High-flying stock market sends business to brokers Lingering caution at the big banks and wealthy clients increasingly bullish on the stock market are helping brokers claim their biggest share of high-end deals in years – with a Re/Max study helping explain the phenomenon.
By Vernon Clement Jones
Lingering caution at the big banks and wealthy clients increasingly bullish on the stock market are helping brokers claim their biggest share of high-end deals in years – with a Re/Max study helping explain the phenomenon.
“In the last week, we’ve just had two of the biggest deals of my career,” Mark Herman, an agent and team leader for Mortgage Alliance Mortgages Are Marvelous Inc. in Calgary, told MortgageBrokerNews.ca. “One was a new purchase for $1.525 million, with 5% down, and the other one was for a $750,000 line of credit on a $1.5 million purchase. High-end mortgage business for brokers in Calgary has picked up like we’ve never seen.”
Calgary brokers may not be alone.
Re/Max examined 12 major centres from coast-to-coast and found that luxury sales surged in two-thirds of them during the first four months of 2011, compared to the same period last year.
While Vancouver led in terms of percentage increases – 118% year over year – Dartmouth, at 27%, Winnipeg, 24%, Hamilton-Burlington, 13%, and Greater Toronto, 9%, also saw spikes.
Herman’s market of Calgary was also on that list, at 51%, although that scorching hot performance fell short of setting a new record, unlike the other top jurisdictions on the list. With the exception of Vancouver, their sales growth can be chalked up to domestic buyers.
Michael Polzler, executive vice president for Re/Max in Ontario-Atlantic Canada, pointed to three key factors for the rise in high-end business: equity gains, stock market recovery, and improved economic performance.
Brokers like Herman are pointing to the some of the same factors to explain why they’re getting more high-net-worth clients stepping across their thresholds.
“These guys weren’t buying as much during the recession, but with prices still below recent highs, high-end buyers are now out bargain shopping,” said the mortgage agent, also an MBA.
“But what they’re doing is they’re looking to keep their money in the stock market and other high-yield investments and want to buy homes with as little money down as possible – it’s all about limiting opportunity costs. Also they’re coming to brokers this time because they’re finding the banks have been slower to ease credit and aren’t giving them the discounted rates they expect.”
Less than five months into 2011, another broker, Sharnjit Gill, has already surpassed last year’s total for high-value deals.
“We’re also seeing more activity there because those clients are more educated about what we as brokers can do for them beyond rate,” he told MortgageBrokerNews.ca.
Still the trend is less obvious at other mortgage brokerages, even in those markets highlighted by the Re/Max report.
While her Ottawa brokerage has seen an uptick in volume, said Kim McKenney, senior VP at Dominion Lending Centres The Mortgage Source.
“The average dollar amount has risen by only a couple of thousands of dollars,” she told MortgageBrokerNews.ca.
Mortgagebrokernews.ca is a division of KMI Media.
It’s that time again. When Mark Carney and his cohorts ascend Mount Olympus once more for the latest round of talks to decide the immediate future for Canadian mortgage holders.
The prevailing feeling however is that little will result from this month’s scheming and plotting. Another meeting will pass with rates unchanged and the variable rate mortgage holders can rest easily until July 19th signals the next round of talks. While some speculators – who haven’t been paying enough attention to our blog – earlier in the year cited this meeting as the one to kick off a series of interest rate rises, it now appears those speculators were somewhat premature in their estimations. Recent developments have meant it is now highly unlikely we will see a rate increase tomorrow, Tuesday, May 31, 2011.
Economic growth for the first quarter in the US, Canada’s primary trading partner, came in at a highly disappointing 1.8% with consumer spending slowing. And while Canada’s strong dollar has seen investment increase and manufacturing experience a long overdue rebound, these are still highly uncertain times for the Canadian economy. As expressed by Governor Mark Carney earlier this month, fears persist that rising commodity prices, combined with an inflated currency could impede Canada’s ability to increase demand in the US. The commodity boom is no longer serving Canada in the way it had previously during China’s rapid expansion. These concerns combined with the ever worsening European debt crisis and the impending impact of fiscal austerity in the US driven by irrational desires to cut the budget mean a rate hike tomorrow is highly unlikely.
While we feel that interest rate rises are coming before the end of the year we still feel the variable rate offers the greatest value for money. However we always advise our clients that if they feel ill-suited to the uncertainty of a variable rate, they should opt for a fixed. And the good news is that being adverse to risk has rarely been so well rewarded, with fixed rates plummeting in recent weeks. Fixed rates, as we predicted they would, have fallen repeatedly and there has never been a better time to opt for fixed. If you have any questions about anything you’ve read here or would like to hear how the impending rise in prime may affect you, please feel free to contact us at403-681-4376 for sound, unbiased mortgage advice.
