Mortgage Rates & Mortgage Broker News in Canada

Why CHIP Rates Remain High

Most interest rates have dropped to historic lows in recent years…but not all of them.

One that hasn’t is the rate on CHIP reverse mortgages.

On October 12, 2009, CHIP parent HomEquity Bank announced its receipt of bank status. Bank status helped it significantly cut rates down to 5.90% for a 5-year term in October 2009 (that compared to almost 9% a year earlier).

Today, CHIP’s 5-year rate is 5.95%, which at first glance seems unreasonable considering that interest rate benchmarks like the 5-year government yield have nosedived 1.46 percentage points since October 2009.

But, as is often the case, there’s more to the story.

CHIP Reverse Mortgage Volumes Not Surprising to Some

One of the most evident trends in financial services is the growing demand for reverse mortgages.

HomEquity Bank confirmed that trend (again) by posting a 42% year-over-year surge in Q4 reverse mortgage volume.

President and CEO Steven Ranson commented: “…The (seniors demographic) wave is here…tremendous market demand is fuelling our strong growth in originations.”

Reverse Mortgage Facts

Noteworthy reverse mortgage stats from the Globe’s Rob Carrick:

• 36% — Average amount of home equity borrowed with a reverse mortgage
• 50% — Average equity remaining when a reverse mortgage holder sells his/her home
• 72 — Average age of a reverse mortgage customer
• 55 — Minimum age to get a reverse mortgage
• 12 — Average number of years people remain in their homes after getting a reverse mortgage

Free Closing Costs on CHIP Reverse Mortgages

For the first time ever, Canada’s reverse mortgage provider (CHIP) is waiving borrower’s closing costs.

This is a limited time promotion that saves seniors $1,495 on legal, closing, and administrative fees.

The promo applies to 3- and 5-year terms only. Borrowers must apply by Nov. 30 and close by Dec. 31.

CHIP Sees Traction With Brokers

25% of CHIP reverse mortgage originations have come from brokers this year, according to HomEquity Bank.

Last year it was only 15%.

There are at least five reasons behind this surge in broker referrals. Among them:

Debt till Death

Canadians may be living longer, but they’re also taking longer to pay off their debts.

CIBC released survey results recently that suggest 72% of Canadians hold some form of debt.

In a separate poll from HomEquity Bank, nearly half of the respondents said they expect to carry debt into retirement.

Moreover, 19% of those age 45-60 expect to still be paying off their mortgage into retirement.

Reverse Mortgage Growth

The National Post did a piece on reverse mortgages today. It’s been said before but it deserves repeating. The reverse mortgage market has immense growth potential. (Related story: Reverse Mortgage Statistics)

HOMEQ is leading the charge. It’s a compelling company because it essentially holds a monopoly in a rapidly growing business. HOMEQ's CHIP brand has a huge head start on would-be competitors, in terms of funding, distribution and name recognition. The company's stock (Ticker: HEQ) is something worth watching.

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Sidebar: There’s a correction needed to the Post story. It misquoted the following: “There is no application process [for reverse mortgages].”

There is, in fact, an application process, but it’s easier to be approved than a regular mortgage because reverse mortgages generally require no income confirmation.

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Rob McLister, CMT

Reverse Mortgage Statistics

5-year fixed terms dominate the mortgage business, but not the reverse mortgage business.

“Not many people take the three year and the five year (terms),” said CEO Steven Ranson in HOMEQ’s Tuesday conference call. (HOMEQ is parent of CHIP reverse mortgages.)

Between 40-45% of CHIP customers actually take variable rates (currently at 4.75%), says Ranson. The next most popular term is the one-year fixed (currently at 4.99%).

A Record Year for Reverse Mortgages

With a greater senior population, less savings, and lower investment returns, the demographics and growth opportunities keep improving for reverse mortgages.

"Our reverse mortgage offering is now widely recognized as a mainstream financial solution," said Steven Ranson, President and CEO of HomEquity Bank.

That’s starting to show in its numbers.

Mortgage Debt in Retirement

77% of baby boomers deem it “important” to pay off their mortgage by retirement, says TD. (Survey Link)

It’s good to see that number going in the right direction. RBC did a similar study in 2007 that found 66% of Canadians believe a free-and-clear home is important at retirement.

