Mortgage Rates & Mortgage Broker News in Canada

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. 

Avoiding Policy-made Crises

A mortgage executive at a major bank (who requested anonymity) wrote to us today saying:

“Mortgage policy decisions are being made that may lead to the very outcomes that we are trying to avoid.”

He’s referencing the potential rule tightening and new mortgage liquidity constraints that are making headlines.

Both of those factors could raise the cost of mortgages and adversely impact homebuyer demand. These are risks, he says, that could cause a natural housing correction to snowball into something worse.

“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…

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.

No Bubble, Says Flaherty

The government would need to see “clear evidence of a bubble in the housing market” to impose tighter mortgage rules.

“We have not seen (that),” Finance Minister Jim Flaherty told reporters Wednesday.

It would take “dramatic surges in prices in some part of the country” to constitute a bubble, he added.

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:

Rogers Bank Adds to OSFI’s Inbox

Rogers Communications wants to add banking to its mix of wireless, cable and media holdings. The Globe reports that it already has a bank application with OSFI (Canada’s banking regulator).

At this point, Rogers appears to have no plans to venture into mortgage lending.

Its application adds to the list of 12 bank applications currently pending at OSFI.

Mortgage Apprenticeship

Plumbers can't get a licence without an apprenticeship.

Makes sense. You wouldn’t want a botched pipe job putting your house under water and costing you thousands.

The advice of a mortgage banker or broker could cost you just as much—if it’s bad.

That might make you wonder: Why is there virtually no legislation to ensure that bank reps and brokers have the practical knowledge to advise you properly?

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:

IFRS & Mortgage Rates

IFRS. You’ll hear more about this acronym as time goes on. It stands for International Financial Reporting Standards and it’s basically a newly-adopted set of accounting rules.

The relevance here is how IFRS will impact Canadian mortgage rates.

The first effect of IFRS that we noticed was with Home Trust’s prime mortgage rates. Home’s “A” rates have soared to 70 basis points above the market. Home Trust President, Martin Reid, explained why.

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.

New Rules Good For Banks: Moody’s

The government’s new mortgage rules are “credit positive for Canada’s banking system,” says ratings agency, Moody’s.

Ya think?

The banks wouldn’t have campaigned for these rules if they weren’t credit positive.

Top 10 Effects Of The New Mortgage Rules

We may not go 10 for 10, but crystal ball-gazing is fun nonetheless.

In this humble of spirits, we present ten trends to watch out for in 2011, courtesy of Flaherty & Co.’s new mortgage regime:

CMHC Clarifies Refinance Exception

As most know by now, the government will ban insured refinances over 85% loan-to-value on March 18.

This has raised a question about mortgages registered as a collateral charge (like those offered by certain banks [e.g., TD] and credit unions).

Moving a collateral charge mortgage generally requires a refinance. However, the Finance Department’s Monday announcement didn’t carve out an exception for them. Therefore, it appeared that some people might be prevented from switching lenders if their collateral charge mortgage had an LTV higher than 85%.

We’ve now received welcomed clarification on this policy from CMHC.

More on Today’s Mortgage Changes

Jim Flaherty says today’s new mortgage regulations—the 2nd major round of changes in 11 months—are meant to “(encourage) hard-working Canadian families to save by investing in their homes and future.”

He says the new regulations are warranted despite the fact that “Most Canadians are quite careful and use common sense in their borrowing...”

That said, there’s no doubt that debt risk has increased. Overall credit levels have climbed faster than income to worrisome proportions. Most agree it was wise for the government to step in and shield the economy from the minority of overborrowers.

Unfortunately, the government performed this debt surgery with a butcher’s knife instead of a scalpel.

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.

100% of Condo Fees May be Used for Qualification: National Post

A National Post source claims the government may start requiring that 100% of condo fees be included in debt ratio calculations for insured mortgages.

Currently, lenders use only 50% of condo fees for qualification purposes. That’s because condo fees include things like property maintenance, insurance, contingency funds, and sometimes even utilities (like electricity or cable TV), all of which are not used in debt ratio calculations for free-hold properties.

Debt Growth is Moderating, BOC Deputy Says

Higher mortgage rates and stricter mortgage rules are starting to take effect, though Canadians’ debt levels are still too high for comfort.

That was the message from Agathe Cote in her first public speech as a deputy Bank of Canada governor on Monday.

Here’s a sampling of key points from her address yesterday in Kingston, Ontario:

• The Bank of Canada’s rate hikes and government’s new mortgage restrictions, including more stringent qualifying conditions, higher down payment requirements on rental properties, and lower LTVs on refinances, are “beginning to have an impact” in moderating debt risk.