merix is making major changes to it's popular HELOC product.  The goal is to make it more appealing to the company's investors. 

Merix's HELOC is a readvanceable mortgage that lets borrowers re-borrow money after they pay down their principle.  The mortgage was originally designed to be a single mortgage "charge."  (i.e.  one part)

According to the company, however, the problem with the current HELOC structure is that it can't easily be securitized.

Therefore, effective 11:59pm EDT Tuesday, March 18, the HELOC will change as follows:

• Merix will register the new HELOC as a 1st mortgage for the locked-in portion and a 2nd collateral mortgage for the line of credit.  There will potentially be refinance costs if borrowers switch to a new lender when their term is up.  (a la Scotia's STEP mortgage for example)  See additional comments below.
• Clients will need to lock in at least 1/2 of their approved credit limit in a 5-year fixed or a 5-year variable.
• No longer will the HELOC support multiple "mortgage" portions with different terms and rate types.

Merix also announced that it's enhancing the HELOC's commission model for mortgage planners.

Unfortunately for borrowers, these changes bring few benefits.  They're necessary only to allow Merix to resell this mortgage to its investors.  Without these changes, the HELOC would likely disappear altogether.

U.S. Fed on the Offensive

The U.S. Federal Reserve cut it's discount rate 1/4% yesterday (on a Sunday!). That almost never happens.  They're hoping the move keeps the U.S. credit crisis from spinning "out of control," as Reuters puts it.

With market confidence sinking--sparked anew by the Bear Sterns debacle--many (BMO, Goldman Sachs, Citigroup, etc.) now expect the U.S. Federal Reserve to cut it's key overnight lending rate up to 1.00% tomorrow.

As for the Bank of Canada, they will set their rates independently of the U.S. Fed, says Governor Mark Carney. That means the BoC will probably cut less aggressively at it's April 22 meeting--but who knows in this turbulent market.

As of this writing, the 5-year bond yield has fallen to a new multi-decade low of 2.74%.  The 5-year fixed/5-year bond spread is now a stratospheric 4.55%.  (About 2.50% is typical.)  That means fixed-rate mortgagors are paying far more interest than they would in normal circumstances.

When will fixed rates improve?  No one knows.  We want to believe that spreads will narrow soon and fixed rates will fall, but there is absolutely no indication of when that will happen.

ResMor Suspends Variable-rate Mortgages

Effective today, ResMor Trust has "suspended" all of its variable-rate mortgage offerings.

They've also cut their rate hold period to 90 days, from 120 days.

ResMor will honour all of it's issued mortgage commitments however.

ResMor's announcement is in response to "continued uncertainty in the credit markets."  In other words, it's getting tougher to find sources of funds for variable-rate mortgages--at reasonable costs. 

This news is a major surprise to most broker's we've talked to.  In this sense, the company has seemingly downshifted a few gears from the story we wrote on February 29.

ResMor is by no means the only lender feeling the pinch in variable-rate market, however.  We know of other lenders as well who are finding it much tougher to compete in the variable space. 

If you're shopping for a variable rate mortage, now is a good time to lock in your rate discount.

Facts on ResMor:

ResMor is a federally licensed trust company operating across Canada.  They're focused on residential mortgage lending, mortgage servicing and deposit products. As of November 5, 2007 ResMor had $4 billion of mortgages under administration representing almost 24,000 homeowners. 100% of ResMor's mortgage business comes from brokers.  The company is owned by GMAC Residential Funding of Canada Limited, a subsidiary of Residential Capital, LLC (GMAC ResCap).

Macquarie Financial in the News

It looks like business as usual at Macquarie Financial Canada.  That's great news for brokers who enjoy dealing with Macquarie on a regular basis. 

Earlier today the company's parent announced that it had halted it's U.S. mortgage operations.  11 days ago the Herald Sun also reported that Macquarie was trimming it's Australian mortgage business.  Macquarie Group is one of Australia's leading mortgage providers.

Grant MacKenzie, Macquarie Financial Canada's Chief Executive Officer, says it's Canadian operations are running well however.  When asked if the U.S. changes will have any effect on Macquarie's Canadian business, MacKenzie said, "None whatsoever."

Peter Maher, head of Macquarie's banking and financial services group in Australia, noted:  "We're not under any stress or challenge in [the Alt-A] loan area in terms of credit quality.  The Canada loan portfolio is 100 per cent mortgage-insured and arrears are stable."

