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Mortgage Bytes


  • Canadians were bitter when they heard that big banks might not follow the Bank of Canada and lower their prime rateBig-BanksBut what about fixed rates?  Author and mortgage expert Peter Kinch wonders why we aren’t more angry about these rates.  He says “banks have been raking it in for months and not passing the savings on to you.” Kinch suggests fixed rates could be at least 3/4% lower than they are now based on costs of funds.  In other words, he feels the banks are keeping fixed rates artificially high.  Well, the big banks must be listening. They cut their 5-year posted rates by 0.10% last week.  Tres generous!  Kinch’s story
  • John Lunam on the subprime fears plaguing our credit market:

    Picture a sausage factory: The makers fill their sausages with the best pork that they can find, but a piece that sat behind the machine for 3 weeks was tossed in and has made one sausage rancid. Most of the sausages are of good quality, but nobody is buying for fear of the bad one.

Mortgage Miscellaneous

  • “As a general rule of thumb, borrowers should investigate paying a penalty and breaking their contract when a 2% reduction in rate applies to the remaining balance of their term,” — Regan-Pollock of Invis.  Vancouver Province
  • Don’t forget the closing costs says The Province.
  • John Santos-Ocampo compares a reverse mortgage to a HELOC.
  • 63% of baby boomers still have a mortgage. 22% think their home will be their primary income source upon retirement.
  • Canadian banks have 56% market share in Canadian mortgages says the Vancouver Sun. Mortgage brokers now command 33%, and counting.

Interest Rate Trends

  • CIBC’s Benjamin Tal says the Bank of Canada “is likely to cut by another 50 basis points in its next move.”  He adds, “the likelihood is that by 2009, inflation will be notably higher as the economy recovers and oil and food prices remain elevated.  If the story of 2008 is
    of a recession/slowdown, subprime losses and lower interest rates, the story of 2009 will be of accelerating inflation and higher interest rates.”
  • Point:  The Bank of Canada will likely cut rates more than normal to counteract commercial banks’ reluctance to lend. Globe & Mail story
  • Counterpoint:  “There is no compelling domestic reason for a dramatic reduction in rates in Canada.” Vancouver Sun
  • RBC says 5-year fixed mortgage rates will “drop by about three-quarters of a percentage point by year end.”
  • “At some point, rates will revive and go up, but lower interest rates are likely to prevail throughout this year and into next year,” says Helmut Pastrick, chief economist for Credit Union Central of B.C.  Vancouver Province

Housing Market Trends

  • The average Canadian house rose 15% in value in the year ending January 31, says the Financial Post. The average U.S. house dropped 9% in the same period.  (Note:  CREA shows a Canadian gain of 9.57% in that timeframe)
  • Indeed, Canada’s high-end housing market is booming–especially in BC.  But MP Garth Turner is warning Canadians to sell their “McMansions” while they still can.
  • So far, Canadian home prices show no sign of weakness and mortgage defaults have been miniscule.  Analysts are keeping an eye on both metrics as 83% of the average Canadian’s net worth is tied to real estate.  680 News
  • It takes 30% of pre-tax income to buy the average condo in Canada.  It takes 48% to buy a typical 2-story house.  CP
  • Alberta home prices did something unique last quarter; they fell.
  • In BC, the housing market “sits at its most stressed point on record in terms of affordability,” says RBC.
  • 6.1% of BC renters say they have plans to buy a house, compared to 9.4% last year, according to consulting firm Altus Clayton.  Vancouver Sun
  • MoveSmartly’s John Pasalis says Toronto’s record 2007 real estate sales were largely due to “the introduction of 40-year mortgages.”  He says, 40-year amortizations helped “a lot of people who had been priced out of the market…suddenly afford to buy.”
  • What a turn of events in St. John’s, NF. Home prices there might jump 12% this year thanks to massive new resource projects. Apparently bidding wars are the norm these days. 100% financing has bolstered the income property market as well.  Investors snap up duplexes and two-apartment homes 24 hours after they hit the market.  CBC
  • Saskatchewan is “the new Alberta,” says RBC. House prices keep soaring and it might be the only province in 2008 to have an increase in housing starts over 2007.

Mortgage Industry News

  • AIG now allows 80% rental offset on a borrower’s entire income property portfolio (instead of just on the su
    bject property).
  • CitiFinancial is no longer approving applicants with prior bankruptcies “until further notice.”
  • and RE/MAX launched a new website to get RE/MAX agents to refer mortgage business to According to the site: “For each residential mortgage origination you refer to, and close with,, RE/MAX and will contribute up to 25 basis points (0.25%) to your [the RE/MAX agent’s] Retirement Savings Plan.
  • The Independent Mortgage Brokers Association of Ontario will hold its Annual Conference on May 8, 2008 at the Toronto Congress Centre.  It includes a trade show with 70+ exhibitors as well as several practical sales & marketing seminars.  (Hopefully CAAMP will offer these types of hands-on seminars at its annual conference.)
  • PMI Canada, the 4th largest Canadian mortgage insurer, says Quebec “may not grant PMI Canada’s request for (a) provincial license until the financial condition of The PMI Group and our U.S. mortgage insurance operations stabilizes.” PMI is licensed in all other provinces but has written only “a limited amount of insurance so far.”  PMI says “Competition in the Canadian mortgage insurance market is intense.”  PMI also acknowledges threats from “unregulated lenders” who self-insure (For example, First National).
  • Home Capital, parent of Home Trust, announced Thursday that its CFO was departing.
  • Last week we saw the biggest issuance of Canadian Mortgage Bonds ever:  $10.9 billion.  It was also the world’s biggest international debt issue this year according to Dealogic. Demand was so high that they were priced one-day ahead of schedule, at 0.58% above 5-year bond yields. It’s interesting to note that this spread has increased notably since last March’s 0.12%–especially since CMB’s are triple-A rated securities fully backed by the Canadian government.

The Economy

  • The Globe says the U.S. and Canadian economies are on different tracks.
  • The U.S. housing downturn is unprecedented says CIBC.
  • Are Canadian resources shielding Canada from recession?
  • “We’re not seeing increases in unemployment, we aren’t seeing a busting housing market, and I don’t think [Canada] will see a busting housing market,” says Merrill Lynch economist David Wolf.

Other Stuff

  • Ontario’s new power of attorney rules take effect April 7.  They’re designed to help curb real estate fraud perpetrated with invalid powers of attorney.
  • The Vancouver Sun did a story that listed various homebuyer stats:
    • 1/4 of Canadians aged 18 to 34 are homeowners
    • Of homeowners aged 25 to 39:
      • 22% bought their home by themselves
      • 76% bought with a spouse or common-law partner
      • 2% bought a house with other family members or friends
    • 83% of renters don’t wait to get married or engaged before buying.
    • The average age of first-time buyers was 32.5 (in 2006)
  • Rob Carrick notes a good source of bond data.
  • Canada’s non-bank asset-backed commercial paper will likely fetch 60-80 cents on the dollar once it starts trading, says the Vancouver Sun.  That’s gut-wrenching news for Canadian investors caught up in the mess.  Though it’s better than having worthless paper.  Now the group restructuring this ABCP debt has put it under bankruptcy protection–after missing last Friday’s settlement deadline.