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CategoryMortgage News

Posted Consumer Debt

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…

Posted 1 Comment on Major Mortgage Fraud charges from BMO Mortgage News

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…

Posted Mortgage News

Bank hikes are questioned by the media

Just can’t leave this one alone…

The Globe and Mail ran a great article about the recent mortgage rate hikes by the Big Banks…..Seems like more of us are questioning the latest round of fixed rate increases….

The article gave some great stats that I wanted to share… First, we should point out that Fixed rates are affected by the Bond Market for the most part but Banks also raise money through GICs… Variable rates are affected by the Bank of Canada Key Lending Rate…. with that in mind…. here are the stats from the article….

10 YEAR AVERAGE…

  • 5 yr Bond 4.05%
  • Big Bank 5 yr posted fixed rate 6.75%
  • Big Bank 5 yr GIC 3.31%

THIS WEEK’S NUMBERS…

  • 5 yr Bond 3.02%
  • Big Bank 5 yr posted fixed rate 6.25%
  • Big Bank 5 yr GIC 2% to 2.1%

Has to make you wonder…?

Posted Mortgage News

Independent Mortgage Brokers Association annual conference

I attended IMBA’s annual Mortgage Broker conference yesterday.   IMBA is Ontario’s Mortgage Broker association.  It was a good conference but it seemed to be a smaller crowd than in years past…..a result of the recession, I’m sure.

Nevertheless, it’s a great place to see all the Lenders and industry businesses in one location.  I noticed a lot of smaller lenders were popping up and that’s a great sign for Borrowers as more competition is always good.

There were also lenders capitalizing on the new Mortgage Rules as CMHC tightened their lending policies earlier this week…. The smaller lenders fill a growing void for Canadians that want to buy an investment property or are self-employed and cannot provide traditional income verification.  These lenders also signal improved confidence in the Canadian real estate market.

Posted 2 Comments on Bank of Canada doesn’t change rate…for now. Mortgage News

Bank of Canada doesn’t change rate…for now.

No surprise, the Bank of Canada did not raise their key rate today, keeping it at 0.25%.   This rate directly affects the Bank Prime rate which is 2.25%.   But as so many Economists have forecast, this appears to be the end of the record low Mortgage rates.

But it’s not that bad… we have enjoyed record low rates (almost free money, some would say) for well over a year.. and they are only starting to climb.. we’ll be enjoying low rates Variable rates for some time yet…

In it’s press release, the Bank of Canada stated “the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus. The extent and timing will depend on the outlook for economic activity and inflation, and will be consistent with achieving the 2 per cent inflation target.”

The big question on everyone’s mind is how fast and by how much will rates increase… Here’s what to look for when it comes to what affects Variable rates:

  • Inflation (the target rate is 2% and we are currently at 1.6%…if this increases then the Bank of Canada will want to increase the Bank rate)
  • unemployment (currently sitting at 8.2% if we have higher than expected unemployment then this also puts pressure to keep the Bank rate low
  • Canadian $ in relation to the $U.S.  (today, the Canadian $ jumped over $1.016 and a high $ is bad for Exports and Manufacturing….the higher the Bank Rate, the higher $ will usually increase)

Fixed rates are more volatile as they are affected by the Bond Market… The Bond Market seems to have priced in a 50bps increase by the Bank of Canada as Bond Yields increased by 0.126% to 3.19% at the time this article was written.   The Banks have increased Mortgage Rates by 0.85% over the past 3 weeks and should hold until the Bond yields increase to above 3.40% or 3.50%….Historically, the Banks want to earn a spread of around 1.20% and 1.30%.