Mortgage Rates & Mortgage Broker News in Canada

CAAMP Head in Ottawa

Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals (CAAMP), was in Ottawa today.

He had a series of meetings with members of the House of Commons Finance Committee and with Finance Minister Jim Flaherty’s office.

CAAMP has been providing data to the government to assist in its review of the mortgage finance system.

TD CEO Talks of Self-Regulation

TD Bank CEO Ed Clark suggested yesterday that the government may let banks tighten lending standards on their own, as opposed to a government-mandated “major tightening” of mortgage rules.

“They’re worried that the Canadian economy is slowing down right now and [major rule changes are akin to] taking out a bazooka,” Clark told Bloomberg. He said policymakers prefer that banks “tweak” their own lending guidelines. 

“Risk-Off” in the Canadian Mortgage Market

There’s a growing air of uncertainty in the mortgage industry, one we haven’t sensed since the tail end of the credit crunch.

Regulators, media and politicians are waving the caution flag on housing and mortgages, and the foundation of our market (CMHC) is suggesting they’re running out of insurance room.

This has much of the industry in a risk minimization (“risk-off”) mode. In turn, mortgages that are not insurable, income-qualified and owner-occupied are now attracting more scrutiny.

Here’s what we’re hearing…

CMHC Insurance Limits: A Wake-up Call for Lenders

Many have now seen this National Post article.

The gist of it: CMHC is approaching its $600 billion government-imposed limit on issuing mortgage default insurance. That’s happening largely because of lenders’ enormous appetite for something called portfolio insurance (a.k.a., “bulk insurance”).

No one fully grasps the repercussions yet, but our sense is that the news is not great (at least in the short-to-medium term) for mortgage consumers, smaller lenders and brokers.

On the other hand, it may be healthy long-term for the housing market. Here’s why…

Comparing New Amortization & Down Payment Rules

Government mortgage restrictions instituted from 2008-2011 have not achieved their goal, suggests Desjardins’ Senior Economist Benoit Durocher.

He wrote this on Thursday:

“…The third series of [government mortgage rules] was announced nearly a year ago now, and we must conclude that the tightening introduced to date has not
slowed the market enough.

Under these conditions, it is likely, and perhaps even desirable, that the federal government will shortly announce a fourth series of measures to further limit mortgage credit.”

It almost sounds like Durocher has some inside info.

Interprovincial Mortgage Brokers

The Internet has made doing business possible across the farthest reaches of the globe. It’s not surprising then, that technology is fostering mortgage brokering across provincial lines.

More and more, we see out-of-province brokers advertising and quoting rates in other provinces. This is making the mortgage market more price-efficient and lowering costs for consumers.

While some brokers may resist this development (and disdain far-away brokers who compete in their vicinity), interprovincial brokering is here to stay and it’s a trend that’s growing.

OSFI Issues “Early Warning” on Mortgage & HELOC Lending

Canada’s lending industry is witnessing rock-bottom interest rates and unrelenting competition.

The former has fuelled borrowing volumes. The latter has been known, on occasion, to encourage looser lending criteria.

Together, the two can be destructive to a banking system and economy.

That’s why OSFI (Canada’s banking regulator) is being proactive. In a speech today, OSFI head Julie Dickson laid it out like this for financial institutions:

U.S. Default & Canadian Mortgage Rates

We’ve all heard about the impending fiscal calamity south of the border. The issue, of course, is whether lawmakers in the U.S. will increase the $14.3 trillion debt ceiling by August 2 (or thereabouts) so the U.S. can pay its bills.

That’s got many Canadians concerned about how this mess will impact interest rates north of the border.

Q&A With FICOM CEO Carolyn Rogers

We recently had a chance to run a few questions by Carolyn Rogers, CEO and Superintendent of the Financial Institutions Commission (FICOM), B.C.’s mortgage broker regulator.

Rogers shares her perspective into issues such as the duties of mortgage brokers, reciprocal provincial licensing and areas to be aware of when brokering online.

That discussion follows here:

Mortgage Advertising in the Internet Age

With mortgage advisors increasingly using the web to advertise their services, it’s becoming more and more important to ensure the information being posted is accurate and not misleading.

This applies to all kinds of mortgage-related advertising, be it rates, promotions or specific services being offered.

Advertising by mortgage professionals is governed largely by:

• The Competition Act
  • Civil cases involving false or misleading advertising can carry up to a $750,000 fine for an individual on a first order, and up to a $1 million fine for each subsequent order. Corporations could face fines up to $10 million on a first order, and $15 for subsequent offences.

CMHC Corrects Two Critics

CMHC has called out both David Madani (Capital Economics) and Finn Poschmann (C.D. Howe) for questionable statements they made over the past few weeks.

CMHC’s response to Madani

CMHC’s response to Poschmann

CMHC’s responses, made Friday, countered various critical points made by Madani and Poschmann in their reports.

Among other things, CMHC stated:

Most Banks Move To 30-year Conventional Amortizations

BMO, Scotiabank and TD have all confirmed that, effective March 18, they will restrict both high- and low-ratio mortgages to 30-year maximum amortizations (even though the government’s new rules only require that high-ratio amortizations be limited to 30 years).

CIBC and ING Direct haven’t issued a verdict yet.

As for RBC, it too says, “We have not made a final decision on whether we will offer 35-year amortizations on conventional mortgages.” 

New Mortgage Rules Now Official

Effective March 18, 2011, it will become harder to buy a new home or consolidate debt into your mortgage.

