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Thursday, 31 May 2012

OSFI has the wrong end of the stick

By Vernon Clement Jones | 30/05/2012 1:00:00 AM | comments
A new report is backing up broker concerns OSFI is about to fix what ain’t broke – this new research identifying already-reduced amortizations, low arrears and high levels of homeowner equity.
“Mortgage borrowers are making significant efforts to accelerate repayment, such as voluntarily increasing their regular payments (23 per cent) and making lump sum payments (19 per cent), with some borrowers (10 per cent) doing both,” finds CAAMP's spring consumers' report, released Wednesday. "And approximately 50 per cent of borrowers pay $100 per month (or more) above their required payments.”
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The report relies on an online survey of 2,000 Canadians, including 800 homeowners with mortgages. It was conducted by Maritz Research and adds weight to the findings of a CMHC report issued last week.

It also suggests that recent buyers expect amortization periods will be about 20 per cent shorter than their contracted length, mirroring the current reality for many Canadian homeowners.

To boot, the report also suggests 83 per cent of Canadians have at least 25 per cent equity in their homes. Separately and collectively, those findings point to a mortgage market well positioned to handle the challenges of a correction in the housing market and to protect the investment of the vast majority of homeowners.

Brokers are also hoping the findings will encourage OSFI to reconsider some of the underwriting
guidelines it will likely bring into force next month.

Those measures – from re-qualification at renewal to slashing the maximum loan-to-value on HELOCs – are meant to throw up a firewall around Canada’s housing market.
Brokers haven’t been convinced of the need for it.

The position is garnering support outside of the CAAMP research, with the official opposition in Otttawa registering the same concerns as brokers.

"We just need to make sure that people are protected in some of these temporary situations (where they may have lost a job),” said Peggy Nash, the federal NDP’s finance critic, “if they have a good credit record and have never had a problem making their payment."
OSFI has floated the idea of forcing mortgage-holders to re-qualify at renewal, although exactly what that involves remains unclear.
Brokers, and their professional associations, were among the first to balk at the suggestion, arguing it could create the kind of market crisis the proposals aim to overt.
Nash appears to agree, with her party most worried Canadians temporarily out of work could possibly lose their homes. She’s asking the Harper government to back off.
But OSFI has suggested it has little intention of backing down, Its manager of policy developing expressing concern about the country’s ability to meet a significant housing correction head on.

Wednesday, 30 May 2012

Home prices continue to rise in most cities

By Mortgage Broker News  | 29/05/2012 5:00:00 PM | 0 comments
Canadian home prices rose in April from March for the second consecutive month, with prices up in nine of 11 metropolitan markets, led by western centres Edmonton, Calgary and Winnipeg.

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According to the Tera net-National Bank Composite House Price Index, which measures price changes for repeat sales of single-family homes, overall prices climbed 0.8 percent in April from a month earlier, after a 0.5 percent gain in March. The index was up 5.9 percent in April from a year earlier. It was the fifth month in a row of deceleration in 12-month inflation. Vancouver is the only market that has followed the national composite in decelerating for five straight months. Toronto continues to accelerate, with prices up 10.1 per cent year-over-year.
The two consecutive monthly rises follow a period of three declines in four months.
April gains included Halifax (1.6 per cent), Edmonton (1.5 per cent), Winnipeg and Calgary (1.4 per cent). For Halifax it was the sixth consecutive monthly gain, the longest such run in the markets tracked. Toronto and Montreal matched the national average gain of 0.8 per cent, while smaller increases were recorded in Vancouver and Ottawa-Gatineau (0.6 per cent). Prices declined in Victoria (0.4 per cent) and Quebec City (0.6 per cent).
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Tuesday, 29 May 2012

