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 🙂

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Patiently Waiting
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Patiently Waiting

It looks like the days of the conventional "for rent" sign are numbered. I was recently in Coquitlam and saw one of those rented commercial signs in front of a CAPREIT building. It was screaming out "$500 move-in special" in huge colourful letters and numbers. I wonder how the surrounding condo owners feel about the big ugly sign on their street and what its saying about their "investment"?

(it was on Howie street, its half condo and half rental buildings)

CRASH JPMorgan-Chase
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CRASH JPMorgan-Chase

30 years is a joke. Those having kids and thinking the world will go on for more than a couple more years are FOOLS

Keeping An Eye On Th
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Keeping An Eye On Th
Att: RE Pimps: Just to show good will on part of the bears, below is a standard form for press releases and bs to tell prospective buyers who might bring up the “bubble theory” “There is no evidence of a housing ‘bubble’ in (Fill in the Blank), and housing demand should stay strong for years to come. Three major factors lead to this conclusion. First, the(fill in the blank) baby boomers are approaching the peak home ownership ages and will be buying second and third homes. Second, immigrants, a growing share of the (fill in the blank) population, tend to buy houses ten years later than people born in (fill I the blank) of the same income group and family size. Third, mortgage rates are not likely to go high enough… to put a crimp in demand. Despite some areas… Read more »
specialfx3000
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specialfx3000

This morning on CBC Radio (Go Public) budddy complained about the bank dinging him $30K+ for breaking his 400K mortgage as he had to sell his condo due to financial problems.

Long story short, they negotiated it down to 20K and he needs to take a part time pizza delivery job ("I have to deliver 5000 pizzas") to pay that off.

Not wanting to mock this poor guy but there's your classic case of a family buying real estate that should not have bought real estate.

I look forward to the shoe-shine anecdotal story to officially pop this bubble. Shoe-shine story anyone?

Shima
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Shima

Here is the link to the CBC story referred to in comment 4

http://tinyurl.com/6fzvcvr

Crappy Bear Analysis
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Crappy Bear Analysis

hahaha bears…

Once again, you failed to anticipate that the institutions would do everything to keep the party going….

No March 18th rules crash..

The rules join the list of failed predictions of the catalyst for the crash – the recession, rising interest rates, Olympics, HST and April 2010 mortgage rules….

You guys are such shitty armchair analysts..

If you had analyst jobs you woudl have been fired by now

No Trolls Here
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No Trolls Here

I know it's tempting folks, but please don't feed the trolls. They're like the shit hawks at Granville Island. If you don't give them anything, they piss off somewhere else where people are dumb enough to pay attention to them.

Bear Patrol
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Bear Patrol

@No Trolls Here: Hear hear. Maybe Pope can erect a sign above the "Leave a reply" text reminding people not to feed the trolls. This site seems particularly prone.

Or maybe "this is your blog, this is you're blog with trolls" poster.

In other trolling news, guess who got banned by RET? I bring it up because said outcast will be looking for a place to land.

Frank Grimes
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Frank Grimes

This morning on CBC Radio (Go Public) budddy complained about the bank dinging him $30K+ for breaking his 400K mortgage as he had to sell his condo due to financial problems.

Caveat emptor is such a quaint notion now. It's become as relevant as flapper girls and 8-tracks.

Anonymous
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Anonymous

@Bear Patrol:

Pope has an anti-troll gun if Horton tries to land here.

painted turtle
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painted turtle

Hilarious!

Advertisements that promote products as luxurious or "high-end" have been banned in a move experts say is designed to protect social harmony.

