Archive for the ‘mortgage’ Category

Subprime lending in Canada ‘rockets’ to record high

Tuesday, December 16th, 2014

It’s a been a while since CMHC mortgage lending rules have been ramped back to more historical levels.

After dabbling in American style 40 year zero down mortgages we decided that might not be the best idea. Unfortunately we never did get the American style locked in interest rate for the full duration of the loan.

So now we’re back to 25 year terms and it’s more difficult to get a loan if you’re self employed.  A lot of loan applications that would have been approved a year or two ago are now being rejected.

So what affect has this had on the market so far?

Well apparently the sub-prime lending market in Canada has rocketed to a record level for one.

Capital Corp is a non-bank lender that has been operating since 1988. Their chief executive Eli Dadouch says there’s a lot of money out there for non-bank loans to higher risk borrowers.

He said there is no question it’s the top of the real estate cycle, so anybody lending out money has to be more careful today.

“People always want to deal with a bank, it’s the cheapest form of money,” he said. “When they come to us and people like us, it is because there is some type of story [behind why they can’t get credit]. It’s easy  to lend money, the talent in this business is getting it back.”

Read the full article in the Financial Post.

 

CMHC cutting jobs, laying off employees

Monday, December 15th, 2014

Joining in that venerable tradition of holiday season layoffs, the Canadian Mortgage and Housing Corporation has announced that it is cutting 215 jobs which is close to 10% of it’s workforce.

But of course this is government, so they will also be adding jobs, resulting in only a small net loss of positions:

The federal agency said Friday the employees have been declared surplus and will see their jobs disappear at both CMHC’s head office in Ottawa and its regional operations.

However, CMHC says it is adding to its staff in risk management and information technology, so the organization will only see a “small net reduction” in its overall staffing levels.

Read the full article here.

New Record $1.513 TRILLION in Canadian consumer debt

Thursday, December 4th, 2014

Just how fat can this debt pig get before it’s stomach explodes?

You thought this nation had impressive debt levels before? It’s now topped One and half trillion dollars and an astounding 65% of that is mortgage debt.

In one report, Equifax Canada said that “Canadian consumers have yet again tipped the scales setting a new benchmark of over $1.513-trillion in debt.”

That third-quarter figure marked an increase from $1.448-trillion in the second quarter and $1.409-trillion a year earlier, according to Equifax, whose numbers are based on more than 25 million unique consumer files.

Excluding mortgages, average debt held by Canadians has increased 2.7 per cent to $20,891.

The good news is that 27% of Canadians apparently don’t believe that a mortgage is debt, so we shouldn’t really even count that part.

Poloz: higher rates for housing a bad idea

Thursday, November 6th, 2014

Bank of Canada Governor Stephen Poloz says it’s a ‘bad idea‘ to raise interest rates to combat imbalances in housing and consumer debt as that would only hurt manufacturers and the general economy.

“Housing activity is showing renewed momentum and consumer debt levels are high, so household imbalances appear to be edging higher,” he said. “But it is our judgment that our policy of aiming to close the output gap and ensuring inflation remains on target will be consistent with an eventual easing in those household imbalances.”

Changes in Canada’s population justify growth in the housing market, and Toronto, Vancouver and Calgary are the only three cities showing signs of overbuilding, Poloz said at a press conference.

Canada’s dollar extended declines after the speech and as crude oil, one of the nation’s main exports, fell below $80 a barrel. The currency fell 0.9 percent to C$1.1357 against the U.S. dollar at 3:15 p.m. in Toronto.

It may be just a crazy idea, but if the government actually wanted to do something about house prices and consumer debt, wouldn’t eliminating mortgage insurance do that without any change in rates?

Should banks take on more risk?

Wednesday, October 22nd, 2014

There’s an article over at the CBC on the CMHC and CEO Evan Siddall.

Mr. Siddall is of the opinion that the CMHC should not be privatized as it acted as a ‘shock absorber’ during the last correction, but does think the banks should take on a share of the risk for insured mortgages.

“That ultimately will be a decision for government to make and we’re in the process of looking at different options that will take a few years to evaluate, but the idea is that people should have skin in the game,”

“In the insured mortgage businesses, the banks offload all that risk to the government through CMHC, The government’s interested in taking a reduced role in the housing market … so we’ll look at different ways to share risks with lenders.

What do you think, should the CMHC force banks to take on more responsibility for the insured loans they hand out or would the banks just use that as an excuse to charge more?

Read the full article here.

CMHC considers sharing risk with banks

Monday, September 22nd, 2014

The CEO of the CMHC is saying that although some Canadian house prices are certainly too high, they aren’t worried about a market collapse at this point.

