Mortgage Rates & Mortgage Broker News in Canada

Featured Mortgage Career

Today’s featured mortgage career... 

Company:  Xceed Mortgage Corporation
Position:  Marketing Associate
Location:  Toronto, ON

Click on the position title above for more information. 

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Advertise your mortgage job opening now!  
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2-Year Yields on the Move

2-year bond yields have been ramping up. They hit a new 7-month high on Thursday. 

On Wednesday they rose 13 basis points, the biggest 1-day jump since last October.

It wouldn’t be a shock to see 2-year fixed mortgage rates taking the up escalator as well.

That’s too bad because 2-year mortgages have been a nice alternative to variables and 1-year terms. They’re slightly more expensive but offer more protection from rising rates.  Moreover, 2-year mortgages don’t lock you into inflated variable-rate premiums for 4-5 years.

(Chart data courtesy of the Bank of Canada)

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Sidebar:  Action Economics says “anxiety is building that the BoC may be forced to tighten earlier than expected, with March BAX futures nearly fully discounting two 0.25% rate hikes.”

Wells Fargo Pulls Out Of Canada

In a surprise announcement just minutes ago, Wells Fargo is discontinuing lending in Canada.

The move affects both Wells Fargo’s retail and broker channels.

President, Rick Valade, said Wells Fargo will honour valid fully-executed mortgage commitments, provided the applicant or applicants fulfill all of the terms and conditions of the mortgage commitment (including any time specified for closing or expiration of the mortgage commitment).

Valade said, “We thank all of our broker partners, vendors and customers for their business and support over the years.”

If you go to Well’s broker website, this is what you see:  link  (Their product information and login screen are now gone, just like that....)

Wells Fargo is one of Canada’s biggest alternative lenders.  We ran this story on them earlier this year.

More to follow…

Insights From First National

First National just posted a record 2nd quarter.  It originated $3.5 billion of mortgages from April to June, up 9% YOY and up 75% from the 1st quarter.

Chairman, Stephen Smith, attributed this to three things on First National’s conference call:

1. Low mortgage rates
2. The return of consumer confidence
3. Cheaper housing prices

Mortgage spreads "continue to remain wide," he said.  In addition, investor appetite has grown for mortgage securities in the last three months. Those two things boosted First National revenue by about $15 million in the quarter.

First National also included some interesting factoids in its earnings report, saying:   

• Liquidity and credit concerns have increased the cost of funding for most, if not all, of the Company’s competitors, particularly the five large Canadian banks.
• Given these increased costs, mortgage rates have not fallen in step with Government of Canada bond yields, such that spreads on prime single family mortgages are at historically wide margins.
• In the spring of 2007, such spreads for discounted five-year mortgage rates were approximately 1.25
  percentage points. (i.e.  normal)
• For most of 2008, comparable spreads increased to as high as 3.00 percentage points.
• In the first quarter of 2009 mortgage spreads began narrowing as the banks have once again become more competitive, perhaps in part to sale of mortgages through the liquidity provided by the federal government’s reverse auction facility.
• Despite the tightening, these spreads were still
  approximately 2.00 percentage points at the end of the second quarter.

Like various other lenders, Smith said that First National sells mortgages at prices based on Canada Mortgage Bond (CMB) and mortgage-backed securities (MBS) rates, not Government of Canada bond yields.  Therefore, CMB yields, for example, are more indicative of First National’s base funding costs than government bond yields.

Smith said spreads also continue to be wide in the commercial market.  He told analysts that First National is “still seeing some good gains" off those products.

In closing, Smith noted that things have slowed noticeably following a rip-roaring May and June.  July mortgage commitments are "down substantially" (20%) YOY, he said.  (Commitments generally fund 30-45 days out.)

First National is Canada's biggest non-bank lender.  It was recently ranked as the #1 lender in Canada by Brokers. MBN Survey

First National’s underwriting turnaround times were ranked head and shoulders above other lenders in the survey.  That’s a key metric. Turnaround time has become critical to brokers given that some lenders have not been honouring their normal stated underwriting times these past few months.

BoC Promise May Not Have Legs

The Financial Post wrote yesterday that the Bank of Canada may not hold its key lending rate at 0.25% until June 2010 as planned.  Story Link

Certain market watchers have been sensing this but not many people have come out and said it.  National Bank Financial’s Stefane Marion is bucking that trend. He expects “the first Bank of Canada rate hike in the first quarter of 2010."