The clean up means commercials posted or aired in public can no longer include words like "supreme", "royal", "luxury" or "high class", all of which frequently appear in Chinese promotions for real estate developments, vehicles and wines.

more at
http://www.chinadaily.com.cn/cndy/2011-03/21/cont

vancouverite
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vancouverite
specialfx3000 How's this for a shoe-shine story – my neighbourhors (late 60s, early 70s) have no retirement plan other than the government so have decided the way to fund the rest of their lives is to go into the development business because, as they say, real estate only goes up. They HELOCed the hell out of the teardown they've been living in for 30 years (never had the money to maintain or fix up) and purchased a house down the block for $1.5M ($150,000 over asking and they were the only offer). They were in a panic to get the money before March 18th because they needed the full 95% of assessed value of their own house to be able to do their deal. They are expecting to sell the development for over $3M when it's completed – the lot… Read more »
Renting
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Renting
So the question is, why would banks reduce their posted amortizations to 30 years? The banks know 35 year amortizations are risky. They also know there will be plenty of defaults down the road on these mortgages. That is why they lobbied to have the rules changed. The bank management probably felt they had to participate in the risky 35+ year amortizations up till now in order to keep earnings in line with other banks. When mortgages start defaulting the bank executives will want to save their jobs and bonuses. It will also help them qualify for a federal bail out when things unravel. If they are giving loans out at terms CMHC will no longer insure it will be viewed the banks took too big a risk and the management is to blame. This a CYA move. The banks… Read more »
registered
Member
registered

#13 Renting Says:"It will also help them qualify for a federal bail out when things unravel."

Didn't the CMHC already bail them out? What risk to they carry on loans meeting CMHC qualifications?

Yikes
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Yikes

@vancouverite: If that story is true, and it wouldn't surprise me, those folks are in for a world of hurt.

AG Sage
Member

@Frank Grimes: What really surprised me was that the fee goes UP, the less time left on the mortgage. Wait, what? The bank has made their money off you, it's not like you got a mortgage, they expected to spread out recovering the cost of issuing it over, say, 18 payments and then they're good. This Canadian twist on it caught me by surprise.

chilled
Member
chilled

@specialfx3000:

(“I have to deliver 5000 pizzas”) to pay that off.

>>>>>>>>>>>>>><<<<<<<<<<<<<<

This guy will be picking pepperonis and wads of cheese off your pizza while in transit.

AG Sage
Member

@vancouverite: This anecdote really drives home how silly it is to assert that the banks are safe because the loans are non-recourse. There will not be any money to get.

vangrl
Member
vangrl

we should all comment on that China Daily article to at least warn the Chinese that Richmond isn't all it's cracked up to be, or at the least tell them that's the last place they want to be if there is an earthquake here.

Maybe link an Olympic Village article or two?

I think they are being told a much different story from Vancouver Realtors…

http://www.chinadaily.com.cn/cndy/2011-03/21/cont

Anonymouse
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Anonymouse

@specialfx3000:

"This morning on CBC Radio (Go Public) budddy complained about the bank dinging him $30K+ for breaking his 400K mortgage as he had to sell his condo due to financial problems."

How on earth was it 30K? Usually it's 3 months interest, which would be about $3K, or it's based on the interest rate differential. Which only comes into play when rates go down.

Best place on meth
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Best place on meth

@chilled:

>>>This guy will be picking pepperonis and wads of cheese off your pizza while in transit.<<<

Well, his kids have to eat too don't they?

Renting
Guest
Renting

@fixie guy:

What risk to they carry on loans meeting CMHC qualifications?

None.

I was referring to non CMHC insured mortgages. The banks appear to not be offering 35 year conventional mortgages now.

DQ
Guest
DQ

I love how the on the referenced "China Daily" site, the biggest ad is for Massage in Shanghai. The ad is nothing but scrolling pictures of white bleached and round eye asians (what is with that, the closer to white you are, the better?).

And I though that the Vancouver Sun and Province advertisement revenue sources were bad.

AG Sage
Member

@Anonymouse: According to the article, the fee is the greater of the two formulas.

Anonymouse
Guest
Anonymouse

@AG Sage:

Indeed it's usually the greater, but the Rate Differential only applies when rates have decreased since you took the mortgage. So I'm trying to work when he must have bought for the penalty to come to $30K….

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