But many Canadian’s are not walking the talk:

The Latest Reality Check on Debt

Canadians' debt-to-financial assets ratio now exceeds that of all other OECD countries for which data is available.

That’s according to this new Certified General Accountants (CGA) study.

CGA’s report states that…

• 20% of Canadians feel they have too much debt--versus 17% in 2007
• 1/4 of respondents wouldn’t be able to handle an unforeseen $5,000 expense (The study didn’t note how many of these people had mortgages.)
• A 2% mortgage rate increase would require a 9% to 11% reduction in discretionary spending among middle to middle-high income families.
• 43% of Canadians are “concerned about their financial condition at retirement.” (The reverse mortgage industry will benefit from stats like this, as fewer seniors have sufficient savings apart from their home equity.)

This report comes on the heels of yesterday’s CAAMP survey, which estimated that 475,000 Canadians would be financially challenged if their mortgage rate increased to 5.25%. That’s on top of 375,000 others who are already finding it hard to keep up with mortgage payments.

There are 5.55 million Canadians with mortgages.

Prime Time for Reverse Mortgages

If there were ever a “best time in history” to get a reverse mortgage, now may be it.

• Home values are at record highs (maximizing the potential proceeds of a reverse mortgage)
• Reverse mortgage rates are at record lows (as low as 3.25%)
• Reverse mortgage rules are also more flexible than in the past (For example: Funds can be received over time instead of in one lump sum, and interest payments can now be made to reduce interest costs.)

The potential is high that reverse mortgages will not be as attractive this time next year.

• Interest rates are expected to rise (which would make it more expensive to take out a reverse mortgage).
• Home prices could fall (thus reducing the potential proceeds from a reverse mortgage)

So, if you’re over 60, in need of cash, and have sufficient home equity, now is as good a time as ever to consider a reverse mortgage.

Keep in mind one thing, however.  Reverse mortgages are not always the best solution. There may be less expensive options to create cash flow, depending on one’s circumstances.  Proper counsel from a qualified mortgage planner is therefore essential.

If you’d like to learn more about reverse mortgages here is a brief overview:  Reverse Mortgages Explained

Or, you can call or email any CHIP-approved mortgage planner for detailed information.

CHIP Cuts Its Reverse Mortgage Rates

 

HomEquity Bank cut its CHIP reverse mortgage rates significantly this week.

CHIP’s variable rate used to be 4.95%. Now it’s just 3.75%.

Rates on CHIP’s fixed terms have gone down as well—from 0.70% to 1.00%.

The reductions are due largely to HomEquity’s recent bank status. Arthur Krzycki Director, Marketing & Public Relations, says: “By Becoming a Schedule I Bank, HomEquity Bank has diversified its funding strategy and lowered its cost of borrowing.”

Krzycki says, “Access to retail deposits in the form of GICs is a significant advantage to the organization.”

That said, it’s interesting that CHIP cut rates so much. It didn’t have to. Currently CHIP has no direct competition in Canada. It’s biggest threat was Seniors Money, but Seniors stopped lending in Q2 2008. (Although, Seniors Money may be back by the new year--or soon thereafter, according to a source at the company.)

CHIP also competes with line of credit (LOC) providers, but the company says LOCs are more of a short-term solution. Krzycki says CHIP has an advantage because borrowers don’t need any income, don’t need good credit, and don’t have to make any payments until they sell their home.

CHIP even has an option whereby they’ll discount your rate ½% if you pay your interest in full each year. That puts the rate at 3.25% currently--the same rate as most secured HELOCs.

With 38.5% of Canadian wealth tied up in home equity, and an aging population, reverse mortgage popularity will only grow. In fact, for senior citizens, the wealth statistics are even more compelling. Gary Krikler, Chief Financial Officer of HomeQ, told the Calgary Herald that “77% of senior net worth is in home equity, and 17% view their home as their retirement fund."