National Bank economist, Yanick Desnoyers, agrees, saying, “The time for tightening is not yet at hand, but June 2010 seems too late.”

But not everyone is that bullish on inflation and the economy.  CIBC chief economist, Avery Shenfeld, says lingering unemployment will stall the economy and “push back any rate hikes until 2011."

RBC Economics says:  “We expect the Bank to maintain its conditional commitment to keep the overnight rate at 0.25% through the end of the second quarter of next year.”

More objective observers may want to turn to the financial markets for the answer.  The markets are where people have the most money at stake. 

Have a look at what stock traders have been doing…

Now check out the tracks that bond traders have been leaving. (The chart below is the 5-year government bond yield.)

Both of the above markets are acting as if the recession is fast becoming an afterthought.  (Steady increases in stock prices and bond yields are very common in the months before inflation and economic growth make their comeback.)

For what it’s worth, if you want to base your mortgage decision on where prime rate is going, it’s not unreasonable to assume prime could start rising again in 9-12 months.  That seems to be the average economists’ opinion these days.

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Note: These thoughts are not a prediction or advice. They’re just an observation.  Bond chart courtesy of the Bank of Canada.  TSX chart courtesy of StockCharts.com.

Featured Mortgage Career

Company:  Homeguard Funding Ltd. (Verico)
Position:  
Full time Mortgage Agents / Mortgage Brokers
Location:  Ontario

Click on the position title above for more information. 

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Advertise your mortgage job opening today!  Click here to post. 

Or browse CMT's Mortgage Jobs Database.

Vendor Rebates Must Be Disclosed

If you buy a home and the seller (or developer) rebates you money back on closing, you must disclose this to your lender.

If you don’t, it can be considered mortgage fraud. 

It doesn’t matter if the seller calls it a “rebate,” “renovation credit,” “loan to purchaser” or whatever.

Moreover, you can’t always expect to hide behind lawyer-client privilege to keep the lender from finding out about it.

Here’s an interesting story by Move Smartly that discusses the issue further:  Buying Inducements Must Be Disclosed

Lender Business Opportunity

Lenders with “status” programs give preferential treatment to mortgage agents who commit to certain volume minimums or efficiency ratios. 

Status programs are increasingly becoming hurdles that mortgage agents have to jump in order to:

a)  Get the best rates; and/or,

b)  Get the best compensation; or,

c)  Do business with that lender at all.

People with considerable experience in our industry have told us that this trend will undoubtedly incentivize agents to do business with fewer lenders.  There is only so much volume to go around and agents who spread their volume among too many lenders may find themselves without status at any lender.

This raises several possible implications.  For one, brokers could someday become only marginally better than bank reps at shopping the market.  In other words, a preponderance of status programs may drive agents to push products from just a handful of lenders.

Another possible result is that agents may be forced to route their volume through “superagents.” 

Superagents aggregate volume from multiple sub-agents and maintain status with one or more key lenders.  They are often employed by an agent’s brokerage house. 

More brokerages may start encouraging their sub-agents to submit deals through superagents to gain status pricing.  That will possibly come at a cost to the sub-agent (a percentage of the agent’s commission for example).  This has been going on for a while at certain brokerages.

In any event, it’s not inconceivable that lenders may someday be left with very few status brokers apart from superagents and high-volume broker “teams.” Status programs are simply not conducive to generating future business from small or newer agents. Most younger agents, for example, don’t want to allocate volume to lenders unless they can get the most competitive rates and terms from the outset.

That leads to the next by-product of status programs: opportunity. An opportunity may someday exist for a lender to increase efficiency, cut frills, and deliver exceptional pricing to independent agents who have little status elsewhere. 

A lender who catered to underserved independents like this would probably cultivate loyalty and build a large agent-base (which would likely include some of our industry’s future volume leaders).

Of course, this lender would need to operate in a very lean and unique manner in order to be profitable.  Among other things, it might choose to:

• Brand itself as the lender for independent-minded agents
• Operate with an Internet-only business model
• Simplify products and underwriting guidelines
• Feature scaled commission tiers or cost-effective buydowns so brokers could offer rates competitive with status brokers, in lieu of full commission.
• Charge fees to offset:
• Costly cancellations
• Declines due to obvious non-qualification
• Pre-approvals
• Replace Development Managers with broker call centres and/or improved online information portals
• Implement automated document management systems like Exchange 2.0 or MCAP’s Professor Upload.
• Offer agents tools to drive new business like mortgage planning software and online sales training
• Claw back commissions for termination or defaults in the first year.
• Make brokers become “certified” in the lender’s products (perhaps through testing) to reduce support demands from agents.

