Mortgage Industry in the Media

In recent weeks, there have been numerous articles in the national media on the state of the Canadian mortgage industry. Issues regarding the impact of longer amortizations and a perceived failure to anticipate the effects of various mortgage products have been at the forefront.

Public Should Be Aware Of The Following Important Facts

Arrears and default rates remain low in Canada particularly when compared to the U.S. Canadian mortgage holders have on average over 50% equity in their properties. For all home owners, (those with and those without a mortgage), the equity ratio exceeds 70%;

Longer amortization periods and 100% LTV mortgages do not equate to subprime or alternative mortgages which are based on a borrower's credit worthiness. Relatively few outstanding mortgages in Canada have 40 year amortization periods – only six percent or just over 300,000 mortgage holders out of 5.25 million;

Mortgage products in Canada are transparent. Mortgagors with a variable rate product know their rate and most have the option to convert to a fixed rate product. In the past year, 40% of mortgage holders took out a variable rate mortgage with the expectation that declining rates will continue to drop. This is in stark contrast to the U.S. where the resetting of option ARM mortgages means millions of mortgage holders have been and will continue to face higher rates;

A rise in default rates in Canada is not apparent. It's a fact that the economy is slowing; however if borrowers find themselves with financial difficulties, it will most likely be a result of their employment situation rather than their mortgage product;

Differences between the Canadian and U.S. markets remain. The option ARMs that have and continue to be reset to higher rates are not common in Canada. Those who hold variable and even fixed rate products in Canada are now doing so in a declining interest rate environment. A greater percentage of mortgages in Canada are funded by balance sheet lenders than in the U.S. Subprime or alternative lending products were never as common in Canada;

Canada has a rich history of mortgage insurance. Nearly half of all mortgages obtained in any given year are insured with a second approval process for mortgage applications. Underwriting principles and guidelines in Canada, while not perfect, are more thorough than in the U.S.;

Regulation for Canadian mortgage brokers and agents is more stringent than in the U.S. Several provinces have recently updated or are in the process of updating their origination legislation including Ontario, Quebec, Saskatchewan, Manitoba and Nova Scotia. There are now license requirements and in most provinces education and disclosure requirements. This will ultimately lead to enhanced professionalism in our industry and added security for Canadian borrowers.

[Statistics Source: CAAMP's Annual State of the Residential Mortgage Market in Canada, by CAAMP Chief Economist Will Dunning]

The following article appeared in the Toronto Star yesterday with some good points and interesting idea to help out with our economic recovery.



By: Angelo Persichilli - Toronto Star

Excerpt from Article
"Banks asked for help and got it from governments all over the world, including Canada. Unfortunately, instead of passing that help on to the people, they used the money to replenish revenues depleted by their irresponsible policies. Ottawa pumped in billions of dollars by uploading mortgages through CMHC and the Bank of Canada, and it has dramatically cut interest rates to encourage people to borrow money. Banks have kept part of the cuts for themselves and now they want more – a corporate tax cut. We need tax relief not for the banks, but for the tens of thousands of small companies that risk losing their business because of the credit crunch the banks created."
Read Full Article Here

Flaherty Says He’ll Pressure Canada Banks on Lending

By Theophilos Argitis
Dec. 18 (Bloomberg) -- Canadian Finance Minister Jim Flaherty said he’ll pressure the country’s banks to increase lending to consumers and businesses, in a bid to help reverse the country’s worst downturn in 18 years. Flaherty said today he’ll meet bank executives early next month with Bank of Canada Governor Mark Carney to convey the need for financial institutions to offer credit.

“I expect them to make it evident to us that they are taking steps to make credit more available in Canada,” Flaherty told reporters today in Saskatoon, Saskatchewan.

The government is providing guarantees on more than C$200 billion ($167 billion) of bank debt and has pledged to buy as much as C$75 billion in mortgages from banks to free up cash for loans to consumers and businesses. Bank of Canada policy makers also have put more than C$36 billion into the banking system this year to restore normal terms for loans of up to three months and expanded the types of collateral they accept.

The government “has been assisting banks by ensuring adequate cash,” Flaherty said. “We expect the banks to reciprocate. We expect the banks to provide adequate credit.”

Read Full Article Here

Response to Globe's"High Risk" mortgage article

There has a been a great deal of resonse to The Globe & Mails December 14th Article: Special investigation: How high-risk mortgages crept north . There is already close to 1000 comments on their website.

Brain Hurley, from Genworth Financial replied with this statement published in the Globe and Mail on December 16th:

"It was the easing of traditional underwriting standards in the U.S. - not extended amortizations - that put so many subprime borrowers in loans they could not afford. Here in Canada, the overwhelming majority of 40-year mortgages are prime loans held by customers with solid credit - and who would have qualified for mortgages with 25-year amortizations. Arrears here are near all-time lows.

Genworth supported Ottawa's decision to limit its government guarantee to mortgages with a maximum 35-year amortization. Healthy competition between CMHC and Genworth has provided an important second set of eyes that act as a check against unwise lending."