According to Mr. MacKenzie, Macquarie Financial also benefits from having "long-term funding in place" in the Canadian market.  That's great to hear because evaporating mortgage funding has been the Achilles heel of many other Canadian lenders lately.

Hopefully nothing changes in Macquarie's Canadian business.  Macquarie has always been a strong supporter of mortgage planners in Canada.  They offer solid compensation and customer retention programs and have been a leader in paying trailer fees.  (Its broker partners benefit from an upfront finders fee, ongoing monthly trailer fees and renewal fees.)

Macquarie is headquartered in Toronto, with offices in Vancouver, Calgary and Montreal. According to their website Macquarie Financial has close to 100 employees across Canada.

MoneyConnect Mortgage Sale

Subprime lender MoneyConnect needs to liquidate some of its mortgage portfolio according to the Globe & Mail.

The former subprime lender halted its lending back in December.  Now the company has reportedly asked mortgage brokers to get their MoneyConnect clients to move their mortgages to new lenders.

It's apparently offering to waive prepayment penalties to customers who pay off their mortgages. 

We haven't seen the company's statement so contact them directly to confirm all details.

Globe Story

Turner Sees Market Peak

It's always dangerous to predict turns in the market but MP Garth Turner is sounding the alarm.  He says we're "likely only a few months" away from the typical Canadian experiencing negative equity.

Negative equity is where you owe more on your house than it's worth.  Turner says Canada's real estate market is being supported by 40-year amortizations because many people can't afford homes without them.  Our market is a house of cards that's already starting to wobble he says. 

In January, existing home sales plunged a huge six percent.  For-sale listings were up 11%.  And, prices are coming down in formerly hot big cities like Calgary and Edmonton.  Could Turner be right? 

It was a thought-provoking article, but there were a few things in the story we would differ with:

1.  "Canadians banks are no longer discounting the posted rate."

Not true.  Perhaps they're discounting less than in the past but they're still discounting.

2.  "Shaky lending practices that coloured the U.S subprime market are now creeping into Canada."

Not true, generally speaking.  Lenders' underwriting standards have been tough lately...and are getting tougher.

Source:  Canada.com

Subprime Options Dwindle Again

Another shoe has dropped in Canada's subprime mortgage market.  Xceed, formerly a major player in alternative lending, has reportedly announced it's pulling out of the uninsured mortgage market. 

Xceed will apparently offer insured mortgages only, which are much easier to resell to investors.

It's now becoming extremely challenging for those with weak credit profiles and small down payments to get decent financing. 

Many lenders who are still entertaining these deals are charging significant risk premiums (i.e.  higher interest rates and/or fees).  They're doing that largely because very few investors are left in the secondary subprime mortgage market.  That's resulting in much higher costs to get a subprime mortgage off the lender's books (so they can make room for new mortgages).

According to industry executives we've talk to, it could take at least 1-2 years to see competition come back to subprime lending.  Many cash-strapped credit-challenged borrowers might be stuck with two options in the meantime:

a)  Rent

b)  Use smaller lenders with less favourable terms.

Regarding option b), don't be surprised if subprime interest rates and lender fees soon get more expensive, despite decades-low bond yields.  Short supply + growing demand = high prices.

It's also not unreasonable to foresee an eventual resurgence of private lenders.  Back in the day, they were the main source of mortgages for people who didn't qualify with traditional institutions.  Now, privates could once again become one of the only games in town.

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Yes, we've heard stories of private lenders cutting back as well, but most of them don't have to answer to gun-shy shareholders or institutional investors.  Privates are therefore much more likely to fill the void.  Just don't be alarmed if you see more rate sheets with 12%+ interest rates and 3%+ lender fees.

Export-driven Rate Reductions

They say Canada isn't as dependent on the U.S. as it once was.  Nonetheless, exports of our automotive products have fallen 23% over the last three months, the largest decline since the end of the U.S. recession in 1982.  Exports of non-automotive consumer goods have fallen 13.8% in the same timeframe, "the largest decline for the nearly 30 years we have data," says TD senior economist Richard Kelly.

All of this explains partly why the Bank of Canada cut rates 1/2% on March 4.  Now economists are expecting another 1/4% to 1/2% drop in prime rate on April 22.

It's sad that our economy is at risk to this degree, but there is a bright side from a mortgage perspective.  It's truly a great time in history to be in a variable-rate mortgage.  (Just make sure you're not adverse to locking in if need be.)