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