Mortgage Rates & Mortgage Broker News in Canada

Abode Mortgage Is Finished

The deal Abode announced Friday is not going to close, so the company is shuttering its mortgage business.

The company issued this press release at 10:24 ET:

Abode Mortgage Holdings Corp. Announces the Closure of the Company's Mortgage Origination Business

Abode said:

“…The interim funding and mortgage loan purchase arrangements referred to in the release have terminated. Without an established funding and whole loan purchase arrangement, AMC cannot properly carry on its business and the Directors of the Company have decided to cease operations.”

CEO, Mike Linehan, added:

“Management and the staff of AMC are devastated by the decision to cease operations. However, without a committed mortgage funding and whole loan sale partner, the business of AMC is not viable. We wish to thank our loyal industry partners and deeply regret our inability to carry on in business.”

There is no word yet on whether Abode will honour current approvals in its pipeline. The fact they left that point out of the press release leads us to believe they might not, or are still negotiating with their funding sources on this matter.

Headquartered in Vancouver, Abode Mortgage Corporation was less than three years old.  It started lending in February 2007.

A Lender’s View of the World

What’s on the minds of mortgage lenders these days?

Four of them sounded off at CAAMP’s lender panel last Monday.

The panel featured:

• Boris Bozic, President of Merix Financial
• Stephen Smith, Chairman & President of First National
• Ivan Wahl, Chairman & CEO of Xceed Mortgage
• John Webster, President of Scotia Mortgage Services

Here’s what they had to say… (Our thoughts in italics.)

On Canada’s mortgage market:

• Liquidity “was non-existent” for lenders a year ago, said John Webster, but it didn’t last as long as many predicted.
• Lenders expected a 30-35% drop in mortgage originations this year. Stephen Smith says: “It hasn’t happened.”
  
  (This year definitely exceeded expectations, but partly at the expense of 2010 volume. Many people accelerated their home buying and refinancing to this year. After rates eventually do rise, volume could fall noticeably.)
  
• “We were going down a slippery slope. Some of our products were getting pretty exotic.  Time saved us.” – Boris Bozic

On borrowers’ mindsets:

• For today’s home buyers, “dollar amount doesn’t matter anymore,” says Bozic.  Instead they’re concerned about, “What is my carrying cost?”

On advising homeowners:

• With the potential for rising rates, mortgage brokers should counsel borrowers to leave “a little wiggle room” with their debt ratios. – Wahl

On the risk of rates rising:

• “Refinance risk is certainly nothing I am concerned with,” said Smith. He believes, in 5 years, people will be earning more money. Moreover, debt ratio standards and personal covenants are being vigorously enforced, Smith said.

On lender incentives to underwrite prudently:

• “Canadian lenders retain risk after they underwrite a mortgage,” said Smith. Therefore, unlike in the U.S. before the crisis, Canadian lenders have incentive to lend wisely.
• “Delinquencies have not been a big part of the industry.” – Webster

On the future of Canada’s broker industry:

• Four banks in Australia have 94% market share with brokers, according to Bozic. When non-bank competitors disappeared, broker compensation fell 40%.
• “We've seen a decrease in broker share because of the banks’ pricing policies.” - Bozic
• “We're going to see bank sales channels compete directly on price....Banks will use the strength of their balance sheets to gain back market share.” – Smith
• Webster disagreed. He said consumers want service when they need it, not during banks hours. "I am quite confident the broker channel will continue to gain market share."
• Smith agreed that broker share would rise in time, saying, “Mortgage brokers provide a phenomenal value proposition…In 10 years we see the mortgage broker share up to 70%.”
  
  (After watching banks retaliate these past few quarters, that seems very optimistic.)
  
• For younger people, mortgage brokers will be the "first call." – Smith
  
  (Industry stats bear this out. First-time homebuyers use brokers far more than the average homeowner. They have far less loyalty to banks and far more loyalty to quick service and “the best deal.”)
  
• The “shelf life is expiring” for volume bonus, said Bozic. He thinks broker bonuses will soon be based on portfolio performance.
  
  (At the time he said it, it was almost like Bozic was throwing out a trial balloon on this point. The truth is, it wasn’t the first time we’ve heard that traditional volume bonuses are “dead.”)

On broker/lender relationships:

• “Brokers can no longer do business with any lender they want,” said Wahl. His firm, Xceed, prefers to do business with the top 20% of brokers. 
  
  (How many times have we heard that lately. [Rhetorical question]  For you bottom 80%, thanks for coming out. Lenders are saying [indirectly]:  “Go find a super-agent to work under.”)
  
