Mortgage Flux

With the passing of the March 18th deadline, where CMHC reduced maximum amortization lengths to 30 years from 35, there has been discussion over how many buyers have advanced their purchases to qualify for lower payments. (A move from 35 years to 30 years, all else equal, increases monthly payments by about 7%.) But that’s not all that has been going on recently in MortgageLand. If one looks closely, banks have been pulling their 35 year amortization advertising. To wit:

  • TD’s and Scotia’s mortgage calculators won’t let you put in an amortization longer than 30 years
  • CIBC says one can get “An amortization period of up to 30 years to pay off your mortgage”

On the other hand, it seems business as usual over at Canada’s largest non-bank lender First National, where 35 year amortization options are displayed.

It appears like the Big 5 banks are reducing their advertised amortization lengths in close conjunction with CMHC reducing its amortization length. However banks have other tricks up their sleeves, including:

  • Scotia has dropped advertised qualification criteria on their loans.
  • Despite posted 30 year amortization, banks will, apparently, offer extended 35 year amortizations “behind the scenes” to those who negotiate and qualify, likely on loans that are deemed not to require any mortgage insurance even if less than 80% LTV.
  • Smaller lenders like some credit unions still use “offset” instead “add to income” for adding revenue from rental properties to mortgage qualification amounts. (I know some major banks used offset a while ago and, for sub-markets like Vancouver, may do so today; this would need to be verified.)

So the question is, why would banks reduce their posted amortizations to 30 years? Are their risk departments raising a big stink in the boardroom and are they tightening standards in response, or maybe the government has had something to do with it? It was made clear by Bank of Canada governor Mark Carney that banks must bear long-term responsibility for ensuring homeowners can afford their mortgages for the duration of the planned amortization. I should hope so; his bosses bear the brunt of any fallout damage if prices significantly weaken. Here’s what Carney said back in November 2010:

The one thing we can say with high degree of certainty is that over a thirty year mortgage interest rates are not going to be at the same level as they are now, they’re going to be higher, and that Canadians, individuals, should be comfortable that they can service their debt at higher interest rates, and the banks that lend to them should also be comfortable about that.

Hm. I just noticed now how he said “thirty” and not “thirty-five”; that’s a bit odd. Now we see banks starting to tighten even on low ratio loans, albeit not universally. The margins of loose lending are being pushed out into the fringes.

So is anyone seeing any change in what/how lenders are lending to non-high-ratio customers? I’ve given up going into lenders to find out; every time I do they run a credit check and ding my rating 🙂

84 Comments
newest
oldest most voted
Inline Feedbacks
View all comments
trackback

[…] at vancouvercondo.info March 22nd, 2011 at 9:37 am- “My neighbours (late 60s, early 70s) have no retirement plan other than the government so […]

trackback

[…] escape? -Low income and no savings? Vancity says buy a house! -Election to kill spring rate hike? -Anecdote on retirement planning through real estate -Shaw lays off 500, 90 in Vancouver -Hot Asian Money will prevent Irving California market collapse […]

Anonymous
Anonymous
9 years ago

AG Sage Says: "I would say is designed purely to make more money and therefore is begging for some consumer protection laws"

If you lent this guy $400,000 and was expecting a high rate of return, would you let him pay you back early without penalty or would you charge him the $30,000 for breaking his contract?

AG Sage
9 years ago

@Devore: I would never have conceived that they would compare the longer original term to financing a shorter term when figuring out their "loss". That's pretty punitive and I would say is designed purely to make more money and therefore is begging for some consumer protection laws.

HAM Sham
HAM Sham
9 years ago

@oneangryslav2:

Nice analogy. My old baseball coach put 50k+ into Nortel @ $108/share around that time. Sad part is, he was 57 at the time and 3 yrs. from retirement. Tried to hit a "home run" on tech… ooops! Now teaches piano 3-4 days/week as part of his retirement plan…

Begs the question… how many people trying to play catch up on their retirement planning are going to get hammered by Van RE. My guess is waaayyyy too many.

rp1
rp1
9 years ago

@vci_sucks: Vancouver is so special, it can maintain sold over listing indefinitely!

rp1
rp1
9 years ago

Just a reminder that weekly stats from REBGV and FVREB are on Rob Chipman's site: http://www.robchipman.net/

It's pretty nice.

itwillneverpop
itwillneverpop
9 years ago

so, my question is when do you think we need the price drop?

Anonymouse
Anonymouse
9 years ago

@lol cats:

"march 18th has gone by. the greatest fools have now been pre-approved to buy. in 3 months there will be no one left to buy"

Pre-approval wasn't sufficient to get a 35yr term after the 18th. You needed to have completed your mortgage application by then.

lol cats
lol cats
9 years ago

here we go… march 18th has gone by. the greatest fools have now been pre-approved to buy. in 3 months there will be no one left to buy… since 35yr mortgages are kaput, and van is way overpriced, so much so no one will ever get another mortgage approval. patience bears… soon you will be dancing naked in the streets. for now…high 5!

oneangryslav2
oneangryslav2
9 years ago

@HAM Sham:

Seriously though, the sales #’s from today are one for the books! I guess those were all the people like me who do their X-mass shopping at 7:30pm on December 23rd. Trying to cram in a 35yr. loan while wading right into the teeth of the biggest RE crash we may ever see… epitome of the “last of the greater fools”.