It is almost that time again, when eyes will turn towards Mark Carney and the Bank of Canada to see if interest rates will stay put again this time around.
The next announcement, slated for Tuesday May 31, comes at an interesting time. Throughout the first part of this year, it was widely believed that interest rates had stayed as low as they could, and for as long as they could, and the prediction was that rates would begin to creep up as early as this spring.
However, as with many predications, several things were not foreseen in the forecasting.
What has happened most notably in advance of this latest announcement- was unpredicted behaviour on a number of fronts. Consumer prices across many categories have been rising rapidly (although fell slightly below expectations last month), but are clearly displaying an upward trend. Inflation, while still manageable, is running a little too high to be ignored as a factor as well.
So, rates will rise at some point, but given the existence of some volatile conditions in the market, and fears that a rate hike will erode an already tenuous hold on affordability due to rising prices, the question is, is that time now?
According to a survey done by Reuters last week, forecasters predict that a rate hike will not happen until Q3 2011. It is widely believed that rates will go up to 1.25% in the third quarter from the current 1%. Almost unanimously, the forecasters polled agreed that the announcement on May 31 will be a rate hold- again.
Supporting these findings, three of the major banks have also indicated that they don’t expect to see rate hikes until the fall either.
If all of this comes to pass, it is good news for the Canadian housing market. The time-limited offer of ultra-low interest rates will get extended. Coupled with the fact that this will end at some time contributes to a sense of urgency as well.
How does this translate into daily business for Real Estate and for the Mortgage professions? Propertywire.ca asked some members of the community.
Tara Gibson, Mortgage Broker, TAG Financial – Mortgage Alliance TAG Mortgages, agrees that rates will remain steady for the time being, but thinks that an increase could come as early as the summer. “In my opinion, our strong dollar is enough to predict that we won’t see an increase in interest rates this time; more likely in July. The question is, will discounts on Prime change with the lenders? I think we may start seeing this compress a bit soon enough; in fact, some lenders have already started to close the gap. Many clients are currently choosing to go with a variable rate; simple case of supply and demand, prices go up with increased demand.”
“Despite all the pressure to see interest rates increase, industry experts believe that the Bank of Canada and lenders will increase rates at a slow rate. Advice to borrowers, if you want a variable, get in on the rate holds before we see more lenders change the discount! Further to that and much more important, global uncertainty is only postponing the inevitable, rates WILL go up so make sure you are fully prepared to handle the change when you go to renew your mortgage in 5 or 10 years!”
Trish Pigott,Broker/Owner, Primex Mortgages agrees too that status quo will be the order of the day on Tuesday. “I’m sure they are going to remain steady and unchanged. The majority of economists were predicting July as our next increase but they are now changing that until September and even some as early as next year. With our global economy in the state it’s in, I can’t see it changing much until the rest of the world stabilizes.”
House sales up 5%
Prices up 1%
CALGARY — A report by Canada Mortgage and Housing Corp. forecasts MLS sales in the Calgary region to increase by nearly five per cent this year compared with a year ago while the average sale price will rise by just over one per cent.
The CMHC’s Spring 2011 Calgary Housing Market Outlook, released Monday, predicted MLS sales in the Calgary census metropolitan area would hit 22,000 this year, up by 4.8 per cent, and increase a further 2.3 per cent in 2012 to 22,500 transactions.
The agency forecast the average sale price to increase by 1.1 per cent this year to $403,000 while it would jump another 2.2 per cent in 2012 to $412,000.
Do you want to read some total BS-PR-spin that the banks put out? Below is a press release from a bank patting themselves on the bank for lending to new immigrants. Funny thing is that this program that they have “developed” has been around for more than 7 years. All they did was sign up for the CMHC New to Canada program that every other lender that we use has had since I started doing this in 2004! Good job ING. Way to do what every one else is doing. Many years late.
Getting a mortgage in this country may have just gotten slightly easier.
ING Direct Bank, recognizing the overwhelming desire for most Canadians, particularly with newcomers to the country, to realize the dream of home ownership is modifying its’ lending criteria.
In a release, ING Direct Bank said, “ING DIRECT, the country’s 6th largest mortgage lender, announced today it is offering its popular unmortgage to permanent and non-permanent residents with limited or no credit history. Permanent and non-permanent residents include those who have been residing in Canada for no longer than 60 months. “
ING Direct recognizes the sheer numbers and the tremendous influence that immigration plays- not just in the makeup of the Canadian population, but in the marketplace as well. As such, they are developing product to meet that need.
