Canadian Mortgage News & Canada's Mortgage Trends

Further Fixed Rate Cuts in Question

There are countless borrowers these days looking to get a variable-rate mortgage and then lock into a fixed rate "when rates come down."  It's a gamble that requires them to be right about more economic factors than most can imagine.

At the moment, bond yields are near their highest point since February.  (Fixed rates are based on bond yields.)  In fact, 5-year yields have risen 6/10% since their March lows.  So far, fixed rates have nonetheless been coming down as spreads compress and lenders battle for market share.  It's a total anomaly.

In any case, if you're playing the interest rate timing game, be prepared for surprises.  Inflation estimates are rising and that's making bond traders skittish.  Rates can go up very quickly, and usually faster than they come down.

RBC now says:  "The Bank of Canada won't cut rates on June 10."  CIBC economist Benjamin Tal adds, "the days of the current easing cycle are numbered."  Based on what we're seeing, a lot of borrowers seem to think differently, however. It's therefore not unthinkable that many of these people may get caught like a deer in headlights if fixed rates start rising early.

The moral here is probably to keep greed in check.  Rates may go down further, but with 5-year mortgages near 5% (~3/10% below their 10-year average), is it worth the gamble to wait for a few more basis points?

____________________________________________________

Thank you to Merix and the Bank of Canada for some of the content used in this story.

FirstLine Matrix Goes Variable

It's been years coming but FirstLine's variable-rate Matrix has arrived at long last.  This has been one of the most anticipated product launches in recent memory.

For those unaware, the Matrix is FirstLine's hugely popular readvanceable mortgage.  Thus far, it's only been available with a fixed rate on its locked-in portion.  Now, borrowers will also have the choice of a standard variable rate or a front-loaded variable rate.

As for the front-loaded option, this allows borrowers to get a huge up-front discount on their variable rate.  For example, borrowers today can get over 2% off prime for six months, and then lock into FirstLine's best fixed rate thereafter--if they choose. (A lot of people have been doing this lately, with hopes of locking into lower fixed rates later this year.)

The Matrix line of credit (LOC) portion is at prime and fully open.  It's also one of the only LOCs that compounds semi-annually, which saves a bit of interest.  Plus, it's not reported to the credit bureaus, which is a nice feature for the credit-sensitive among us.

More details:

• Rate:  Depends on mortgage planner (based on volume)
• Maximum LTV:  80%
• Compounding:  Semi-annual (both mortgage and LOC)
• Lump-sum Prepayments:  Up to 20% once a year
• Payment Flexibility:  Borrower can increase payments once a year (up to a 5-year maximum amortization). Accelerated weekly and bi-weekly payments supported.
• Variable-to-Fixed Conversion:  At best broker rate
• LOC Fees:  None
• Minimum Credit Score:  580
• Availability:  Through mortgage planners

In sum, the Matrix variable is highly flexible product with a solid interest rate and several unique features.  It's perfect for anyone who needs a ready source of cash for things like investing, future renovations, or emergencies.  Call any mortgage planner or contact us for more information.

Broker Channels and Banks

Dow Jones ran a story Friday on how different banks view brokers.  As those in our industry know, CIBC, Scotia, National Bank, and TD embrace broker business.  BMO and RBC do their own thing.

Last year, BMO lost market share because of their decision to close their broker channel.  Now it says it's got that share back. As for RBC, according to Dow Jones, it has a mortgage book that's growing at 17% a year (there was no mention on the profitability of this book however).

RBC's banking head Dave McKay, was quoted as saying the broker model "just doesn't work for us." He says it causes the bank to "lose control" of the customer. 

(Of course, that begs the question: Do customers really want to be "controlled?"  Moreover, do they even realize they're being controlled?)

BMO VP, Lynne Kilpatrick, says, "When [a] mortgage comes up" for renewal, broker-referred customers "tend to chase the next best rate."  She says clients now come to BMO "with a warm handoff to the banker, where they can then have a conversation about other banking needs...We do find our ability to cross-sell products that come through the [branch] mortgage specialist is exceptional."

In short, RBC and BMO deem it critical to manage the client because they want to sell more to the customer than just mortgages.  The last thing they want is for homeowners to build a relationship with a broker (who can suggest any of several other lenders).  We've talked about this many times before, so readers probably know our position.