• Scotia wants the top 20% too. Webster says: “I don't think you have to be all things to all people.”
• To this, Bozic retorted: “It appears we're all after the same 750 brokers across the country. There is a subset of brokers who are being left out.” 
  
  (You can say that again…)
  
• Brokers feel "direct access to lenders is a problem,” continued Bozic.
  
  (This problem can’t be understated.  With all the status programs and “preferred lists,” lenders are handicapping a broker’s main advantage: choice. New or lower volume brokers are forced to funnel deal volume through big agents, or suffer with subpar pricing and service.)
  
• Smith drew loud applause when he said First National opens its doors to all brokers.  “Some of our best brokers started with us 3 years ago sending us one deal.”
  
  (God bless Stephen Smith. Lenders want efficiencies, and that’s understandable, but cutting off skilled brokers who don’t succumb to volume minimums is not in the industry’s long-term interests.)
  
• “We want mortgage brokers who do what they say, return calls, never lie on an application, and check things out seven ways to Sunday. There are too many people who take an easy way out (and don't fully disclose things on apps).” – Wahl
• Xceed, like more and more lenders, closely watches approval rates, funding ratios, and default ratios.

On capital sources:

• In the future, “the Canada Mortgage Bond is not going to be as attractive as banks’ balance sheets as a source of mortgage funding.” – Smith
• Nowadays, Canada’s capital markets are “awash with liquidity,” noted Webster. However, “for a lender going forward, you either need a balance sheet, or need to rent one."

(In other words, relying on traditional securitization avenues to raise funds (like the Canada Mortgage Bond market) may not provide lenders with cheap enough capital to compete. It will be interesting to see if non-deposit-taking lenders, like Street Capital, MyNext Mortgage [our in-house lender], and Merix, can diversify their funding sources.)

Moderator and financial expert, Michael Campbell, said: "The number one financial issue people have is with their mortgage."

If brokers are to fill that need successfully, lenders must open their doors a little wider—especially for low-volume brokers who send up good quality deals and don’t waste lender reps’ time.

The broker industry has heard a lot of dialog lately about what lenders want, and what lenders “need.”  Let’s also ensure we pay close attention to what clients and brokers need, because a successful industry depends on more than the top 750 brokers.

Abode Sells Its Mortgage Biz

Abode Mortgage intends to sell its mortgage origination business to a “private Vancouver-based investment firm.”

The selling price is “up to $3.5 million,” in annual cash installments.

Abode was essentially forced into the sale because of a need to “recapitalize” the company.  This need became dire when, according to the company:

“…The Company's financier and whole loan purchaser (withdrew) from its existing funding agreement with the Company.”

Abode says, “The Company has made arrangements for interim funding and mortgage loan purchases, and is in discussions with several financial institutions to provide replacement lending and mortgage purchase facilities.”

Abode CEO, Mike Linehan, said:

"We are very pleased that the business our employees have built with our industry partners over the last several years will be continued under new ownership. We are confident that this business will have a bright future once it has been adequately and more appropriately capitalized. While we are disappointed that this recapitalization could not occur within the framework of continued ownership by the Company, we are confident that the agreement reached today represents the best option available under the circumstances, including the withdrawal of the Company's current financier. We will work diligently with the new owner to complete the necessary recapitalization of the mortgage origination operations."

Abode’s stock was halted on Tuesday, and last traded at 0.02 a share.

The sale is subject to a variety of conditions. We’ll report back if/when it closes.  In the meantime, we wish everyone at Abode the best with the transition.  Abode always had exceptional service and a hard-working staff.  It’s just difficult for a non-balance sheet lender to compete in this market…

Mortgage Jobs of the Week

This week's featured mortgage careers... 

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Company:  Xceed Mortgage Corporation
Position:  Business Development Manager British Columbia
Location:  Vancouver, BC

Click on the position title above for more information. 

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Company:  Xceed Mortgage Corporation
Position:  In-House Broker Service Representative
Location:  Toronto, ON

Click on the position title above for more information. 

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Company:  Mortgage Centre Canada, a CIBC Company
Position:  Regional Vice President
Location:  Toronto, ON

Click on the position title above for more information. 

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

Or browse CMT's Mortgage Jobs Database.

BNN Interview

CMT’s, Robert McLister, spoke with BNN’s Andrew Bell yesterday. Topics included bubbles, rate strategy, 35-year amortizations, and more…

Video

Highlights of CAAMP 2009

The 2009 Canadian Mortgage Conference and Expo has drawn to a close. The show was well attended and we got a lot out of it this year.