Thus far, lenders’ status programs have operated under the 80/20 philosophy. (In other words, that 80% of the business is done by 20% of the agents).  As time goes on, opportunity may exist in catering to agents in the 80% category.

An analogy in the stock trading business would be E*Trade.  In 1996, while leading brokers were demanding monthly volume or account minimums for the best commissions, E*Trade automated the business and went after all traders with rock-bottom commissions.  They became the #1 Internet broker in the world as a result. 

A similar opportunity could be waiting in the mortgage industry.

Mortgage Advice From Mark Carney

Bank of Canada chief, Mark Carney, told reporters today that Canada’s economy should start growing again this quarter.  (Video:  BNN)

That surprised a lot of people, including bond traders who pushed up 5-year yields by 12 basis points to 2.65%.

Carney called the anticipated recovery “a long road” and said it may take until 2011 for overall inflation to run back up to 2%.

In one interesting exchange, a reporter asked:  “If you were renewing your mortgage would you go fixed or variable?”

After a laugh or two, the governor provided some judicious and unexpected advice:

• “We have a conditional commitment” (to keep the overnight rate flat until the 2nd quarter.)
• “It’s not a guarantee”
• “The only advice that is appropriate for us to give for Canadians is that we are in extraordinary circumstances.”
• The economy is “on track [but] there is a long way to go.”
• “Over time…interest rates will normalize.”
• “The way to think about managing your personal affairs, I would submit, is, can [you] borrow at what would be a normal rate?”
• “At some point…If we’re on track, we will get to a point where rates are at more normal levels and every household is going to want to make sure that they are able to service their debts at those levels.”

Carney’s guidance is quite apt to this environment.  Thousands of people have recently been taking out variables or 1-year mortgages with rates around 2.75%.  In a few years, it’s not unreasonable to suggest those rates could be at 4.75%.

If 1-year rates do jump 2% in a few years, that, in turn, means you’d have to qualify* at an even higher rate on renewal--perhaps 5.50%.

Will people be able to do that?  Or should more people instead be getting 5-year fixed mortgages now?  That is the kind of question where professional personalized advice matters.

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*  Mortgages with variable rates or terms under three years require that you qualify at a higher rate (called the “qualifying rate.”). 

For example, if you go to RBC today and apply for a 2.85% 5-year variable, they’ll make you qualify at today’s 3-year posted rate of 4.55%.  That ensures you can handle the payments if rates go up.

The Best Mortgage Rate for You

The Mortgage Centre’s rate page has a very sage title: 

“Is it the best rate, or the best rate for you?”

Its point being:  A lot of websites claim to have the best rates, but there’s always more to the story. 

For one thing, probably 95% of “best rate” claims are false.  More importantly, as the Mortgage Centre rightly suggests, the lowest rate is not necessarily the best rate for you. 

Unless you know who the quoted lender is, and know that lender’s criteria for credit score, debt ratio, property type, loan-to-value, income, etc., there’s no way to tell on your own if you meet its standards.  (Albeit, someone proving $100,000 income the past few years, putting down 20% on a marketable home, with a 35% TDS, and a 720 beacon score, can feel confident about qualifying at most lenders [just as an example]).

Back to the point, there are lots of qualification hoops to jump through with some lenders—especially the lowest cost lenders.

Moreover, there are various economic dangers strewn about the fine print of many mortgages.  Examples include:

• Zero prepayment privileges
• 12-month interest penalties
• IRD penalties based on bond yields
• Fully-closed terms (no way out until maturity)
• Ultra-short rate-hold periods
• No pre-approvals
• No portability

Other annoyances:

• Horrible post-closing service
• Slow approval times
• No online access
• Unexpected fees

It is the job of mortgage planners to filter the plethora of mortgages and present the best overall value to you.  When determining overall value, rate is the #1 criteria, but only after a mortgage is determined to be suitable.

There’s no downside to good advice, so get as much of it as you can. As Canadian Mortgage Professional magazine very wisely wrote:  “Homebuyers who ask mortgage professionals 'What is your best rate?' are not going to be well served by a mortgage professional that simply responds with a number.”