2008 kept the mortgage industry on edge. Subprime mortgages unraveled the U.S. economy, stock markets caved in, commodities boomed and busted, and Canadian real estate began deflating.
On the mortgage front, things disappeared as a result, including: lenders, products, variable-rate discounts, generous appraisals, and underwriting exceptions.
These things all played a part in the five developments below, which comprise CMT’s top mortgage trends of 2008…
Trend #1 – Fear of losses. The U.S. subprime fiasco made lenders and mortgage investors run for cover. Canada lost some good lenders, including: GE Money, CitiFinancial, MoneyConnect, and Accredited. In addition we saw three U.S. mortgage insurers retreat back south: PMI, MGIC, and Triad Guaranty. Then, of course, there were countless product cuts and new lending restrictions. We lost: MCAP’s FlexStar, First National Excalibur, Merix’s HELOC (temporarily at least), ResMor variables, Xceed subprime, and Street Capital subprime, among others.
Trend #2 – Rate Premiums. Bond yields and the Bank of Canada’s key interest rate fell substantially in 2008. Yet, heightened credit risk forced lenders to pay more for the money they lent out. That led to record-high mortgage spreads, abnormally high fixed rates, and for the first time in memory, prime+ variables.
Trend #3 – Borrower Limits. 2008 saw the government eliminate hugely popular 40-year amortizations on insured mortgages. They also imposed a 5% minimum down payment—forcing most of those wanting 100% financing to borrow that 5% at disadvantageous terms.
Trend #4 – Ottawa’s Support of the Market. Where would we be without the government’s Canada Mortgage Bond program? Answer: In a bad place. When other capital sources dried up CMB’s were the main source (and often the only source) of capital for most non-bank lenders. Then, in October, the Finance Department came to the rescue yet again with its mortgage buyback initiative.
Trend #5 – Prime Competition. With less opportunity in the subprime market, lenders like Xceed, Abode, Home Trust, and Street Capital all flocked into “A” lending. As the year progressed, banks went on their own offensive, leveraging capital from their huge deposit bases to offer unprecedented discounts off posted rates. Competition in 2008 was therefore as fierce as it’s ever been…and lending profit margins as low as they’ve ever been.
Before we start the parade for Ottawa, let’s point out that Ottawa is going to make a fortune out of the liquidity and buy-back program that was introduced.
“if economists are right, things may return a little closer to “normal” late this year.”
Are those the same clueless economists that “never saw it coming”?
Pff… 2009 will be worse than 2008. Canadian Real Estate (especially in the West) has 2+ years of a downward trend with a minimum of 50% down from peak.
Book it down, book it hard!
Hi YR,
We don’t put much stock in economists either. In fact, we don’t put much stock in anyone’s opinion of the markets. The economy is just too random to predict. But people still like to hear the talking heads. :-)
Rob
Klinger,
Don’t tell me you’re raining on the parade? ;)
I know what you’re saying but I have to tell you. From where we see it, the government provided a scarce and valuable resource (the assumption of billions of dollars of “risk”).
They also stabilized the market when no one else was willing/able to step up to the plate.
There were parts of the IMPP that could have been improved, but it’s tough to fault Ottawa for needing to be compensated for it!
Take it easy,
Rob
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Parade quote du jour:
“Lots of times you have to pretend to join a parade in which you’re not really interested in order to get where you’re going”
Christopher Morley (writer and editor, 1890-1957)
Interesting review. Hope the powers that be bring back prime or prime- again soon.
Trend #2 – Rate Premiums
It says “… heightened credit risk forced lenders to pay more for the money they lent out.”
… thought heightened credit risk forced lenders to charge more (in terms of larger spreads) for the money they lend out.
YeahRight “Book it down, book it hard!”
Sounds encouraging … will you please explain what the expression means?