Other miscellaneous facts about CHIP:

• You can receive your money in one lump sum or periodically (e.g., monthly, quarterly, etc.).
• Closing, legal and administrative costs on CHIP reverse mortgages are set at $1,495.
• Stock in CHIP’s parent, HOMEQ, is up 157% from its low last November.
• HOMEQ recently announced a $200,000 loss, but President Steven Ranson says, "Our immediate goal is to build on the tremendous achievement of becoming a bank, and to return to the growth rate we enjoyed prior to the financial crisis."
• Canada’s senior population could rise from 4.3 million in 2006 to 9.8 million in 2026, says CHIP.

If you’d like to know more about CHIP reverse mortgages, contact any mortgage planner, call CHIP, or jot us an email.

CHIP Reverses Reverse Mortgage Growth

CHIP, the country’s top provider of reverse mortgages, is doing fewer of them.

In fact, the company originated 42% fewer reverse mortgages in Q2 2009 than it did a year ago.

In its earnings report yesterday CHIP said: “Despite strong demand, (it) expects that originations during the third quarter will be between 50% and 60% of…Q3 2008.”

The main reason appears to be a capital-constraint.  CHIP simply doesn’t have enough low-cost capital and liquidity.

To fix this, CHIP intends to become a full-fledged Canadian bank.  That will enable it to accept deposits, which should hopefully enhance its capital position.  CHIP expects governmental approval of its bank in time for a “third quarter” launch.

Chief Executive Officer, Steven Ranson, said: “HOMEQ (CHIP’s parent company) continues to withstand the effects of extremely uncertain economic conditions well beyond our control..."  These conditions forced CHIP to make several changes in the last 12 months.  For example:

• “In mid 2008, to counteract the effect of capital market volatility, (CHIP) increased the interest rate charged for new mortgages.”
• “Steps have been taken to reduce the average mortgage amount for new customers.” (LTV is also down from 30% to 28% on its latest crop of mortgages)
• “Marketing activity has been scaled back, overhead expenditure is being closely monitored and sales territories have been rationalized.”

Until CHIP’s new bank comes online, the above changes may continue to have a negative effect on origination volumes.

On a positive note, the company is seeing improvement in the credit markets.  It says spreads have finally “returned to historical norms after deviating significantly over the last 2 years.”

CHIP has been in business for over 20 years and has a portfolio of roughly 7,000 reverse mortgages.

Mortgage Bytes

General News & Trends

• Refinances are driving the market. One major lender sent out an email last week saying that 90% of their new applications recently have been for refinances. 
• Falling home prices are playing havoc with people who want to refinance with little equity. If you bought a home a year ago and put down only 5-10%, odds are you have no room to refinance today.  You may even be underwater (owe more than your house is worth)—especially when default insurance premiums are factored in.
• With falling home values and credit delinquencies on the rise, lenders are being extra vigilant on refi’s. Marginal borrowers with maxed out credit cards and just enough home equity to cover them, are often being declined.  According to a recent report by Deloitte, "There is a high correlation between the percentage of the credit line being used and the likelihood of default." People who expect to carry big credit card balances after refinancing are therefore a red flag for lenders.
• What happens when you’ve bought a pre-sale home and prices drop before you close? Some buyers in this position are finding they can’t get financing and are facing lawsuits from their builder.  Here’s a story about it from Macleans.
• Here’s one (not so good) way to resolve a mortgage problem.  Kings Country Record Story
• "Grey-area borrowers who would have received the benefit of the doubt a year or two years ago may need to apply several places now before finding a taker.” – Montreal Gazette
• Here are the top 6 reasons CMHC declines borrowers according to one lender:
  1.  
     1. Borrower is considered weak
     2. Home value cannot be supported
     3. Stated income is too high
     4. Application was declined at another lender already
     5. Property doesn’t conform to guidelines
     6. Borrower needs a strong(er) co-signer