One option they are considering as a way to help cool an overheated market is sharing mortgage loan risk with the banks that are handing out loans.

The mortgage insurance that CMHC and its two competitors sell repays banks when consumers default on their mortgages. At the moment it makes the banks whole. The OECD has called for changes to the system to ensure that lenders take on more of the risk. In other countries with mortgage insurance, the product tends to only cover 10 to 30 per cent of the losses. In his speech, Mr. Siddall said that CMHC is evaluating “risk-sharing with lenders to further confront moral hazard” and is advising the government about its thoughts.

Read the full article here.

Hat-tip to southseacompany.

TD outgoing CEO wants tighter lending rules

Thursday, September 18th, 2014

Ed Clark is the CEO of Canada’s 2nd largest lender: TD Bank, but he’s heading out in November.

He has some interesting things to say about mortgage lending in Canada:

“It’s just not realistic in a competitive marketplace to say, ‘Why doesn’t one bank lead the way and change the rules?’ It won’t happen. This is a responsibility of the government,” he told Reuters.

“I get why they keep worrying about doing it. But I think you have to just keep touching this brake. As long as you run low interest rates, you then should be continuously leaning against asset bubbles.”

Why is it not realistic for an individual bank to change lending rules? Because they would be the chump to leave money on the table.  If your business had an oppourtunity for income which the government would insure against loss, how much sense would it make to not take advantage of that business?

And you’ve got to love this seemingly prerequisite paragraph that comes next in all of these articles:

Canada’s Conservative government has stepped in four times since 2008 to tighten mortgage lending rules to cool a real estate market that flourished as the financial crisis ebbed.

It is accurate to say that the government has stepped in four times since 2008 to tighten mortgage lending rules, but it omits the change before 2008. For those of you just tuning in they look something like this:

•March ’06: CMHC change to allow 0% down, 30 year Amort.

•June ’06: Allow 35 year amort & interest only payments for 10 yrs

•Nov. ’06: Aw heck, lets go all out and allow 40 year amorts!

•April ’07: Insured min. down payment moved from 25% to 20%

•Oct. ’08: 5% down allowed, amort moved back to 35 years

•April ’10: Require approval at 5 year fixed rate

•March ’11: Drop back down to 30 year amorts.

•July ’12: Drop back down to 25 year amorts.

Shouldn’t we take into account how much gas was applied before we started tapping the brakes?

Household debt near record high

Monday, September 15th, 2014

Southseacompany pointed out this article in the Chicago Tribune:

Canadian household-debt ratio nears record as mortgages grow

“Home sales and prices have shown unexpected strength as the lowest mortgage rates in decades spur demand. ”

“With mortgage debt rising, the economy will be exposed when interest rates rise, said Andy Nasr, senior portfolio manager at Calgary-based Middlefield Capital Corp. which manages about C$4 billion ($3.6 billion), including real estate stocks.

“The misconception is that ‘Well it’s OK because people can somehow afford it,’” he said in an interview at Bloomberg’s Toronto office Friday. “They can’t.””

CMHC decides to share more info

Tuesday, June 3rd, 2014

The Canadian Mortgage and Housing Corporation (CMHC) is the crown corporation that backs the majority of Canadian mortgage products.  They have recently decide to magnanimously share more info about the Canadian mortgage market:

The changes in the CMHC’s disclosure come after some economists had demanded CMHC share more of its information about the market. Among them was CIBC deputy chief economist Benjamin Tal who published a report suggesting that the lack of market information makes its harder to get an accurate picture of the stability of the market.

Read the full article in the Financial Post.

Dirt cheap rates, limited time offer

Wednesday, May 14th, 2014

The Investors Group is making waves with a 1.99% 3 year variable mortgage.

Here’s a story about it over at the CBC.

The offer comes with strings attached — namely that you can’t break the mortgage for any fee during the three-year term, unless you sell your home. But the offer does come with the ability to double up monthly payments, or pay a 15 per cent lump sum once a year.

In real dollar terms, it could knock a lot of money off a mortgage payment, at least over the short term. A standard 25-year $500,000 mortgage at a five-year rate of 2.99 per cent works out to $2,364 a month. That mortgage under IG’s new terms would be $2,115 a month — savings of $249 monthly, at least for the first three years, and as long as the variable rate doesn’t increase.

This is from ‘the first one’s free’ school of marketing.  It looks like Investors Group is willing to lose money on mortgages in order to make it up with more business in the future.

It will be interesting to see if offers like this give a bump to the market and to see where we are with rates in 3 years.

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