And from Mike Storeshaw, director of communications to Finance Minister Jim Flaherty published in the Globe and Mail on December 17th:

"Your article implies the government exposed the Canadian housing market to undue risk (How High-Risk Mortgages Crept North - front, Dec. 13). The fact is our housing market has not witnessed a proliferation of products and marketing practices that led to problems in the U.S.

This is made clear in the recent Financial System Review report from the Bank of Canada. The bank's report states, "The housing and mortgage market excesses seen in the United States and in several European countries do not have a counterpart in Canada."

It adds: "Lending practices in Canada have been much more conservative than in the United States and some European countries, and the resulting imbalances far less acute. The subprime mortgage market in Canada accounts for less than 5 per cent of the residential mortgage market, compared with 14 per cent in the United States, and it is characterized by more stringent lending standards than those that have been applied in the United States."

Canada continues to have one of the lowest rates of mortgage delinquency in the world."

Globe & Mail - "High-Risk" Mortgages Article

There was a very interesting story that appeared in the Globe and Mail this weekend. While reading the article I couldn't help but thinking there are definitely some things the authors dont quite understand with respect to how the mortgage industry works in Canada, nor how some of the programs eg. 100% financing, 40 year amotizations are underwritten.

www.canadianmortgagetrends.com has done and excellent job at presenting the objections/points that anyone in the mortgage industry would have with the story presented by the Globe and Mail.

For a better understanding of these issues and a clear explanation of the difference between subprime and high risk, pelase read the points made by Canadian Mortgage Trends - click here

Real estate still the single best investment

You can find many articles in papers and online why real estate is still a good investment, even with all the negative press we receive regarding the state of the economy. Here are some good perspectives from an article that appeared on parrysound.com

Real estate still the single best investment
by Carli Whitwell - parrysound.com

Excerpt from Article:
"Steiner said while the Toronto Stock Exchange has fallen 47 per cent, real estate, across the country, is only down on average nine per cent.
“Real estate is still the single best investment. It is tax-free, if it is your primary residence,” he said, adding, if it is bought wisely if will go up in value over time."
Read Full Article

Toronto Land Transfer Tax

Two recent articles discussing Toronto Land Transfer Tax.


The city has done what it can, time for the feds to move in
City Views By DAVID NICKLE

Excerpt from Article:
"Because ultimately, that's what will have to happen if anyone is going to save anything. As much of a booster as Toronto wants to be, there's only so much a city can do. To survive financially, Toronto council has had to do some things that are opposite to stimuli - a poster child for those being the lucrative land transfer tax, which both critics and proponents agree has had at least a short-term cooling effect on Toronto's already chilled real estate market.

Repealing the land transfer tax, as the Toronto Real Estate Board urged this week, wouldn't help - the city would then be in a bona fide financial crisis, and create even more economic turmoil raising property taxes on every home."
Read Full Article

Toronto's land transfer tax hurting real estate market: C.D. Howe report
CBC NEWS

Excerpt from Article:
"The institute says the impact of the tax on real estate transactions and prices in Toronto has translated into a drop in the number of homes sold and the price sellers are able to get.

Since the city introduced the tax last February, home sales have fallen 16 per cent and the average sale price of a Toronto home has dropped 1.5 per cent."
Read Full Article

Mortgage rate cut won't be passed on

Mortgage rate cut won't be passed on
Kristine Owram - THE CANADIAN PRESS
Although mortgage rates are coming down as lenders respond to the Bank of Canada latest rate cut, the full benefit of the reduction won't be passed on fully to home owners and buyers.
Full Article

Banks only reduce prime rate by 1/2

After the Bank of Canada cut its key rate by three-quarters of a percentage point yesterday, Canada's six largest banks only passed on 50 basis point reduction to their clients lowering prime to 3.5%.

Several other non-bank lenders have also already reduced their prime rate to 3.5% and certainly all will follow.

This is good news for customers who have variable rate products, although we can all agree that receiving the full 3/4 would be even better news.

Banks argue that given the current economic turmoil and higher costs of borrowing funds, makes it harder for them to pass on the full rate cut.

With home prices reduced and low interest rates this is certainly a great time to buy real estate in most markets in Ontario. First Time Home Buyers who have been waiting to see what happens should seriously start looking and be ready to make a decent offer on a new home before the prices start to go rise again.

If you have not been pre-approved yet, please contact me to discuss your options.
gbarrow@dominionlending.ca

Have a great Day!

Bank of Canada lowers overnight rate target by 3/4 percentage point to 1 1/2 per cent

[Source - Bank of Canada]
OTTAWA – The Bank of Canada today announced that it is lowering its target for the overnight rate by three-quarters of a percentage point to 1 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 1 3/4 per cent.

Read Full Article Here - http://www.bank-banque-canada.ca/en/fixed-dates/2008/rate_091208.html

It will be interesting to see if the banks will match the 3/4 rate drop.

Toronto Real Estate BoardNovember Market Watch

[Source - http://www.torontorealestateboard.com]
December 4, 2008 -- TREB Members recorded 3,640 sales in November 2008 from the 7,313 sales recorded during the same period last year in the GTA, TREB President Maureen O’Neill announced today.