“At ING DIRECT, our goal has always been to give the power of saving to all Canadians, so offering our unmortgage to new residents allows us to stay true to that promise,” said Peter Aceto, President and CEO of ING DIRECT Canada. “We want to give newcomers access to the same products and savings opportunities we have been providing to Canadians for the last 14 years”
Motivated by the desire to establish a banking relationship right from day one with newcomers to this country, ING Direct jumped into action to provide a solution for people trying to establish their credit history.
Aceto says, “We have always been committed to making the mortgage experience better for our clients. For newcomers to Canada, our product is simple and easy to understand. We always provide the best rates upfront and guarantee those rates for up to 120 days after applying, and our flexible pre-payment options allow our clients to own their homes sooner by paying as little interest as possible over the life of the mortgage.”
Canada is known globally for its’ stringent lending policies- which are partly to thank for escaping the recent recession relatively unscathed.
While qualifying for a mortgage may have loosened slightly, it is likely not a sign that credit criteria is less stringent generally. Qualifying for a mortgage , while taking credit history into account, generally has some different criteria, because it is as much about the asset that is securing the debt, and the amount of cash available to pay for ongoing expenses.
Calgary market transitioning into a more vigorous phase.
This is great news as affordability is super important. Note in Vancouver it takes about 3/4 of a person’s income to pay for their home. Yikes! Have a look at some other good reports here.
TORONTO, May 20 /CNW/ – Unlike most other major centres across Canada, housing affordability in Alberta remained stable in the first quarter of 2011, according to the latest Housing Trends and Affordability report issued by RBC Economics Research.
Until the fall of 2010, abundant availability of homes for sale in the face of sluggish demand kept housing prices firmly under control. Resulting stable or slightly declining property values contributed to a substantial improvement in affordability in Alberta last year.
“The Alberta market continued to be stuck in low gear in the first quarter of 2011. Sales of existing homes and construction of new housing units showed very modest increases,” said Robert Hogue, senior economist, RBC. “While market conditions have become more balanced in recent months, owning a home doesn’t seem to be getting more expensive in the provincial market at this stage. Affordability levels are still looking quite attractive.”
RBC’s housing affordability measures for Alberta, which capture the province’s proportion of pre-tax household income needed to service the costs of owning a home, remained relatively unchanged and below their long-term averages in the first quarter of 2011. The measure for the benchmark detached bungalow in the province moved up to 31.3 per cent (an increase of 0.4 of a percentage point from the previous quarter), the standard condominium stayed flat at 20.2 per cent and the standard two-storey home fell to 34.2 per cent (down by 0.2 of a percentage point).
RBC’s report notes that there are signs that the Calgary housing market is finally overcoming its protracted slump. Home resales in the area grew for the second consecutive period in the first quarter, the most growth since the middle of 2009, helping to remove market slack and setting a healthier balance between demand and supply.
“Calgary home prices have yet to break out of their listless trends, but they rose at their fastest rate in more than a year in the first quarter, with detached bungalows leading the way,” said Hogue. “Firmer market conditions and higher prices had only limited impact on Calgary’s affordability, which remains among the most attractive of Canada’s major cities.”
The majority of Canadian markets experienced weakened affordability in the first quarter of 2011. Most notable was the sizeable deterioration in British Columbia. More specifically, Vancouver saw significant gains in property values, which drove the already elevated cost of homeownership even higher. Quebec’s homebuyers also faced noticeable rises in ownership costs, while those in Atlantic Canada saw their affordability advantage somewhat diminish. The picture remained mixed in other areas of the country, with Ontario, Alberta and Saskatchewan experiencing ups and downs in ownership costs, depending on the housing type.
“Despite the latest erosion in affordability, provincial levels generally continue to stand near their long-term averages, suggesting that owning a home remains affordable or, at worst, slightly unaffordable across Canada – with Vancouver being a notable exception,” said Hogue.
RBC’s housing affordability measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 72.1 per cent (up 3.4 percentage points from the last quarter), Toronto 47.5 per cent (up 0.8 of a percentage point), Montreal 43.1 per cent (up 2.0 percentage points), Ottawa 39.0 per cent (up 0.4 of a percentage point), Calgary 35.9 per cent (up 0.9 of a percentage point) and Edmonton 31.5 per cent (up 0.5 of a percentage point).
The RBC housing affordability measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market in Canada. Alternative housing types are also presented including a standard two-storey home and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.
Low interest rates seen sticking around- great news for the variable rate people. Remember with a broker lender you lock-in at the best broker rate for the day when you lock in. With the banks you lock in at Posted (or Posed-1% if they pretend that they love you – and they actually love your money, not you.)