Among the highlights…

• Takeaways from the Lender Panel:  Younger borrowers are turning to mortgage brokers in much higher numbers; Xceed and Scotia both indicated a preference to scale down their list of brokers to the top 20%; First National and Merix suggested they won’t shut out lower volume brokers; Compensation may be geared more to broker performance metrics in the future.
• Takeaways from the Broker Panel:  Successful brokers create niches; Brokers provide specialized advice and multi-lender comparisons--which is hard for bank branches to match; Branches are getting more aggressive.
• Takeaways from Mitch Joel:  Online marketing guru, Mitch Joel, said people are now ravenous consumers of online information. Google rules the web world, and your homepage! Value-added online content is king, and essential to a broker’s future business.

We’ll have a full rundown of the lender and broker panels in the next few days.

In terms of lender news and mortgage products, here are a few notable developments:

• Abode Mortgage:  May be coming out with a variable-rate mortgage in the next month or so.
• AIG United Guaranty:  Rebranding in early 2010 with potentially a new name and owner.
• Concentra Financial:  Its Vision “B” lending products may be coming back in the 1st or 2nd quarter of 2010.
• Desjardins:  Still doing its 75% LTV stated-income program in Ontario. Only proof of business and NOA required.
• Equitable Trust:  Launched a new non-prime open mortgage at 4.99% (up to 80% LTV on purchases, depending on province; 75% in Alberta). Also rolled out 3- and 5-year adjustable rate mortgages starting at prime + 1.10% (up to 80% LTV on purchases and refis, depending on province, with a 40-year amortization).
• Home Trust:  Just went up to 90% LTV on its bundle mortgage, which is an uninsured “B” product that combines a 1st and 2nd mortgage. 650 min. Beacon.
• IC Savings:  Aggressively pursuing brokers (85% of their business is from brokers). Still doing lots of subprime. They have a prime + 3% variable up to 75% LTV—with no Beacon or GDS requirements.
• INALCO:  Has the best no-frills mortgage in the business (our opinion—not their statement). Unfortunately, they’re still not bringing on new brokers. Maybe in 2010 though. For now, they’re too busy and they want to wait to see how the credit market unfolds.
• Secure Capital:  They specialize in 2nd mortgages up to 80% in the GVA and 85% in GTA.
• TD Financing Services:  Formerly VFC Home, TDFS just cut rates on purchases by 1/2%.

We’ll look forward to seeing everyone again at CAAMP 2010 in Montreal!

Bond Yields Approaching Key Lows

People shopping for a fixed-rate mortgage can do the happy dance.  Government bond yields keep plunging, and that’s pulling down fixed mortgage rates.

• The 5-year yield (a barometer of 5-year fixed mortgage pricing) has broken through key 4-month support levels. 
• The 2-year yield has given up almost all of it’s massive October run-up
• The 1-year yield is approaching it’s all-time low of 0.43%.

We’ve already seen several lenders cut rates, and the best rates for 1- to 10-year terms will likely further in the short term.

Variable rates remain unchanged.

CAAMP 2009 - Benjamin Tal

Over the next few days, we’ll be posting insights from the 2009 Canadian Mortgage Conference and Expo in Toronto.

Kicking off the speaker line-up today was noted CIBC economist, Benjamin Tal.  Ben spoke to over 1,000 delegates, and below are some of the key quotes and observations he shared with the crowd…

• “This (credit) crisis is over,” he said.
• The TED spread—which is a key indicator of credit market liquidity—is back to a healthy 25 basis points, after hitting 500 last fall.
• “This recession is over…period…but we will pay heavily for what the U.S. Fed is doing.” (Interest rates will rise and deficits will drag on Canada’s economy.)
• The next wave of U.S. mortgage rate “resets” will peak in late 2011. Fortunately, there should be much less of a rate shock this time around because:
  • Americans will reset into rates that are much closer to the “teaser” rates they’re paying now.
  • Fewer of these resetting loans are securitized than in the subprime crisis. Most of these mortgages sit on U.S. lenders' balance sheets.
• “Deleveraging” will define the next 5 years. Consumers will slow their spending and borrowing.
• U.S. monetary policy is dictating Canadian policy. 
• The Bank of Canada “will have no choice” but to wait to raise rates until the U.S. does.  Otherwise, our dollar would rise and threaten Canada’s export economy.
• Ben predicts Canadian interest rates will not rise as much as in the U.S.