I've always wanted to meet the guy/gal who paid $1,305 per share for Infospace.com in March, 2000.

Best place on meth
Best place on meth
9 years ago

@Best place on meth:

Or more accurately, every single one of those sales took place prior to March 18th.

A few of them are from 2 or 3 weeks ago.

Best place on meth
Best place on meth
9 years ago

@paulb.:

Relax dude, every single one of those sales took place last week.

YLTNboomerang @ work
YLTNboomerang @ work
9 years ago

What is the pizza delivering engineer complaining about? At least he got some of his downpayment back – or so he says. Assuming he is telling the truth about buying in 2006 and just sold recently, there is no way he did not make a profit on his place. I'm thinking he is just another greedy person who is pissed that the bank is taking a big cut of his profits.

Read the fine print dumba$$

Anondy
Anondy
9 years ago

I guess Vancity never got the memo:

https://www.vancity.com/MortgagesRenos/CustomFit/

Who you are:

You currently live in Non Profit housing and are on a low income with no savings. You are ready to make the commitment to own a home, but need a structured plan to help you.

https://www.vancity.com/MortgagesRenos/CustomFit/

vci_sucks
vci_sucks
9 years ago

wow.

sold over listing.

haven't seen this one for a few months.

paulb.
paulb.
9 years ago

@Best place on meth:

Holy Shit!

CRASH JPMorgan-Chase
CRASH JPMorgan-Chase
9 years ago

Silver closed at its highest level in over 31 years at $36.27 up 27 cents. The bankers were trying to keep gold and silver at bay today but failed.

HAM Sham
HAM Sham
9 years ago

The numbers tonight are crazy! As I am in fact a "closet bull", I am going to extrapolate tonights figures as proof that sales will now exceed 7k each month for the foreseeable future. Based on this meticulous quantitative analysis, I hereby proclaim that the median attached in Vancouver will be $2.72 million by March 2013, and Detached… $11.71 million! Silly bears! Betcha didn't see that comin'! Keep dwelling in your basements, cuz' this baby is going up forever! blah blah blah blah… we're different here! blah blah blah… Sorry… always wanted to do that just for kicks. Seriously though, the sales #'s from today are one for the books! I guess those were all the people like me who do their X-mass shopping at 7:30pm on December 23rd. Trying to cram in a 35yr. loan while wading right into… Read more »

patriotz
9 years ago

@Devore:

no, your house is not an investment or a retirement plan

A house is not a retirement plan, but it is certainly an investment. An investment is any asset that provides (or is expected to provide) a future return. Having a place to live constitutes a return on investment, just as food from a farm or oil from an oil well or electricity from a power plant is a return on investment.

The reason why people were able to predict the US and other housing busts was that they could apply standard investing metrics to RE to prove it was overvalued.

The problem today is that the great majority of the population can't tell the difference between investing and ponzi schemes, and believe that "investing" means "buying something that I know I can sell for a profit".

Best place on meth
Best place on meth
9 years ago

Behold the power of the last minute shopper!

Dailies – List | Sold

Vancouver East & West*

New Listings – 85

Back On Market Listings -0

Price Changes -34

Sold Listings – 126

Vancouver All Areas*

New Listings – 288

Back On Market Listings – 7

Price Changes – 101

Sold Listings – 334

*Attached & Detached – Date: 03/22/2011 Time:17:39 Pacific YatterMatters.com:

real_professional
9 years ago

Ok people get this: Last weekend the wife and I decided to go for a drive around the South Surrey area. We saw this really nice lot on which the house had burned down a year or two before. Well, after speaking to the home owner who happened to be there, we decided to make an offer or at least explore the possibility further (yes, I know – yes, I am a bear, my personal circumstances were a bit different in regard to this particular property). The next morning we went to the city of surrey and pulled up all the information on the land and the bylaws regarding building on it. It turns out that the land, because it was a narrow piece, would not allow for a typical size home without applying for various exemptions. These exemptions might… Read more »

Devore
Devore
9 years ago

@jesse: Too many people not willing to face the hard facts and admit their income is not sufficient to support their standard of living (including savings and investments to fund retirement, and no, your house is not an investment or a retirement plan).

That is the key to the financial crisis facing the middle class: losing sight of the big picture, and the real goal, sufficient planning and execution to have enough money to last your lifetime.

Personally, I like how so many of our modern clusterfucks can be boiled down to "something for nothing". Something (comfortable retirement) for nothing (living in a house).

Devore
Devore
9 years ago

@Devore: Bah! that’s what I get being late to the party.

Devore
Devore
9 years ago

@AG Sage: It looks like they take the time remaining on the mortgage, round it to the nearest year, and check the posted rate for that length term. If short term money is much cheaper than longer term money (1 year vs 3, or 2 vs 4), the IRD could be quite large. $30k seems kinda high though, I think the article mentioned he had a 5.2ish% 5 year fixed.