That means that for today the broker rate is 3.99% for a 5 year. Posted is 5.66%. If “the bank loves you” you get 5.66-1% = 4.66% BUT you should have had 3.99% at a broker bank.
So would you love your bank back when that happens?
Tuesday’s Globe and Mail
Interest rates have recently being going somewhere unexpected: down.
At their trough last week, the yields on 10-year U.S. Treasuries, the benchmark North American rate, touched 3.11 per cent, the lowest level in six months and more than half a percentage point below their February peak.
Yields on 10-year Government of Canada bonds have fallen, too, and are now virtually identical to their U.S. counterparts.
The sliding rates have surprised many market watchers. With the United States government bumping up against its debt ceiling, inflation ticking upward, and a growing debt crisis in Europe, most expected interest rates to be increasing.
While predicting the future for rates is notoriously difficult, some observers believe that the current low-rate environment may continue for a while. If so, it will mean pain for savers, but good news for borrowers.
A drop in interest rates is equivalent to a sale on the price of money, and corporations are already rushing to take advantage of the easy lending conditions, even if they’re in no immediate need of funds. A case in point is Google Inc., which has $37-billion (U.S.) in cash and marketable securities on its balance sheet, but raised $3-billion from a bond issue last week anyway. Mortgage rates have fallen, too – good news for homeowners looking to refinance.
But lower rates have not turned out so well for some of the market’s savviest players, including Bill Gross, the founder of Pimco, the world’s biggest bond fund. Earlier this year, he sold his U.S. Treasuries, because he thought interest rates were poised to rocket higher, which would drive down prices of bonds.
It’s difficult to fault his logic: only a few months ago, the case for higher interest rates seemed so compelling.
Governments around the world are carrying bloated deficits and massive borrowing needs. In the United States, politicians have yet to agree on any clear path to deficit reduction, despite more than $1-trillion in annual red ink. Meanwhile, oil has been trading consistently around the $100-a-barrel level, thereby lifting inflation, another bond-market negative.
And the U.S. Federal Reserve is no longer putting its thumb on the scale. In less than six weeks, it is going to end its program of quantitative easing, under which it is buying $600-billion in Treasuries to goose the economy. Many bond-market followers believe the Fed’s massive buying binge has been propping up Treasury prices and keeping yields artificially low.
So what has been pushing rates lower in recent months?
A weaker-than-expected recovery is the major culprit. “The global economy, and the U.S. economy in particular, is not on quite as solid a recovery track as people were imagining in the very optimistic days of six months or so ago,” observes Peter Buchanan, senior economist at CIBC World Markets.
A slew of recent statistics underlines that weakness, ranging from the poor state of U.S. home sales to the slowing pace of U.S. manufacturing growth. Meanwhile, the Japanese economy, the world’s third-largest, is shrinking and creating a further drag on global commerce, although few foresee a double-dip recession.
“We’re looking ahead toward a bit of a cooling in economic growth,” said Paul Dales, senior U.S. economist at Capital Economics, who foresees output in the U.S. rising about 2 per cent this year.
That level of growth won’t be “anything to celebrate but it’s nothing like the recession we saw previously,” he said.
Another factor driving rates lower has been the early May rout in commodities, which dampened some of the worry on the inflation front. In addition, the recent sluggish performance of the stock market suggests that investors are getting nervous and growing more willing to buy super-safe government bonds.
Mr. Dales believes the current trends have room to run, and that rates will surprise to the downside.
He predicts U.S. 10-year Treasury yields could slip to 2.5 per cent in the low-growth, less inflation-spooked environment he foresees ahead.
If growth continues to be slow, lower rates might be staying around for a while.
Mr. Buchanan says the most likely scenario, given the poorer economic outlook, is for the Fed to hold off on raising rates until 2013. He believes the yield on Treasuries will rise gradually, instead of falling further, getting back to 3.4 per cent by the end of this year and to 4 per cent by the end of 2012. http://www.theglobeandmail.com/report-on-business/economy/interest-rates/low-interest-rates-seen-sticking-around/article2032075/
Les Bazso/Postmedia News
Canada scored at or near the top in such areas as housing, education, health and life satisfaction, among 34 major industrialized countries.
By Peter O’Neil, Postmedia News Europe Correspondent
PARIS — Canadians have a “better life” than anyone in the western world except — by a narrow margin — Australians, according to a new analysis released Tuesday.
Canada scored at or near the top in such areas as housing, education, health and life satisfaction, among 34 major industrialized countries.
Sweden ranked third among the members of the Organization for Economic Cooperation and Development; the U.S. was seventh; and Turkey was a distant last.