Mortgage Tips & Advice

• “If I were getting a mortgage in today's market, I'd definitely take a variable and take advantage of the historically low Prime while Canada works its way through this recession…We likely won't see the benefits from [the U.S. stimulus package] until at least a year or so according to experts and based on that assumption; I would say anyone floating in a variable should be safe until at least the end of 2009 - and with the market pressing for another ½ point drop in March, that's a good place to sit for a while.” – Mortgage Centre’s Peter Kinch
• If you have a home but want to move, should you sell first or buy first?  Sell first, says Realtor Amit Paul. Among other reasons, you don’t want to end up with two mortgages he says. (Metronews)
• Should you put a mortgage in an RRSP?  Here’s an opinion from Million Dollar Journey. More…
• Did you know? Ontario and Quebec are the only provinces to charge provincial sales tax on mortgage default insurance. Sales tax must generally be paid out of pocket at closing. GST is not applicable to insurance premiums.
• Need a $5000-$10,000 down payment for “free”?  If you are 18+, a renter, and make under $75,800, the Ontario government may have a grant with your name on it.  Act fast, though. The program ends March 31, 2009. More from Bankrate.com…

Canada’s Economy

• Canada’s real estate market is getting hit on multiple fronts, including a major wealth loss effect from the stock market.  Consider this:  “As of Thursday, the S&P 500 had fallen 56% in 513 calendar days from the peak. On Jan. 29, 1931 – the same number of calendar days following the 1929 crash – the S&P 500 was down 49%.” (chart) – Globe & Mail Market Blog
• Can we expect inflation in 2010? Scotia Capital’s Derek Holt doubts it.  He says, "We are dealing with a massive monetary contraction, the likes of which we haven't seen since the 1930s.  Even if this were a normal cycle it would take 30 months to four years before you would see an uptake in inflation coming out of recession…”  (Canada.com)
• Here’s a stat that lenders won’t like:  Canadian consumer debt was up about 10% in 2008. (Globe)
• With a 130% debt-to-disposable income ratio (including mortgages), Canadians now have a lower savings rate and a higher debt ratio than Americans. But it’s “higher quality” debt says CIBC’s Benjamin Tal. (FP) 
• Canada’s current account has fallen into a deficit for the first time in 10 years. (CIBC)
• Canadian credit card balances have soared 40% since 2004!  (Macleans)
• As Canadian jobs are being lost, bankruptcies are going up—fast. More…
• Yes, this stuff is all pretty depressing.  Then again, sometimes it rains the hardest right before the sun comes out.

Mortgage Factoids

• The average Canadian homeowner has 70% equity in their home. (Globe)
• Interesting reverse mortgage data from the Vernon Morning Star:
  • Canada’s reverse mortgage market is estimated at $9 billion.
  • 85% of homes owned by seniors are mortgage-free. That’s 1.45 million homes.
  • Roughly 75% of “all reverse mortgages are paid out within the first 15 years of the loan.”

Real Estate Market

• 2009 home price predictions:
  • Canadian home prices will drop 10% in 2009 thinks Scotiabank economist Adrienne Warren. (Globe) 
  • Royal LePage is more optimistic and says 3%.
  • The Canadian Real Estate Association expects an 8% decline.
  • TD economist Pascal Gauthier is looking for a 11% drop. (FP)
• 27% of Canadians plan to buy a new home in the next 24 months.  83% say home ownership is a good investment--down from the all-time high of 90% in 2006.  65% feel we’re in a buyers market.  (RBC Survey)
• Toronto new home sales were down 69% YOY in January!  (FP)
• Atlantic Canada may buck the falling home prices trend this year. (CEP)
• Vancouver may not be so lucky, with a 11% price decline expected by CMHC in 2009. (CEP)
• Speaking of Vancouver, it’s the 4th least affordable city in the world according to this survey. Cape Breton Island in Nova Scotia is Canada’s most affordable locale. Vancouver Sun Story…
• “Our (real estate) market suffers from a 'Perception Gap'! Today's potential buyers think that sellers have to sell at any price and that they can just 'low ball' the offer,” says Re/Max Condos Plus. Sellers, meanwhile, think they can get the same price they could a year ago. More buyers and sellers need to meet in the middle.  Only then will we witness the absorption needed for price declines to end.