Thankfully, CIBC and others have a far more progressive view of mortgage brokers. CIBC Executive VP, Rick Lunny, says, "We see a tremendous advantage in attracting customers through brokers."  Scotiabank agrees.  In fact, 53% of Scotiabank's mortgages were originated by brokers in 2007.

Desjardins analyst Michael Goldberg says Scotia can cross-sell products to broker-clients just as well as it can for branch-originated clients.  (That's probably because Scotia mortgages are always closed at the branch.)

Jumbo Mortgage Rates

If you're shopping for a fixed rate on a big mortgage ($500,000+), there's now a few lenders with 5-year fixed rates under 4.99% and excellent perks and pre-payment privileges.

To the best of our knowledge, these deals are only available through mortgage planners.  If you'd like more information, here is a list of mortgage planners across Canada, or feel free to contact us.

MoneyConnect Winding Down

MoneyConnect has officially closed up shop.  On Friday, the non-prime lender announced the closure of its credit office and the departure of its President/CEO, Moe Forget.

MoneyConnect first ran into difficulties in December and the company released this statement today:  "The international liquidity crisis has seriously impacted our ability to access capital markets based funding. After several months of attempting to secure alternate forms of financing, we regret to advise that we have been unsuccessful in this regard."

Service for existing customers will not be affected according to the company.

Lose Your Job? Tell Your Mortgage Planner

People often think an approval and a 120-day rate lock assures them of financing.  That's not exactly the case.  A lot can happen in 3-4 months--stuff that doesn't make a lender happy. 

A borrower could lose his or her job, for example.  Or, he or she might miss a payment or rack up their credit cards before closing.  In cases like these, their credit scores may sink, putting them below their lender's minimum guidelines.  If that happens, the lender may potentially back out of the deal.

Lenders are in business not to lose money.  If you've got a long rate-hold period, they will often check up on you before you're set to close.  This can be months after you were initially approved.  They may call your employer, they may check your credit again, or both, in order to ensure everything's stayed the same.

If you're nearing your closing date and something has adversely affected your employment or credit, don't assume the lender won't find out.  Tell your mortgage planner immediately.  That way, your planner can deal with it before the last minute and have enough time to seek solutions.

Mortgage Jobs Database Goes Live

Canadian Mortgage Trend's Mortgage Jobs Database is now up!

If you're in the market for a mortgage-related job click the above link and check it out.  The page will be updated whenever employers send us new job announcements, and at least weekly.

If your company has a position to fill, contact us.  We'll post it on our homepage for a week, and in our Mortgage Jobs Database for 60 days.

Postings are free until June 30.  See details here.

Mortgage Bytes

Commentary

• RBC is the latest to proclaim Canada's housing boom is over.  They say "higher loan-to-value ratios and longer amortization periods prolonged the housing cycle" but will "not prevent Canada’s housing markets from cooling off." They also warn that "the longer-term effects of higher leverage heighten the risk of default."
• "Unless you see the arrival of 60-year mortgages, then you've got a household sector that's really backed itself up against the wall." -- This is the view of Scotia's Derek Holt with respect to how 40-year mortgagors would fare in the event of adverse employment, interest rate, or commodity price shocks.
• “The [credit] market turbulence that began last summer has eased in recent weeks.” -- Bank of Canada's Mark Carney
• Four Pillars says don't knock people just because they're buying with $0 down.

Interest Rate Trends

• Earlier today, 5-year bond yields had their biggest 2-day increase in five weeks.  The 5-year is now at 3.30%. RBC fixed income analyst, Mark Chandler, says, "We are seeing tremendous inflation pressure building up. We could see upward pressure for the yields going forward.''  CIBC's Avery Shenfeld says, "Unless the [Canadian] currency manages to duplicate [last year's performance], or Finance Minister Jim Flaherty has another GST cut up his sleeve, inflation numbers won't look nearly as good next year."
• Seven of that 14 economists that Bloomberg surveys expect the Bank of Canada to lower rates 1/2% or more in the third quarter.  But that's far from a given.  Consumer prices rose twice as much as expected in April.  If higher inflation is indeed on the horizon, further rate cuts will be minimal. The Bank of Canada's Mark Carney says, "Everybody is aware that commodity prices have risen substantially...we will certainly take into account what has happened..."
• "While the Bank of Canada may still deliver another rate cut, reflation will compel it to raise interest rates by at least 100 bps next year." -- Jeff Rubin, CIBC