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Housing affordability slips

By Mortgage Broker News
The costs of owning a home increased in most major cities across Canada after two consecutive quarters of improvement.
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According to the RBC Housing Trends and Affordability Report, Canada’s housing affordability deteriorated slightly as homebuyer demand pushed home prices higher in the first quarter, driving the cost of owning a home modestly upwards.
The RBC housing affordability measure captures the proportion of pre-tax household income that would be needed to service the costs of owning a specified category of home at going market values. A rise in the measure represents deterioration in affordability.
RBC's housing affordability measure for the benchmark detached bungalow was up 3.1 percentage points in Vancouver to 88.9 per cent, up 1.2 percentage points in Toronto to 53.4 per, up 0.9 percentage points in Ottawa to 41.8 per cent and up 1.2 percentage points in Montreal to 41.4 per cent. Calgary (36.7 per cent) remained unchanged, while Edmonton saw a drop of 0.4 percentage points to 32.4 per cent
"It became a little tougher on household budgets to carry the costs of owning a home at market prices at the start of this year," said Craig Wright, senior vice-president and chief economist, RBC. "Strong buyer demand was a principal driver of the modest rise in homeownership costs. While the deterioration in affordability was felt to varying degrees across the country, it was mild in most cases."
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Looking ahead, the banks said it expects further challenges on the affordability front across Canada once the Bank of Canada begins raising interest rates in the fourth quarter of 2012 and assuming the European economy stays on the rails.
"Exceptionally low interest rates have been the key force in keeping affordability from hitting dangerous levels in Canada in recent years," added Wright. "Affordability headwinds are likely to increase next year, as interest rates make their way towards more normal levels. We anticipate that the central bank will begin hiking rates gradually, however, which should help mitigate any widespread negative impact on the housing market. A gradual pace of increases will allow income growth to provide some offset."
Stark regional divergences in affordability witnessed last year carried through to the first quarter of 2012. British Columbia's housing and, more expressly, the Vancouver-area market are situated at the weaker end of the affordability spectrum, while housing markets in Alberta and Atlantic Canada remain at the more affordable end. Local housing markets in Ontario had slightly less attractive affordability in comparison to the national average, while markets in Saskatchewan, Manitoba and Quebec were slightly more attractive.

Monday, 28 May 2012

Why is the government decides for you

Debt poll challenges OSFI proposals                                  
By Vernon Clement Jones | 27/05/2012 7:00:00 PM | 0 comments
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Canadians are using their extra cash to more quickly chip away at credit card and lines of credit debt, according to a new bank survey, backing up broker concerns about the dangers of unsecured credit.
“Among Canadians with debt, 49 per cent have made at least one lump sum payment to their debt sometime in the last year,” according to CIBC’s latest consumer debt poll, released Monday.

And while 62 per cent of those making extra payments directed those funds to credit card balances, followed by 46 per cent for line of credit, only 22 per cent of respondents used that extra money to speed up the pace of mortgage repayment.

That kind of priority list backs up broker concerns about credit card debt and the challenge it poses Canadian households. They worry the federal banking regulator has erred in focusing on mortgage lending rules instead of tightening up underwriting standards for credit card lending.

Last week the Official Opposition joined mortgage broker associations in voicing concerns around key aspects of OSFI’s proposed guideline, specifically re-qualifying requirements for renewing mortgagors.
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"We just need to make sure that people are protected in some of these temporary situations (where they may have lost a job),” said Peggy Nash, the federal NDP’s finance critic, “if they have a good credit record and have never had a problem making their payment."
OSFI has floated the idea of forcing mortgage-holders to re-qualify at renewal, although exactly what that involves remains unclear.
Broker, and their professional associations,were among the first to balk at the suggestion, arguing it could create the kind of market crisis the proposals aim to overt.
Nash appears to agree, with her party most worried Canadians temporarily out of work could possibly lose their homes. She’s asking the Harper government to back off.
OSFI has suggested it has little intention of backing down, Its manager of policy developing expressing concern about the country’s ability to meet a significant housing correction head on.
“Are the banks equipped to handle a 40 percent drop (in property values)?” writes Vlasios Melessanakis, the manager of policy development for the Office of the Superintendent of Financial Institutions, in an internal document responding to broker Rob McLister and an article posted to his website in March.
"Canada is not immune. Just because nothing happened in Canada in 2008 (a U.S.-centered crisis), does not mean that Canada is not vulnerable to a housing correction now.”

