Canadian Mortgage News & Canada's Mortgage Trends

Notice to Readers

We're presently making our way across the country to open a new office in Vancouver.  We'll resume our normal posting schedule on July 1.  Thanks for your patience in the meantime.

Rob & Melanie McLister

New Real Estate Red Tape

Real estate agents are now on the front line of money laundering prevention.  The federal government imposed several new agent obligations on Monday.  Among other things, real estate agents now need to:

• Collect personal information on all parties with a financial connection to a real estate deal;
• Verify this information with proof of identity
• Maintain these records for seven years

The goal in this is to thwart things like money laundering and mortgage fraud.  Jail and fines will be imposed on agents for non compliance--starting after the grace period ends in December.

More from FINTRAC...

More from the London Free Press...

Housing Has Peaked Says CBC

CBC recently ran a story saying Canada's real estate boom is over.  The story cited the following CREA statistics:

• Home sales (unit and dollar volume) are down 16+% year-over-year.
• Prices increased just 1.1% in May compared to May 2007, the smallest annual increase in seven years.
• May had a record number of home listings:  54,029

If the market is in fact peaking, this portends at least two possibilities from a mortgage standpoint:

a)  Lenders may get increasingly conservative in their underwriting as the market keeps slowing; and,

b)  Appraisers may become more reserved in their valuations.  We've already noticed appraisals coming in slightly weaker in recent months.

At this point, however, a few months does not a trend make.  We'll keep an eye on June and July's numbers and report back.

Interest Rate Update

Inflation will accelerate to 3% in the next few months according to Laurentian Bank's Carlos Leitao.  That's well above the Bank of Canada's 2% target.  If Leitao is right, mortgage rates could very well continue their ascent.

CIBC, for example, predicts "100 basis points of hikes coming in 2009 as Canada's inflation problem heats up."

On the other hand, Bloomberg's economist survey suggests rates will remain the same until at least December...for what that's worth (their last survey wasn't too accurate).

Talk of rate hikes has many Canadians shying away from variable-rate mortgages lately.  Invis's Mark Olkowski, however, isn't convinced fixed rates are now the way to go.  Olkowski says, "Right now, if it was me that had the variable, I'd be sticking with it because I'd look and say that even with that increase that's expected to happen, (you'd save) money over that net period of time."

Of course, there's a multitude of factors to consider so talk to a mortgage planner for specific advice.  Ask them to show you the worst case scenario of a variable-rate mortgage.  If you can handle the worst case then a variable is worth a look.

Sources:  CMT, Bloomberg, Canadian Press

Broker News

Check out this week's latest mortgage jobs.  Post a mortgage job free until June 30!

• FSCO's new Ontario mortgage broker legislation takes effect in 11 days.  The public will now be able to check a broker's license simply by searching here.  IMBA has a link with details on the new law.
• "All of us have been struggling, banks and mortgage lenders, from the higher cost of funds and liquidity premiums." -- TD's Joan Dal Bianco, vice-president of real estate secured lending.
• "Our market share in mortgages declined quarter over quarter because of the expected impact of our decision to exit the broker channel.  However, again this quarter we experienced volume growth [and]...we've increased spreads on new originations 31 basis points year over year." -- BMO. 
• Surplus Fact of the Day:  TD projects 18.5% of its residential mortgage portfolio will be pre-paid in 2008.  In 2007 the figure was 20%.  It's anecdotal, but it would be interesting to see if other lenders are experiencing lower pre-payments as well.
• Recreational properties are getting more affordable.  CEP News story
• CHIP has signed a deal to distribute reverse mortgages with Multi-Prêts, Quebec's biggest mortgage broker.
• Former MoneyConnect CEO Moe Forget is now Executive Vice-President of AGF Trust`s Mortgage Products and Services division
• CAAMP is encouraging Nova Scotia to adopt more regulation for mortgage brokers, including minimum educational standards.
• The Alberta Securities Commission is considering removing the registration and prospectus exemptions available to mortgage brokers who deal in syndicated Alberta mortgages.
• The FBI has stung over 400 American mortgage brokers since March for fraud.  The most popular mortgage frauds (in order) were:
1. Misstatement of income or assets
2. Forged documents
3. Inflated appraisals
4. Misrepresentation of a buyer's intent to occupy a property as a primary residence.

It appears some idiots never learn...until they're arrested.

• Filogix's latest Mortgage Broker Market Report shows banks gaining 1% market share since April 07.  Mortgage banks gained over five points, while subprime lenders and credit unions continued to lose share.
• Street Capital is now lending in Newfoundland, P.E.I, New Brunswick and Manitoba.  The company also launched a new variable-rate mortgage at prime - .50%.
• Merix now lends in New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador

Huge Mortgage Bond Sale

A record $12.5 billion worth of Canada Mortgage Bonds (CMBs) were sold yesterday.  In all, 25 lenders sold 64,000 insured mortgages in this transaction, according to Reuters.

Big and small Canadian lenders are increasingly relying on CMBs to fund their mortgages.  That's because many other low-cost funding sources have dried up in the wake of the subprime crisis.

In CMHC's words, Canada Mortgage Bonds provide the market with a competitive and alternate source of mortgage funds, which help reduce mortgage financing costs for Canadians.

Xceed Turning A Corner?

First the bad news. 

Xceed Mortgage Corporation, formerly one of Canada's biggest subprime lenders, lost $16.7 million last quarter compared to a $4.7 million profit a year before.  Revenue sank to $2.6 million versus $16.4 million.  Xceed's funded mortgage volumes fell 55%.

