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CategoryMortgage News

Ben Tal, Senior Economist, CIBC shares his thoughts

Last week, we had the privilege of listening to Ben Tal, Senior Economist with CIBC.   He said we can expect rate hikes of between 1.00% to 3.00% over the next 2 years… but he also said that there is no straight line when it comes to interest rate hikes… so we will see staggered rate movement…  Mr. Tal said that he does not see the need for anything above this given that the motivation for any rate hikes by the Bank of Canada is slow the economy and keep inflation in check.

There were 4 charts in particular that caught my eye..

1-The Gap between Consumer Confidence and Consumer Capability.. this chart shows why the Government is concerned about our personal debt levels… The chart shows our confidence is higher than our capabilities…

2-Share of Household with Mortgages has fallen…this chart shows that more Canadians own their homes without mortgages… and that’s great news.. it means more Canadians are paying their mortgage debt down…

3-Size of Average Mortgage on the rise… this chart shows that while more Canadian own their homes without mortgages, the mortgage size has increased and this should be monitored and reviewed…

4-Hosing Affordability…. saving my favorite for last… I’m a big believer in tailoring the mortgage around your affordability.. and this chart shows us that on average, we have a lot of capacity when it comes to absorbing interest rate hikes… this is a chart that should make all Canadians feel good..

Didn’t I say to stay away from these Hybrid Mortgages?

Is it just me or are the Banks pushing these Hybrid Mortgages more these days…?  RBC recently reported that 40% of Consumers buying a home in the next 2 years would consider a Hybrid Mortgage…

Wow!  That’s much higher than any figure I’ve seen…  And it doesn’t reflect the current level of Consumers that currently have a Hybrid mortgage. (current figures are at 6% according the Canadian Association of Accredited Mortgage Professionals).

Globe and Mail’s, Chaya Cooperberg, took a closer look at this product…..Oh, and by the way, a Hybrid mortgage simply splits your mortgage ….. part fixed rate and part variable rate.  The theory is that you can benefit from today’s lower Variable rate but also secure a fixed rate to protect yourself from future rate increases….  Sounds great but these products are flawed and DO NOT work in the Consumer’s favor.

Here’s what you need to know:

-studies point to Variable rate mortgages as having the lowest rate of interest over the life of your mortgage.. they just save you money….(your rate fluctuates with Bank Prime…up and down)

-fixed rate mortgages buy you the security of knowing what your rate and payment will be…but the key word here is BUY. Your paying for this insurance with a higher average rate over the life of your mortgage…  (plenty of studies out there to show this).

-combining these 2 products in one mortgage will limit your options… there is a portability feature but it’s not straight forward and we’ve received different explanations on how this actually works….. these mortgages are not transferable to other financial institutions….

-many borrowers that are currently in these products have staggered maturity dates meaning they can never get out without paying some sort of penalty…….

A better alternative to getting part fixed and part floating, is to go with a Secured Line of Credit.. the Floating portion is Open to repayment without penalty…   Keep in mind these products are not portable to a new home and they are not transferable…At least you won’t get stuck with a penalty…

Why did these lenders stop dealing with Mortgage Brokers?

Great article today in The Globe and Mail… Ok, so why am I promoting an article that talks about NOT dealing with Brokers?   The article says, RBC, BMO and now HSBC are not dealing with Mortgage Brokers (RBC never dealt directly but they do put money out through RBC Securities…BMO stopped a few years ago and HSBC just stopped).

The article quoted Marcia Moffat, VP Home Equity Financing, RBC.  I have my opinion but what do you think about what she said?…. “The mortgage market is extremely competitive, so the reality is that there is little to no difference between bank rates and broker rates.”

Well, that statement sparked a flurry of comments… read the comments section of the article.. including some words from CanadaMortgageNews.ca.  As recent as a few weeks ago, I had client asked if I could give them a letter stating what my rate was so they could take it to their RBC branch and the branch could match my rate… and  this happens all the time…

The Banks are a business and want to make a profit…. you heard me say this before?  I must repeat it again…far too many don’t believe it…  The Banks want you to take the 5 year fixed rate mortgage… it’s the most profitable product for them…

Remember, a few months ago, I wrote about the government introducing new mortgage rules that make it harder to qualify for variable rate and shorter term mortgages (1 to 4 years)….  you must now qualify using the Bank Posted 5 year fixed rate…  that’s 6.10% today!!   Or you can qualify at the contract rate (fully discounted rate) of the 5 year fixed rate mortgage product….. today, that’s around 4.49%… . Which product do you think borrowers will need to take if they are on a tight budget? yes, the 5 year fixed rate mortgage.