Rate Trends

• Variable rate mortgages may save you money over the next two years, but it’ll be a wash over five years when compared to fixed rates.  That’s according to CIBC economist Benjamin Tal as quoted by the Winnipeg Sun.  Tal says, “If you're really risk-averse, jump on those fixed-term rates because they're extremely cheap…Going variable probably will give you good performance for the next two years or so and beyond that, we might see interest rates rising he says.  Tal sees higher rates in 2011.  (His estimates have moved out a year it seems.  They used to be 2010)
• The three big all-in-one mortgages (National Bank All-in-One, Canadian Tire One & Only, and Manulife One) are once again all at the same rate:  prime + 1%.  Canadian Tire and Manulife have both raised rates 1/4% in the last week or two.
• “We see an increasing tilt towards a further 25 basis point cut (by the Bank of Canada).” – TD Economics
• “Over the past 6 months, a bubble of government bonds developed as investors sought refuge in the face of massive deleveraging...These high bond prices (and) low yields are not expected to be around for long, and will probably end badly, as have all other bubbles. Policy makers have set rates at historic lows to encouraging more borrowing to bailout an economy that has been scuppered by too much debt. A by-product of low rates is that it will eventually force savers further out the risk spectrum in search of a decent rate of return.”  In other words, bond yields may rise in the not-to-distant future, says Assante financial advisor, John Lunam.

Broker News

• The volume of Canadian mortgages was up 10.6% in January YOY. (TD)
• On other other hand, CIBC says:  “With the average size of mortgage falling by 5%-10% due to declining home prices, this means that over the next twelve months we might see very limited and potentially no growth in the overall mortgage market. With the 5-year mortgage rate approaching all-time lows, refinancing activity is accelerating. We expect this trend to continue for at least six more months.”
• Banks have been securitizing more mortgages and leaving less on their balance sheets. TD, for example, saw its balance sheet mortgage assets decrease $5 billion in the last quarter as it sold off more of its mortgages to investors and the government. TD says it securitizes residential mortgages “to enhance its liquidity position, to diversify sources of funding, and to optimize the management of the balance sheet.” (CAAMP)
• CLAF—the government’s interbank lending guarantee--is now available to banks, but it may not be too popular.  "I don't think anybody feels that they need it," said TD economist Don Drummond. "There is a fairly steep price associated with it -- so you would have to be fairly desperate to want to use it." (FP)
• Lender Equitable Trust reported record earnings last week, up 23.9% YOY.  Single-family mortgage originations grew 7.8% while commercial mortgage volume fell sharply.
• Canada’s #1 reverse mortgage lender, CHIP, has applied to become a bank. CHIP hopes to start its bank in Q3 2009. (Investment Executive)
• U.S. banks are increasingly bypassing brokers.
• Home Trust’s earnings last quarter were up 19.9% YOY. Mortgage originations were up 11%.   CEO, Gerald Soloway, says: “We are more confident lending on current house valuations that are 10% to 15% lower than their recent historic highs. As a result, we are cautiously returning to lending at our traditional lending criteria and over time a larger portion of our mortgage originations will remain on our balance sheet.” (CNW)
• Xceed’s net income last quarter was $1.8 million. It seems the company is executing its turnaround from the 2007 ABCP disaster reasonably well.  However, CEO, Ivan Wahl, said:  “The level of fundings in the 2008 fourth quarter significantly lagged the target that we have established. This reflects both the weakening economy in Canada and the fact that we are still developing our relationships with mortgage brokers across the country.” Wahl also said it is still “not possible for Xceed or others to securitize uninsured mortgages, as we did in the past. We hope that new financing vehicles eventually will be created that will enable us to return to our past focus of offering non-traditional mortgages to those Canadians who should be able to access such funding to buy homes.” (CNW)
• In 2006, CIBC World Markets said: “Overall, look for originations in the non-conforming market to rise by an annual average of 20% in the coming five years — more than double the pace expected for prime mortgage lending.”  Well, the subprime blow-up has completely derailed that possibility.  Many think it will now take several quarters for any significant growth to return to Canada’s subprime market.
• CAAMP’s Ontario Mortgage Symposium & Trade Show is Wednesday March 11 at the Pearson Convention Centre in Toronto. More info…(PDF)
• Genworth has 6 new online AMP-accredited e-learning courses. Course List
• Reverse mortgage growth was minuscule at CHIP in 2008: 2% versus 2007.  CHIP’s average LTV is 36%.  More…
• Here’s a recap of certain lender moves from the last month or so:
  • TD has enhanced its Mortgage Payment Extension Policy for customers who are experiencing temporary financial hardship. TD mortgage customers may request to defer the equivalent of up to four monthly mortgage payments over the term of their mortgage. Interest accrues on these deferred payments. This option is not available to those in arrears. TD customers must contact their branch for more information.
  • Merix Financial increased its minimum Beacon scores for BFS borrowers last month. An “increase in (BFS) delinquencies” was reportedly the reason for the move. BFS borrowers now require a 700 credit score at Merix for LTV’s over 90%, and 680 for 65.01% to 90% financing. Merix also no longer finances clients who’ve had a bankruptcy.
  • Merix has added a “skip a payment” option to its mortgages.
  • Bridgewater “temporarily” suspended its cash-back mortgages.
  • MCAP upped its minimum Beacon to 680 (from 650) for BFS and 100% commissioned borrowers who want to borrow up to 90% LTV.  For salaried borrowers, the beacon score requirement is also now 680.