Regarding real estate prices, Tal said:

• “We should not be in a sellers’ market in the 9th inning of recession.”
• On the other hand, he says: “We don't have the information to support (a real estate bubble).  It’s irresponsible to say we're in a bubble.”
• But if prices go up 20% in the next two years, “then we will be in bubble.”
• Policy makers in “Ottawa are worried,” but they shouldn’t be completely alarmed just yet, suggests Tal.
• “People feel pressured to buy because of (low) interest rates, but that is fine,” he says, "because Canada’s real estate market reflects fundamentals and is in “equilibrium.”
• Housing performance confirms that monetary policy is “acting the way it should be.”
• More than ever, it is paramount that lenders underwrite “good mortgages.”
• In every past economic cycle, interest rates went up “much faster than they went down.”
• Expect a 2% to 3% increase in rates, starting no earlier than Q3 2010.  If you cannot handle the debt service at those higher rates, “buy a smaller house. It’s as simple as that.”

Tal also said Canada is in a much stronger place than our southern neighbour. His reasons:

• The duration of unemployment (which is “as important as unemployment rate”) is much lower in Canada.  That means Canadians can more easily get replacement jobs to pay their mortgage if they lose work.
• Canada has “three times more cash savings” than Americans per capita. This cash is waiting to be “redeployed.”
• “Income is rising twice as fast in Canada as in U.S.”  (Which is why Canadian consumer confidence is so much higher than in U.S.)
• “It’s all about (consumer) confidence,” Tal says.
• Canada will outperform all other G7 countries in GDP growth in 2010.

Tomorrow, we’ll cover insights from the conference’s lender panel…

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About CAAMP

The 2009 Canadian Mortgage Conference and Expo is a production of the Canadian Association of Accredited Mortgage Professionals (CAAMP).

Established in 1994, CAAMP is Canada’s national mortgage industry association. CAAMP has over 12,000 members, consisting of mortgage lenders, brokers, insurers and other industry participants.

Home Trust’s Accelerator Mortgages Post Strong Growth

Home Trust’s “Accelerator” line of “A” mortgages is now available coast-to-coast.

Home recently added four new provinces to its lending area: Manitoba, Saskatchewan, New Brunswick, Newfoundland/Labrador. Home also extended its lending areas in British Columbia, Alberta, Ontario, Quebec, Prince Edward Island and Nova Scotia.

The company has posted a 20% increase in mortgage originations over the last year. “The majority of that growth was fuelled from the Accelerator Products,” says spokesperson, Michelle Johnstone.

To keep up with its expansion, Home says it’s “hiring and building underwriting teams to support each region.”

Home Trust started out “over 30 years ago as an Ontario-based, Alt-A residential niche lender,” says Pino Decina, Senior VP of Mortgage Lending. Now it's grown into a national trust company with a $1.4 billion market value.

Decina credits brokers with Home’s rapid growth.  He says, “Our number one commitment is to continue delivering the great service and fast turnaround times to our brokers.”

Turner Predicts 10-15 Year Bear Market in Housing

Former MP and real estate author, Garth Turner, was on Globe Investor Thursday delivering his trademark warnings about real estate.

He told the Globe’s Rob Carrick that home prices would fall 15% nationally, 20% in Toronto, and 40% in Vancouver.

He said Canada’s real estate fall “has the potential to be as bad as in the United States." (U.S. home prices fell much more than 15%, however, toppling 30% from their May 2006 peak.)

On the other hand, Turner said Canada’s “financial system safeguards” should insulate us from a meltdown.  According to Turner, these safeguards include lower levels of mortgage securitization and CMHC’s backstopping of mortgages through its default guarantees.

Nonetheless, Turner says, "Get used to being poor if you just bought a house."  He predicts it could take 10-15 years before prices recover…once they start falling.

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Sidebar: Anyone who follows the markets knows a 15% price drop is realistic. In fact, market corrections are natural and 15% is far from catastrophic. Turner’s call on housing prices is, therefore, not really “news” or prophetic.

Turner made some critical comments about CMHC (calling it a “dirty old mom,” etc.). The media has been picking on this rhetoric and it’s perpetuating a hoard of misinformation.  We’ll run a story on this topic in the following week.

We do applaud Turner for one thing, and that is raising the level of concern. It’s sometimes good to alarm homebuyers a bit--just enough so they don’t overbuy or overextend themselves. In this way, like him or not, Turner adds value.