The average GTA price in November 2008 was $368,582. During the same period last year, the TorontoMLS system recorded an average of $393,747, and in November of 2006 overall GTA prices averaged $355,727.

The 2008 year-to-date sales for the GTA was recorded at 72,086 from last year’s 88,695. The year-to-date GTA average price was $379,489 from last year’s $375,445

Within the 416 area (City of Toronto) there were 1,523 sales during November 2008. During the same month last year, 3,426 sales were recorded. The average price in the 416 area was $390,225 compared to $433,859 in November 2007 and $381,188 in 2006.

In the City of Toronto, 28,806 sales have been recorded year-to-date for 2008 from last year’s 36,804 during the same time period. The year-to-date 2008 average price in the 416 area is $411,155 from last year’s $411,640.

The 905 Region recorded 2,117 sales last month, compared to the 3,887 sales transacted during November of 2007. The average price in the 905 Region was $353,012 last month from $358,391 in November of 2007 and $335,522 in November 2006.


Year-to-date sales in the 905 Region for 2008 were 43,280 from the 51,891 recorded during the same period in 2007. The year-to-date average price in the 905 Region for 2008 was $359,245 from $349,774 in 2007.

Breaking down the total, 1,453 sales were reported in TREB’s 28 West districts and averaged $350,199; 629 sales were reported in the 14 Central districts and averaged $473,346; 651 sales were reported in the 23 North districts and averaged $410,253; and 907 sales were reported in TREB’s 21 East districts and averaged $295,470.

Median Price

The Median Price for November 2008 was $312,250, compared to $325,000 in November of 2007 and $298,000 in 2006. The YTD Median for the first 11 months of 2008 was $325,000, compared to $318,000 during the same time-frame in 2007, and $300,000 in 2006.

Five Ways to Boost your Credit Score

Leading up to the holidays is the perfect time to think about things like improving your credit score and consolidating debt. After all, the holidays are a joyous time that should not be overshadowed by financial woes. And even if your credit score is good, these tips may make it even better. After all, the better your credit score, the fewer hurdles you’ll have to overcome when looking to renew or refinance your existing mortgage, or obtain a new one.

Following are five steps to a speedy credit score boost:

1) Pay down your credit cards. The number one way to increase your score is to pay down your cards to 30% of their limits. Revolving credit like credit cards seems to have a more significant impact on your score than car loans, lines of credit, and so on.
By paying down your cards to 30%, you are leaving a big gap between what your limit is and what you owe – a move that is very favourable to increasing your credit score.

2) Limit the use of your cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you paid it all off the next month. By being more accountable of your spending on a daily or weekly basis through the use of a budget, you can keep those cards below the magic 30% mark.

3) Check your limits. If your lender is slow to report your monthly transactions, this can have a big impact on how another lender may view your file. Make sure everything is up to date. Old bills that have been paid can come back to haunt you.

Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring formula that you’re regularly maxing out that card.

You could go on a wild spending spree to raise the limit, but a more sensible solution would simply be to pay your balance down or off before your statement period closes.

When making payments online, do so about a week before the period closing date printed on your latest statement to ensure the payment is received on time – it can take up to five business days for a payment to be received. This won’t raise your reported limit, but it will widen the gap between your limit and your closing balance, which should boost your score.

4) Keep your old cards. Older credit is better credit. If you stop using those older credit cards, the issuers may stop updating your accounts. As such, they will lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the card for a long time. Use these cards periodically and then pay them off.

5) Don’t let mistakes build up. Dispute any mistakes or situations that may harm your score. If, for instance, your cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

As always, if you want to talk about your credit score or consolidating debt, I’m here to help. Please call me at 416 807 7123 or email me at gbarrow@dominionlending.ca

If you want to know your current credit score you can order it from Equifax online at Get Your Equifax Credit Report Now!

Variables Falling to Prime + .60%

[Source - Canadian Mortgage Trends.com]

Prime + .60% is becoming the new norm for closed variable-rate mortgages. Prior to last week, prime + 1.00% was the average.

RBC was the first to cut last week to prime + .60%, and now other lenders are following suit. Non-bank lenders are also moving to prime + .60%, which is nice to see. (Given the recent credit crisis, smaller non-bank lenders have had the hardest time finding low-cost sources of lending capital.)

A decent variable-rate mortgage can therefore be found for about 4.60% today OAC. This rate will likely drop further following the Bank of Canada's December 9 interest rate announcement.
Keep in mind, however, that all-in-one-style HELOCs can be had for just 4.00% (with a lot more perks). The qualification criteria are more stringent though, you need 20% down, and the rate is not technically locked to prime like a regular variable-rate mortgage. [Other differences apply as well so talk to a mortgage professional for a complete comparison]

Variable rates have been easing down primarily because funding costs are improving. 30-day bankers' acceptance yields (which are usually correlated with variable-rate funding costs) have fallen from roughly 2.60% at the end of October to 2.15% yesterday.