Seniors Money - An Update

Seniors Money launched in Canada just over a year ago.  What timing.

As Canada's second major player in reverse mortgages, the company's launch was soon met by one of the most challenging credit markets of the last century.  As a result, the company was forced to halt new business earlier this year because it ran out of capital sources.

Despite these challenges, however, Nick DiRenzo--president and CEO of Seniors Money Canada--is seemingly as optimistic as ever.  In an interview last week, it was quite clear that the company's goal is to re-launch as soon as possible. 

At the moment, Seniors Money's priority is to secure a solid ongoing source of funding.  To that end, it is talking to various parties that can't be disclosed just yet.

Finding the right financing partner hasn't been the easiest of tasks.  'Mortgage' has been a bad word to most big investors for the last several months.  It's something that's been frustrating to the company because Seniors Money is very well established in other parts of world.  It's a global company founded in New Zealand and its loans perform very well. 

Furthermore, the company is financially stable.  There are "lots of people willing to give us equity," says DiRenzo. "That is not the problem."  It's financing individual new deals that's the problem.

Another challenge facing Seniors Money comes from being the new kid on block.  As a result, the company has found it tougher to raise capital than a company like CHIP, Canada's biggest and oldest reverse mortgage lender.

**********

So what will it take to get Seniors Money back in full swing? 

It's likely that the institutional lending market will first need to open up again says DiRenzo.  That means the life insurance companies, pension funds, etc. will have to become more willing to lend in the mortgage market.  In the meantime DiRenzo said, "While we're not originating new loans at the moment, we are managing our portfolio and it's performing very well."

DiRenzo feels the opportunity that exists is considerable once funding is secured.  "A reverse mortgage is like buying a bond," he says.  "It's a sound investment made at 25% of value on average."  With that kind of security, it's just a matter of waiting for the right investor to realize that Seniors Money's business model makes good sense.

Whatever the case, the reverse mortgage market will grow in leaps and bounds as Canadians age and save less.  Having Seniors Money back in the market could benefit investors, as well as Canadian borrowers who desperately need choice in this segment.

Mortgage Bytes

General Mortgage News

• Despite higher rates and tighter credit, Canadian mortgage lending volumes are up 7.7% in the past year.
• Are more subprime customers on the way? CIBC economist Benjamin Tal says personal bankruptcies could jump 15% in the next 12 months. They were already up almost 30% in September.
• "Past studies indicate that when times get tough, investment properties are the first to go into default." - Mortgage Centre's Peter Kinch
• “You will see a lot of smaller players going by the wayside. They just can’t get credit,” says developer Ward McAllister. “Many projects are being shelved right now." (Journal of Commerce)
• Some alternatives to 100% financing.
• Mortgage credit tips.
• Million Dollar Journey has a primer on reverse mortgages.
• No U.S.-style mortgage meltdown here says BMO.