That’s due to three new changes announced today by Finance Minister Jim Flaherty:

1. A 30-year maximum amortization on insured mortgages over 80% LTV
2. An 85% LTV limit on insured refinances
3. Elimination of government insurance on secured lines of credit (aka., HELOCs)

Flaherty says these regulations are meant to “(encourage) hard-working Canadian families to save by investing in their homes and future.”

Here is the full press release.

More to follow…

New Mortgage Rules to be Announced Monday, Say Papers

If CTV, the Globe, and the Post are right, Canadians can say goodbye to:

• Refinances up to 90% LTV
  (Insured refinances are reportedly being cut to 85% LTV maximum)
• 35-year amortizations on high-ratio insured mortgages
  (The maximum is reportedly being cut to 30 years)

These papers quote sources claiming the government will announce these changes today.

On New Mortgage Rules

Doug Porter and Benjamin Tal on the possibility of the government enacting new mortgage rules:

• “I don’t think it’s a foregone conclusion that they do anything.” – BMO’s Doug Porter
• “I will not be surprised if they leave mortgages alone and deal with other loans. It’s not just a mortgage story, it’s an overall story. A lot of the debt that you see in non-mortgage loans are basically real-estate-type loans as well, so they’ll attack the whole space if they do anything.” – CIBC’s Ben Tal

Source: CTV

Flaherty Suggests Banks Self-Regulate More

Banks need to control their own lending and not rely on the government to do it for them.

That’s essentially what Finance Minister Jim Flaherty told Bloomberg News yesterday.

“The primary responsibility for prudence in lending practices rests with the financial institutions,” he said.

Just as importantly, individuals “need to take responsibility for what they do and exercise common sense in terms of taking on debt.”

Thanks Europe & Asia

The market for Canada Mortgage Bonds (CMBs) has jumped to over $189 billion today from less than $10 billion in 2001, and foreigners love ‘em.

Foreign investors love CMBs so much, they bought 37% of last week’s issuance. (25-30% is normal.)

“All kinds of new names are becoming interested in Canada and specifically in housing bonds,” BMO economist Doug Porter told Bloomberg.

This international zeal for our debt has benefits. Most notably, it shrinks the risk premium (spreads) that investors demand from CMBs—when compared with AAA government bonds of the same maturity. 

This, in turn, saves Canadians some basis points off their mortgage rates.  It’s tough to quantify how much higher spreads would be without foreign buying, but let’s call it 10 basis points for conversation.  Ten basis points on a $200,000 mortgage buys about 80 coffees a year—not enough to retire on, but enough to say: “Thanks Europe & Asia.”

New Regulations for LOCs and Mortgages

The Department of Finance (DoF) put new credit card regulations in force yesterday. A few of the rules also apply to credit lines and mortgages.

The DoF says the new regs are designed to “ensure that consumers have access to credit on terms that are fair and transparent.”  It told us the following regulations will now apply to secured and unsecured lines of credit:

• A prominent summary box must now appear on credit contracts, disclosing all material fees, rates, etc.
• New restrictions now apply to debt collection practices (for example, lenders can no longer hound delinquent borrowers after certain times of the day)
• All credit disclosures must be made in language that is “clear, simple and not misleading”
• New rules now specify when statements and rate change notices must be sent to consumers

The following regulations now apply to mortgages:

• The requirement to provide a summary box on the mortgage contract
• The above restrictions on debt collection practices

More Background…

Most Broker Functions Exempt From GST/HST

Earlier this year, brokers got a scare when CRA issued a notice that potentially applied GST/HST to brokering activities. Prior to this, mortgage broker services had long been one of the many exempt financial services.

Since that time, CAAMP (the industry’s trade group) has advocated steadfastly to protect the exemption.

One of the things CAAMP did was engage tax expert, KPMG, for consultation on the matter. KPMG has since issued this advisory.  Below is the gist of it…

The most recent development in all this came on June 30. That’s when the Department of Finance issued these revised Explanatory Notes.

These explanations confirmed that “arranging for” the issuance of a mortgage loan does not constitute a GST/HST taxable service.

But what does “arranging for” mean?

KPMG says that CRA bases the definition on five measures:

• The broker’s degree of direct involvement
• The broker’s time expended 
• The degree that borrowers & lenders rely on the broker
• The intention of the broker’s activities
• The broker’s normal activities in the mortgage industry

(Click here for KPMG’s full analysis)

In essence, KPMG confirms that brokers who actively process and submit deals to lenders in exchange for a commission on closing, are exempt from GST/HST.

On the other hand, consultants who merely refer clients to brokers, with little other involvement, are not GST/HST exempt.  KPMG suggests that CRA could apply this non-exempt definition to certain agents, depending on the circumstances. For that reason, KPMG suggests brokers and consultants/agents “review the nature of their service agreements, the nature of their services, and the facts under their particular circumstances.”

Update on Mortgage Penalty Standardization

In March, the government promised to “bring forward regulations” to standardize the calculation and disclosure of mortgage pre-payment penalties. This was a welcome gift for consumers who are fed up with large and confusing IRD penalties.

As we speak, the Department of Finance (DoF) says it is “working on new regulations.” Those regulations are “aimed at bringing greater clarity to the calculation of mortgage pre-payment penalties.”

Details are sketchy at this point, and the DoF says it cannot “speculate on specific measures at this time.”

It says, “The next step in the regulatory process will be the publication of the draft regulations for public consultation.”

Those draft regulations are expected to be published “before the end of the year.”

The changes would only apply to federally-regulated lenders. However, it’s possible that other lenders will conform to federal guidelines to remain competitive.