Tuesday, 22 May 2012

Proposed mortgage renewal rule can force you to sell

Canada’s mortgage brokers are warning the banking regulator that its proposed mortgage underwriting rules could result in people losing their homes.
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The brokers are concerned about a number of the potential rules, but the one that worries them most outlines what banks would have to do when a consumer wants to renew or refinance their mortgage.
The proposed rules suggest that banks recheck areas such as employment status, current income and the current value of the home for renewals and refinancings.
“This would be a significant, significant change,” Jim Murphy, the head of the Canadian Association of Accredited Mortgage Professionals (CAAMP).
Currently, when mortgages come up for renewal, banks tend to focus on the borrower’s payment history. They rarely appraise the property again and not all banks will check the borrower’s updated income level, Mr. Murphy said.
“CAAMP strongly recommends that this concept be clarified so that mortgages continue to be renewed at maturity without requalification,” the industry association said in a submission to the Office of the Superintendent of Financial Institutions (OSFI).
“If not, homeowners who have been in compliance may no longer qualify. This would result in a number of properties hitting the market at the same time and thereby driving down prices.”
Such a phenomenon could add further fuel to a real estate downturn if lower house prices and higher unemployment caused more people to lose their homes upon renewal, Mr. Murphy suggested.
Household debt driven by mortgage credit expansion is the main threat to the credit risk profiles of Canadian financial institutions, Fitch Ratings said in a report Monday.
OSFI unveiled the proposed new rules in March, and requested submissions from the industry. Rod Giles, a spokesman for the banking regulator, said it has received a significant number of submissions from trade associations, lenders, insurers and the brokers as well as private citizens.
OSFI is still reviewing them, but hopes to release final rules by the end of June, along with a summary of the submissions and the reasons for its decisions.
It released the potential rules after the Financial Stability Board, a global financial oversight body, called on all regulators to ensure mortgage lenders were adhering to certain underwriting principles.
But, with Ottawa seeking to prevent a runup in Canadian house prices from leading to a crash, Canada’s proposed guidelines go a bit further.
OSFI has signalled it wants banks to limit home equity lines of credit to 65 per cent of a property’s value.
“Many borrowers use HELOCs to invest in capital markets or even for their own business purposes,” CAAMP says in its submission. “In this way, many Canadians are using their HELOCs for retirement and job creation – a positive goal which the government is trying to encourage.”
Canada's six biggest banks held $912-billion worth of exposure to the residential mortgage market at the end of January, according to figures compiled by Fitch. That included $730-billion of mortgages and $182-billion of home equity lines of credit.
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The mortgage brokers would like to see people with good credit and income be able to borrow more than 65 per cent of the value of their home.
One proposed rule that the group applauds would eliminate so-called “cash back” mortgages, which essentially allow a consumer to borrow their down payment from the bank.
In 2008, Finance Minister Jim Flaherty changed the rules so that consumers had to put at least 5 per cent down (after a period of time during which Ottawa had allowed mortgages with a zero down payment). However, Ottawa left the door open for consumers to borrow that 5 per cent. The big banks subsequently came out with products in which they will lend a mortgage and give the borrower an amount equal to 5 per cent of the value up front (at a steeper rate).
“Borrowers should have ‘skin in the game,’ ” CAAMP said in its submission.


Thursday, 17 May 2012

Luxury homes still selling

While home sales and prices continue to moderate and even fall in some parts of the country, a new report finds that demand for high-end housing is ahead of last year’s pace.
According to the Upper-End Report released by RE/MAX, 81 per cent (13) of the 16 major Canadian centres examined posted an increase in home buying activity in the first quarter of 2012, with the vast majority reporting double-digit appreciation.
Those centres seeing gains included Greater Montreal, Quebec City, Victoria, Edmonton, Calgary, Regina, Saskatoon, London-St. Thomas, Kitchener-Waterloo, Hamilton-Burlington, Greater Toronto, Ottawa, and Halifax-Dartmouth.
“While the ranks of the rich expand in both population and wealth, their impact on the Canadian residential landscape is undeniable,” said Michael Polzler, executive VP, RE/MAX Ontario-Atlantic Canada. “Their confidence abounds from coast-to-coast, irrespective of price point.”
The greatest percentage increase was reported in Regina, where first quarter sales of luxury homes priced over $500,000 climbed 56 per cent year-over year (50 units vs. 32 units). Quebec City placed second, posting a 50 per cent (48 units vs. 32 units) upswing in activity, while Toronto followed closely with a 49 per cent gain (412 units vs. 277 units). The mid-sized markets of London-St. Thomas (43 per cent) and Kitchener-Waterloo (39 per cent) rounded out the Top Five—demonstrating that upper-end enthusiasm is not exclusive to Canada's larger centres.
According to Elton Ash, regional executive VP, RE/MAX of Western Canada, the stability real estate offers is still something high-end buyers appreciate.
“Given volatility in other areas, housing has emerged as a blue-chip asset among the country's most affluent individuals. The capital gains exempt status ups the appeal, particularly as we see ongoing fluctuations in stocks and uncertainty in Europe,” he said.
The report also noted that although the top end of the market represents only a small proportion of overall residential sales, when measured in terms of dollar volume, luxury sales are a much larger part of the equation. As such, “the strong momentum out of the gate speaks to the overall confidence in real estate,” the report stated.
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Wednesday, 9 May 2012