Housing Trends

• 13%.  That's Central 1 Credit Union's median projected decline in BC housing prices in 2009. For 2010 they see prices falling another 5%.  (Kelowna Capital News)
• "Historically, real estate prices increase by about 3% per year plus inflation." - RE/MAX Condos Plus
• CMHC expects Canadian housing prices to rise a lusty 0.25% next year. (Financial Post)
• Montreal home prices are up 6% over last year. Tres bien!
• TREB says Toronto home prices are down 10% versus last year. (Globe & Mail)
• About 1/2 of the condo investors in downtown Toronto rent out their units. - Financial Post
• This story from Real Estate Intelligence shows that home prices in 7 provinces/territories are up year-over-year...a lot in some cases.
• "Real Estate is a local market...national stats...mean nothing." - RE/MAX Condos Plus
• "Headline [housing price declines] reflect a current weighting for each city, which leads to a significant bias to the overall average price...the national headline number is down by close to 6% (year-over-year) last month, but if properly weighted, house prices fell by only 1%." - CIBC economist Benjamin Tal
• "There appears to be a good chance that housing will be more affordable in late winter due to a combination of softer prices and lower mortgage rates." - Gordon Pape
• Merrill Lynch economist David Wolf warns there is a "high correlation" between Canada's home prices today, and those in the U.S. a few years ago. (Financial Post)

Economy

• "The Bank of Canada will likewise ease another quarter point before year-end." - CIBC World Markets
• It's not just the U.S.  Credit markets around the globe are in desperate straights. Take the UK for example. They slashed rates 1.5% last week--which is almost unheard of. Only during the 1981 recession have they ever cut more.
• "The worst part for the economy is largely still ahead of us. The speed at which things are deteriorating is alarming.'' - Scotia Capital's Derek Holt (TheRecord.com)

Miscellaneous

• Even the Donald has financing troubles.
• The U.S. government hands out a 38% discount on mortgage payments to selected homeowners.
• 26 Ways to make your home sell faster.

Mortgage Bytes

Commentary

• Canada's mortgage credit slump started just over a year ago, when the bottom fell out of the ABCP market.  Since that time, the AMBA says 18 lenders have pulled out of the Canadian mortgage industry.  Dozens of others have cut products and notably tightened lending standards.  Based on the estimates we heard from lender executives last fall, the credit markets have taken longer than expected to revert to normal.  Some in our industry now think it could be next spring or longer before credit loosens up for subprime borrowers.
• "The official Alberta Mortgage Brokers Association's position [regarding the federal government's new mortgage restrictions] is that the market should be allowed to function on its own with very limited government involvement," says AMBA's Frank Hickey. AMBA suggests the new rules will hurt housing demand and may lead to a "crisis of confidence in the real estate and mortgage markets."
• A comment from a Real Estate Talks visitor on the Smith Manoeuvre:  "...how does that work if your property drops in value, say 10%, and your investment makes 5%, and you are paying 6.5% on the loan, which goes up to 8%? There's better ways to die broke." We thought we'd post this opinion because it encapsulates the short-term risk of the strategy and emphasizes the importance of a long-term time horizon.

Interest Rates

• Does anyone really know where rates are going?  Not if you listen to the big economists.  The contrasting opinions that follow illustrate this.  Invis's Gary Siegle says, "If trained economists can't agree on where interest rates are going, how could the average consumer do so?"
• CIBC is looking for a 1% hike in prime rate by September 2009.
• Counterpoint: "We think the downside risks to Canadian growth are mounting and the pressures on inflation are ebbing gradually and that should give the Bank of Canada room to cut by half a point." -- Scotiabank, via CEP
• Counter-counterpoint:  "A weaker CAD removes an important factor that had helped keep Canadian inflationary pressures under control...With monetary policy already stimulative, the [Bank of Canada] is unlikely to corroborate market expectations of at least one rate cut by year end." -- RBC strategist David Watt, via CEP
• "The bond market isn’t fully braced for what lies beyond that in 2009—a fairly aggressive rate hike cycle that will be needed to ward off the spillover from food/energy prices into core inflation." -- CIBC World Markets
• "Today, prime has flattened and is poised to go up -- It's simply a matter of not if, but when and how much.  So now might be a good time to look at locking in." -- The Mortgage Centre's Peter Kinch
• "Assuming commodity prices stabilize around where they are, or at somewhat lower levels, the peak headline inflation numbers should begin to look a little bit better next year." -- Scotiabank economist Adrienne Warren, via Financial Post
• The Bank of Canada will ponder 2nd quarter GDP on Thursday.  It's the last big piece of economic data before the BoC's interest rate meeting September 3.
• 5-year bonds, which drive fixed mortgage rates, crept higher last week. They're currently yielding 3.17%.
  • The average yield in the last year has been 3.57%
  • The high has been 4.43% (on October 9, 2007)
  • The low was 2.74% (on March 17, 2008)