So, why do these lenders not want to deal with Mortgage Brokers? For me the answer is very clear…they want to put you into their most profitable product…. Mortgage Brokers have a duty to recommend and advise the MOST APPROPRIATE PRODUCT.

I’ll be speaking more about Bank mortgage products soon… in particular, the split mortgage products… please don’t get into these products without knowing all the details and reading the fine print….speak with a qualified Mortgage Broker.

Are our Personal Debts too high?

2 reports came out recently that received  much air time on TV, Radio and Internet.   Let’s look at these reports from the CBC

1-The Certified General Accountants Association stated that the average Canadian’s debt is $41,740 per person….Apparently, it’s among the worst of the 20 most advanced countries in the world…

Well, let’s think about that for a moment ask some questions….

  • I wonder how many people have borrowed to invest lately?
  • $44k per person… is this a high number?  I mean, what does a basket of goods cost in some of these other top 20 countries like, Greece, Hungary, Poland or the U.S.?  Aren’t things more expensive in Canada?
  • Canadians have a reputation of being conservative….are we borrowing wisely?  Could it be that Canadians are taking advantage of these record low rates to borrow for rrsps, resp, stocks, real estate or other good investments?

2- The Canadian Association of Accredited Mortgage Professionals reported that 475,000 Canadians would be challenged if their mortgage rate went above 5.25% and 375,000 were already facing pressure to pay their bills.

  • I spoke with a contact at Canada Mortgage and Housing Corporation (CMHC) and Genworth Financial, the mortgage insurance companies that insured hi-ratio mortgages.   There was no indication that Mortgage defaults were a problem.
  • I have not seen any reports that show our Mortgage defaults are in trouble.
  • Canada is near or  has the lowest mortgage defaults among the top 20 countries.
  • why would you take a 5 year fixed rate at 4.59% (today’s rate) when you could get 1.70% with a variable rate?  How long will it take before variable rate reaches 5.25%?   2, 3, 4 years or more or never?  Where will our debt load be at that time?

I think the confidence level in Canada is strong…  let’s keep it that way…    Spend and borrow wisely…

Major Mortgage Fraud charges from BMO

Yesterday, the CBC reported that the Bank of Montreal was suing several hundred people in an alleged mortgage fraud scam that might well be the largest of its kind ever reported in Canada….

Here are the highlights or lowlights…

  • $140 million involved in this scheme.
  • $70 million of which was phony mortgage money.
  • BMO may lose $30 million.
  • it is alleged that lawyers, mortgage brokers and even some BMO employees took part in this massive fraud.

LOOK AT THE APPRAISAL PROCESS

What’s interesting is that they mention the ‘desktop appraisal services’ in the article… this stood out for me… an appraisal has always been part of the credit underwriting process.. Lenders want to know their security or collateral is of good, marketable quality in case of default….  But with the goal of trying to do more with less, several Banks started offering clients so-called FREE APPRAISALS… that wasn’t entirely true…

Banks must demonstrate to their shareholders that they perform proper due diligence before granting credit.  Rather than pay the $250 or $300 for a standard appraisal, we saw the introduction of a desktop appraisal…  Imagine trying to look at a computer screen and try to determine the value of a property in downtown Toronto, Vancouver, Calgary, Edmonton or any other city where house prices vary from block to block… it’s almost impossible without visiting the property personally…

Hopefully, the senior management at the Banks and other mortgage lending institutions will review their credit adjudication process and realize that it’s worth paying $300 to get that peace of mind…

Playing devil’s advocate, the crooks can employ the services of a corrupt appraiser but most Lenders have an ‘Approved Appraiser’ list…. it’s more difficult to get a bad appraisal this way… ..

MORTGAGE FRAUD IS NOTHING NEW

Mortgage Fraud occurs regularly…  it just doesn’t get reported often…that’s because the banks don’t want the bad publicity.   It would be helpful to know if fraud is growing or slowing….  This latest report doesn’t sound like it’s slowing…

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