Mortgage Broker News

• CanEquity's Anthony De Almeida estimates 15-20% of first-time buyers are choosing 40-year mortgages with no down payments.
• First National has launched a new Self-Employed (Alt-A) program.  It's a CMHC insured stated income mortgage that replaces First National's old Excalibur BFS product. Borrowers need a 600+ credit score for a 75% LTV, or up to a 700 score for a 95% LTV. Qualification is based on income as stated by the borrower and must be reasonable based on the size and type of business. Verification of self-employment must be on one of the following: a business license, articles of incorporation or T1 Generals.
• Lehman Brothers is reportedly planning to offer mortgages to Americans buying homes in Canada.  Lehman Brothers Resort Home Lending will enter the Canadian market later this year.
• Xceed's minimum Beacon score has been lowered to 600 for it's best-rate AAA mortgage.
• Filogix now offers a way to print out solicitor letters from Expert's forms screen.
• The Globe ran this positive story on Home Trust (and parent Home Capital). The Globe says customer deposits have helped HomeTrust weather the subprime storm better than many competitors. Home Capital's net income rose 18.9% in its latest quarter. During that timeframe it originated $867 million in new mortgages, a 58.7% increase year-over-year.
• CAAMP has written a letter to FSCO with support and recommendations for Ontario's upcoming broker act.  CAAMP raises concerns about FSCO's new fee disclosure rule, as well as the ability for "mortgage specialists" (at banks for example) to refer clients to other lenders without being licensed.
• Ontario's new broker act will prohibit up-front fees from being charged on residential mortgages under $300,000.  Currently the threshold is $200,000.
• CAAMP's November 30 - December 2 National Conference in Vancouver will feature Deepak Chopra, Ben Stien, Benjamin Tal, and a host of practical mortgage speakers. Bravo for this.  A mortgage conference must have hands-on mortgage seminars to add real value.  This is something we love about IMBA's annual conference, and something we missed about last year's CAAMP event.
• Merix has launched EXPLOREmobile, an application for Blackberry. It lets brokers on the run check deal status and interest rates, and communicate with BDMs and underwriters.  Cool stuff!

Housing Market

• MLS listings surged to a new record in April.  Scotia now predicts Canadian home sales will plunge 15% from last years record level. Nonetheless, nationwide prices are expected to rise 5% in 2008.
• Luxury real estate could be insulated from an economic downturn in certain Canadian markets.
• Canada's average house size fell to 1900 square feet in 2007, from a high of 2000 sq. ft. in 2006.

Miscellaneous

• Million Dollar Journey writes about the interest disadvantage of the Manulife One mortgage.
• Investor-owned mortgages account for roughly 2% of the
  Canadian mortgage market, versus 10% in the U.S.  RBC

Big Banks Chop Posted Rates

The big banks have slashed their posted 5-year fixed rates over 1/3%, to 6.65%.  Their "discounted" rates are now about 5.59%.

The move was the biggest cut to posted rates in over nine years, and it's about time.  Despite the fact that lenders' cost of funds have come down, Canadians have been stuck with abnormally high fixed-rate/bond spreads for weeks.  

BMO was first to announce the rate cut (this is a rarity for BMO).  CBC quotes JP Morgan's Ted Carmichael as saying: "This looks to me like more of a competitive move on BMO's part to boost its share of new mortgages.  It may be an indication that mortgage activity is slowing down."

As for the best fixed rates, the deep discounters are still leading the way.  In fact, we saw research today showing a steady two-year uptrend in the spread between commercial banks and discounters (like ING, PC Financial, etc.).  In other words, the discounters have been increasing their fixed-rate advantage over the banks since 2006.

We'd be surprised if this trend continued.  There's far too much competition out there for the big banks to play dead much longer.  Banks are already making big inroads in the variable-rate market.  Their fixed-rate attack might happen sooner than we think.

First National Excalibur

Another non-prime product line bites the dust.  First National has discontinued its Excalibur "Alt-A" mortgage products as of last Friday.

The company said the move resulted from "increased competition from the mortgage insurers in the Alt-A segment and the volatility in the credit markets that first arose last summer." 

95% of Excalibur's business was with self-employed borrowers who weren't able or willing to prove income in the traditional way.  The company will replace the Excalibur line with an insured product.

First National is the biggest non-bank residential mortgage lender in Canada.  It originated $109 million of Alt-A mortgages last quarter and $721 million in 2007.