Housing Market

• Desjardins says housing affordability has increased 10% in the last two quarters thanks to falling home prices and mortgage rates.  "Affordability" is the ratio of disposable income to the income needed to qualify for the average Canadian mortgage.  The all-time low in affordability was in 1990.
• Edmonton's Real Estate Board says don't panic!

Miscellaneous

• A chart of inflation since 1990 -- Courtesy of RBC (The core inflation figure is displayed)
• Off-the-Wall Mortgage Product of the Day:  BMO offers an 18-year open mortgage at 8.95%.  Hmmm.  Would anyone ever hold an open mortgage at that rate and term, given all the alternatives below prime?
• Reverse mortgages are based largely on your age.  The older you are, the more money you'll get.  Here's a table from Seniors money that illustrates this.
• Ed McMahon has avoided foreclosure!
• Canadians' debt-to-income ratio (i.e.  household debt-to-income), has leaped from 122% to 130% in the last year.
• Crucially Unimportant Fact of the Day...  Did you know that if you sell a mortgaged property in the Monopoly board game, the player buying it has two choices: A) He/she can repay the principal and 10% interest and lift the mortgage immediately; or, B) He/she can leave the mortgage intact, but must pay 10% of the mortgage value immediately as a "transfer tax". He/she must also pay the normal 10% interest when the property is later un-mortgaged.

Mortgage Broker News

• There aren't many mainstream lenders left with 40-year amortizations and 100% financing. The ones that remain have been pretty busy.  Merix, for example, has been on a small hiring spree lately to help handle its increased volume. As we approach the October 15 deadline (when 40-year and $0-down insured mortgages disappear) the remaining lenders offering them will likely get even busier.
• Many think negatively of the subprime market, but it's sure been profitable for Home Trust.  The "alternative" lender's mortgage volume rose 42.5% in the last year.  Profits jumped 21%.  Home Trust has a deposit-taking model that's fared better than most lenders who rely on securitization.  That said, Home's securitization activities have reportedly offered a lower cost of funds than its deposits lately. Separately, CEO Gerald Soloway sees a lot of "low risk growth opportunities" this year, thanks to many of its competitors leaving the Canadian market.  GE Money's departure is case in point.
• "We're seeing that mortgage lenders are putting a brighter face on things than they were two months ago." -- Bruce Cran, president of the Consumers' Association of Canada, via The Canadian Press.
• We hear Merix may be adding a 10-year term in the next few months to their popular HELOC product.
• MortgageBrokers.com posted revenue growth of 72% last quarter. Total sales were $4.03 million.  As of June, MortgageBrokers.com had 403 agents (up 47%) and 36 offices.  Its stock price is currently $0.15 a share.  SEC
• CMP reports that over 1/3 of Ontario mortgage agents weren't compliant with FSCO's July 1 licensing deadline.
• CHIP reverse mortgage originations rose 17% to a record $39 million last quarter.  CHIP's average loan-to-value is 36%.  The company also recently inked a distribution agreement with Multi-Prets, Quebec's biggest mortgage broker.
• CAAMP has a new website for this year's Expo in Vancouver, BC.  The event is Canada's biggest mortgage trade show. Attendance at this year's show should top 1,800.  Stats from last year:  52% of attendees were mortgage brokers. 30% were lenders.
• CAAMP is launching an e-directory in January 2009 that will allow members to update their own contact information.  Hopefully that includes members' website addresses as well.
• Seneca College has been given "sole" rights to provide FSCO-required education for mortgage brokers. The new course starts this December. (Note: This information applies to ON brokers only, not agents)