Restructuring costs, a shift to low-margin insured mortgages, lower origination volumes, and lower securitization income contributed to these ugly numbers.  Xceeds stock price is now 1/6 of what it was a year ago.

Now the good news.

Costs are way down.  In March, Xceed let go 74 employees to cut expenses.  That helped the company be cash-flow positive in the 2nd quarter.  CEO, Ivan Wahl now expects Xceed to "return to profitability in the second half of this year." 

The uncertainty.

Xceed has seemingly completed its transition from subprime mortgages to less risky insured mortgages.  CEO, Ivan Wahl, says: "Xceed now is solely originating mortgages that qualify for insurance and sale to the Canada Mortgage Bond Program." 

That's good, except that lots of other lenders have the same strategy.  That means competition is vicious and Xceed's profits might be paper thin for a while. (Not a fact, just our gut feel)

Xceed's future may depend on its ability to differentiate itself from the slew of other low-margin competitors.  What has the company got up it's sleeve in this respect?  We're anxious to find out.

Mortgage Bytes

Commentary

• ING CEO, Peter Aceto, is surprised so many mortgage shoppers haggle with their banks.  "If you are buying something in a flea market, that's one thing," he says. "Why some people can go in to a branch and negotiate 25 basis points off and why someone else can negotiate 100 basis points off – just based on their negotiation skills, on their relationship – to me, it just doesn't seem like a fair way to do business."
• "This is not a time to buy, but to rent. There is absolutely no advantage to buying...when you can live in the same unit for thousands less as year as a renter, and have these wretched losers subsidize you." -- MP Garth Turner  (Ha. So much for politicians being politically correct!)

Interest Rates

• "The consensus is rates are going to be back up," says Warren Jestin, chief economist at Scotiabank.
• TD predicts no Bank of Canada rate hikes until late 2009.  But TD 's Craig Alexander does acknowledge fixed rates could jump 1/2% over the next few months.
• "In our view, we're probably going to see in the next couple of months more concern about inflation, more of a back-up in interest rates, although by the end of the year they're going to come back down again." -- Warren Jestin, chief economist at Scotiabank.
• "Basically the bond market is swinging wildly between a possible U. S. recession and global inflation," notes Bank of Montreal economist Doug Porter.
• The Glob & Mail writes that:  "BMO's Doug Porter says the recent surge in interest rates may have gone a bit too far...Don't be in a rush to make a [fixed-rate] commitment."  (Gutsy advice.)

Mortgage Stats

• Almost 6 in 10 Canadian homes have a mortgage.  The percentage of Canadians with mortgages is at the highest level since 1981. Vancouver Sun 1 Vancouver Sun 2
• The delinquency rate on subprime Canadian mortgages is 1.5% says the Globe & Mail.

The Story Untold

The subprime lender universe has shrunk considerably since August 13, 2007, when Canada's ABCP market went into a tailspin. 

Today, just a handful of mainstream lenders remain for people who can't qualify for an insured mortgage.  These lenders could pare back their offerings even further in the next few months or so.

It will probably be interesting to watch what happens after August.  That's because August is the one-year anniversary of the ABCP debacle.  Starting in August, a number of non-bank lenders will have to renew their one-year agreements with the investors who purchase their mortgages.  Some industry experts think investors will be far less inclined to renew at favourable terms time around, or renew at all.

What can borrowers expect?

• It is reasonable to assume that "quick close specials" will become rarer by August because funding will dry up for some of the non-bank lenders promoting them.
• Xceed, Accredited, GMAC, and others are now out of the uninsured mortgage business.  That's reduced choices and put credit-challenged homeowners' backs to the wall, especially those that need to renew their mortgage.  Here's one story about a family who had to sell their house recently because they couldn't get anyone to renew their mortgage--and they didn't even miss a payment.
• Private lenders and MICs are becoming more popular by the month.  If you're credit is bad, and the bigger non-bank lenders can't help you, they may be your best hope.
• According to sources, CMHC will reportedly no longer back lenders in the mortgage bond program if those lenders don't enforce more stringent borrowing guidelines, like 32%/42% GDS/TDS ratios.  As a result, flexible lenders may have to tighten their lending criteria.   "A" clients who are "on the bubble" may be forced to consider higher cost "B" lenders.
• We'd be surprised to see this, but one respected source has told us that support for 40-year amortizations and 100% financing could evaporate in the not-so-distant future, thanks to pressures on insurers and the government.

Despite the above, don't lose hope if you're credit-challenged--especially if you have a down payment of 15% or more.  Consult a mortgage planner for all the available options that might apply to your situation.  Find a mortgage planner that specializes in private lending if need be.

Low Rates, Long Waits

When a lender lowers their rates below the competition, they tend to get a lot of business.  Go figure huh?

What most borrowers don't realize is that low rates often entail long waits.  Lenders get big backlogs, service levels decline, underwriters get overworked, and lenders stop making exceptions. 

More importantly, quick approvals and fast closings become a chore.  With some lenders, 10-15 business days is usually enough time to close.  But, when a lender has the best rates in the market, 10-day closes become a gamble.

The worst part, from a brokers' perspective, is that some lenders don't believe in communication.  If a lender has a 24 hour turnaround policy, and then takes 5 days to respond to your application, you'd think they'd notify you of such delays in advance.  Unfortunately, some lenders consider that an unnecessary courtesy.

In general, best-rate providers are fine for longer closings or refinances.  But if you're a last minute shopper or a procrastinator, don't expect priority service with your rock bottom rate.