Mortgage Bytes

In Brief...

• 100% financing isn't dead. It's just a lot more expensive. A 5% cash-back downpayment mortgage will generally run you near 7.20% these days.  A good fixed-rate mortgage with 5% down is closer to 5.60%.
• According to an anecdotal poll by Genworth, 56% of brokers who responded think the elimination of 40-year amortizations and 100% financing will hurt their business.
• The Toronto Sun's Linda Leatherdale says to "shop around, negotiate the best rate and lock in for five years or more to ride out this storm." Interesting. Telling Canadian readers to lock in for five years is pretty gutsy.
• Dominion Lending Centres issued a press release about what the "Current Market Crisis" means to Canadians.
• As far as we know, there is just one lender left with a readvanceable mortgage (HELOC) at prime rate. Call your mortgage planner for details.
• Million Dollar Journey examines the Smith Manoeuvre during tough times.
• Lenders cost of funds in a picture... Source: Bloomberg & The Finance Department. (Click to Enlarge)

Mortgage Industry News

• Canadian taxpayers don't need to worry about funding a mortgage bailout. Quite the contrary. The government could make $250 million to $1 billion as it buys back Canadian mortgages, says the Globe.
• How do Canada's mortgage buybacks work? The government essentially buys back mortgages from the 30 lenders participating in the program based on the offered rate of return. Lenders offering the highest rate of interest will be able to sell their mortgages to the government first. As these "winning" lenders offload their loans, their balance sheets are cleared to make new loans. (An illustration)
• "We are happy with the funding that we got and the price we paid." - ING CEO Peter Aceto on CMHC's mortgage buyback last Thursday (Globe)
• Lenders have been relying more and more on the Canadian Mortgage Bond program.  In the first half of this year, as much as 40% of all mortgages were financed through the CMHC's mortgage-back securities program.  (Globe)
• Home buyers rushed to beat the government's tighter mortgage rules and Oct. 15 deadline, says Canwest.
• Here's the difference between mortgage brokers and bank "specialists" by Centum LendingMax.
• In a year or so, Canadians may have one more place to shop for mortgages: Wal-Mart Canada Bank. Wal-mart has applied for a Canadian banking license.  It follows in the footsteps of Canadian Tire, Loblaws and Sears. Knowing Wal-Mart, it'll probably have some pretty good rates without a lot of frills. "Our approach in everything we have done to date is to be a price leader and eliminate costs that would pass on to customers," says a Wal-Mart Canada's spokesman.
• 20,000 to 25,000 Canadian mortgagors are behind in their payments by 90 days or more according to CAAMP. That's about 0.27% overall. During the 1992 recession it was 0.60%. In the U.S. today it is 4%! (Globe)
• Can you say "consolidation?" Canada's top 15 credit unions account for 50% of all credit union assets. Eight years ago the top 28 commanded 50%. (RRV Echo)
• Why Canada's mortgage market is stronger than in the U.S. (CAAMP)

Commercial Lending

• The Commercial mortgage market is constricting further says the Globe.  It says "lenders now want to see 70 per cent of condo units presold before providing funding, for example, up from about 60 per cent when the credit markets were looser. The amount banks are willing to lend compared with a property's value has also dropped after the collapse of the market for commercial mortgage-backed securities, which was once a major source of funding."
• "Instead of approving loans of up to 75 per cent of the value of a property, many [commercial] lenders have pared that number back to 65 per cent. They're also charging higher interest rates in many instances -- say, six per cent instead of 5.25 or 5.5 per cent. The amortization periods are also getting shorter -- 20 or 25 years instead of 25 or 30." (Winnepeg Free Press)

Interest Rates & Economy

• There is "widespread if not unanimous expectations that the [Bank of Canada] will trim a further 50 basis points," says COMTEX.
• Traders are pricing in a 100% chance of a 1/4% cut and a 14% chance of a 1/2% cut on Tuesday. (CEP)
• RBC expects a 1/2% cut Tuesday as well. (CEP)
• "I expect the Bank rate to be lowered by a full 50 basis points with considerable pressure on the banks to lower their prime rates as well." InYourBestInterest's Hank Cunningham
• "Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary." - Warren Buffett (NY Times)
• BMO's is calling for a recession. (Globe)
• The government's mortgage buyback will require it to issue new bonds, increasing supply up to 10%. That should have a slight upwards influence on bond yields, and potentially fixed mortgage rates. (CEP)

Real Estate Market

• Canadian home prices are down 6.2% in the last year. They could fall up another 10% in the next six months says CIBC economist Ben Tal. (FP)
• Toronto home prices are down 15% in the last year. Vancouver home prices are down 8%. Calgary is -6%. Yet prices are still rising in 17 of Canada's 25 major markets. (Star & FP)
• "The owner of an 'average' home purchased at the height of the Kelowna housing bubble has been losing $11,000 per month, or about $370 per day of their home equity." (Greaterfool)
• Almost 1 in 6 Americans owe more than their house is worth. (Globe)
• Why Canada's housing market is not headed for a crash. (Globe story)
• CIBC's Ben Tal sees something akin to a "trivial moderate cyclical slowing" in Canada's housing market.

Miscellaneous

• Apparently the government isn't overly concerned with taking the froth off Canada's real estate market. Last month Stephen Harper proposed offering first-time buyers tax credits of $750 (eventually up to $5000) to cover closing costs.  That's a big incentive to the ~300,000 first-time home buyer in our country. (National Post)
• CREA wants the government to raise the RRSP Home Buyers Plan maximum to $25,000 from its present $20,000. This amount has not changed since 1992. (CEP)
• ING, the massive international bank, is getting a huge cash boost from the Dutch government.  ING's Canadian operations are not expected to be affected at this point.
• Canada has the world's soundest banks.
• Finance Minister Jim Flaherty has told Canada's banks to: "Do as much as possible in the present circumstances." (CP)