Dangerous level of household debt, some say

Ottawa’s ominous talk about dangerously high household debt-to-income levels has either paid dividends or was over-stated. It depends on who you talk to.

Finance Minister, Jim Flaherty, and Bank of Canada Governor, Mark Carney, have spent months cautioning Canadians to dial down their borrowing as the average debt-to-income ratio climbed to a troubling 153%. And recently Carney told the Commons Finance Committee that the growth of that debt has slowed from upwards of 10% a year, down to about 4%, for the past two years.

But Brian Hurley, head of private mortgage insurer Genworth Financial, has a somewhat different view. He looks back to 2007 when home price appreciation started to flatten. Quoted in a recent interview with an industry website, Hurley said, “We don’t see them (homeowners) stretching on the debt service levels like Ottawa is warning us about. We don’t see that coming through in our portfolio; as a matter of fact we see some good self-discipline there.”

The bottom line: with consumer spending pegged to account for half of Canada’s economic growth for the next two years, household debt will continue to remain Ottawa’s top concern for the domestic economy.

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Saturday, 5 May 2012

Mortgage Advisory: number five

Providing you with news, we beleive will benefit you when it comes to pick the right mortgage broker, whom has a vested interest to provide you the best possible mortgage, not only the lowest rate, but the best product as well, custom fitted tou your needs and circumstances!
Few products ignite mortgage broker debate like collateral charge mortgages. They have their place, but proper disclosure is an important aspect in terms of consumer protection.
What is a concern, are the more recent developments where they’re being used across the board for all mortgage products as opposed to lines of credit.
Collateral charges have been used for lines of credit before, but the ah-hah moment for brokers came when TD began registering all of their mortgages as collateral charge in 2010.
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Some of us saw that as contractual handcuffs at renewal for clients because it took away a lot of the client’s leverage in terms of being able to transfer that mortgage at renewal to another institution, If you don’t have any leverage the lender will price things less competitively at renewal.
Collateral charge mortgages also seriously hinder a client’s ability to get secondary financing.
Clients can’t secure a second mortgage against their property because the collateral charge is registered to 100 per cent of the value.
Many people don’t know the difference or aren’t being told about how collateral charge mortgages differ from traditional mortgages and what the implications might be.
It might be a case of finding out too little too late and then being in a position of having to sell your home.
Collateral charge mortgages limit choice and as a broker I can’t be in favour of anything that limits choice for people. I have to value competition and choice.
I don’t mind lenders doing things differently, but I think people have to be properly educated about it.
Is it truly for their benefit or is this seen as a retention tool and margin improvement for the lenders. If it truly benefits the client, we will choose to offer it to clients.

Tuesday, 1 May 2012

Is CMHC history?

On Friday Finance Minister Jim Flaherty has suggested Canada Mortgage and Housing Corporation could be pulled out the mortgage insurance business. Flaherty didn’t offer a timetable, but said as long as “affordable mortgage insurance is available” it’s “not essential” it be offered by the government.
This comes as Ottawa puts CMHC under closer scrutiny and tighter control, in light of how big a player the agency really is in the overall Canadian economy. Through CMHC and its two private-sector competitors (backed 90% by the government) Canadians are approaching $1 Trillion in exposure to insured mortgages.
Oversight of CMHC is being moved to the country’s top banking regulator, The Office of the Superintendent of Financial Institutions. Control shifts from the federal human resources department to the finance department, which gets representation on the agency’s board through a deputy minister.
Finance Minister Jim Flaherty said that this will “contribute to the stability of the housing market and benefit all Canadians” 

Now there is more than ever you need a professional mortgage broker to help you to make sure you get the right mortgage rate and the product.