The Better Life Initiative survey marked a major attempt by the Paris-based OECD, an economic and social policy think-tank funded by its members, to provide a broader measure of a country’s success than gross domestic product figures.
“People around the world have wanted to go beyond GDP for some time,” OECD Secretary General Angel Gurria said in a statement.
“This index is designed for them. It has extraordinary potential to help us deliver better policies for better lives.”
The index compares the 34 countries in 11 areas — housing, income, jobs, community, education, environment, governance, health, life satisfaction, safety and work-life balance.
Canada ranked first in terms of access to affordable housing, second on “life satisfaction,” and third on three categories — safety, health and education.
Canada’s worst score was in the area of governance, where it was near the middle of the pack.
While 67% of Canadians trust their political institutions, well above the OECD average of 56%, voter turnout in national elections was around 60% — well below the 72% average.
The report, in a commentary on government transparency, noted that Canadians can’t use the Internet or telephone to get information under Canada’s access-to-information laws.
“In addition, there are no provisions for anonymity or protection from retaliation.”
In its breakout analysis for Canada, the OECD tossed in a poll result from 2008 that wasn’t considered in Canada’s overall ranking but may, according to an official, help explain why many in the country have “better lives.”
Roughly two-thirds of Canadians, or 66%, “reported having helped a stranger in the last month, the highest figure in the OECD” and well above the average of 46%.
This is a great general article on how to get ready to qualify for a mortgage. There are also great reports on the economy and why buying now is a good idea
by: Amy Fontinelle Investopedia.com
A variety of factors can keep you from qualifying for a mortgage. The big ones include a low credit score, insufficient income for the size of the loan you want, insufficient down payment and excessive debt. All of these factors are within your control, however. Let’s take a look at your options for overcoming any liabilities you may have as a borrower
1. Repair Your Credit and Increase Your Score
To lenders, your credit score represents the likelihood that you will make your mortgage payments in full and on time every month. Therefore, with most loans, the lower your credit score, the higher your interest rate will be to compensate for the increased risk of lending you money. If your credit score is below 620, you will be considered subprime and will have difficulty getting a loan at all, let alone one with favourable terms. On the other hand, if you have a credit score above 800, you’ll easily be able to get the best interest rate available (also known as the par rate). (Find out how your borrowing activities affect your credit rating in The Importance Of Your Credit Rating.)
Measures you can take to improve your credit score relatively quickly include paying down revolving consumer debts, such as credit cards or auto loans, using your debit card instead of your credit cards for future purchases, paying your bills on time every month and correcting any errors on your credit report. However, some flaws, like seriously late payments, collections, charge-offs, bankruptcy and foreclosure, will only be healed with time. (Read How To Dispute Errors On Your Credit Report to find out how to address reporting mistakes.)
In addition to managing your existing credit responsibly, don’t open any new credit accounts. Applying for new credit temporarily lowers your credit score, and having too much available credit is also considered a warning sign. Lenders may be afraid that if you have a lot of available credit, you’ll take advantage of it one day and adversely affect your ability to make your mortgage payments. (For more tips and techniques to help you rebuild your ruined credit rating, read Five Keys To Unlocking A Better Credit Score.)
2. Get a Higher-Paying Job
If lenders say your income isn’t high enough, ask them (or your mortgage broker) how much more you need to earn to qualify for the loan amount you want. Then try to find a new job in your existing line of work where you’ll be able to earn that much money.
Because lenders like to see a steady employment history, you’ll have to stay in the same line of work for this strategy to be successful. This can be disappointing news for borrowers, as switching professions entirely might offer the best chances for a salary increase. However, switching companies can also be a good way to get a significant boost in income. Significant raises from existing employers aren’t that common, but a new employer knows he’ll have to offer something special to get you to make the switch. (Read Negotiating For Employment Perks for tips on reaching an agreement with your boss.)
If switching companies right now won’t be enough to get the raise you need, think about things you can do relatively quickly to make yourself more valuable to employers. Is there a continuing education program that you could complete? If you’re a legal secretary, could you become a paralegal? If you’re a receptionist, could you become a secretary? A career counselor or headhunter might be able to give you some guidance specific to your situation about how to improve your marketability and how to reach your income goals. (Read Six Steps To Successfully Switching Financial Careers to learn how to make adjustments without starting over.)
Unfortunately, getting a part-time job on top of your full-time job may not provide what lenders consider qualifying income. The part-time job may be viewed as temporary, and since it will probably take you at least 15 years to pay off your mortgage, lenders are looking for you to have long-term income stability. (Increase Your Disposable Income gives you ideas on how to make more money now, which can make a big difference down the line.)
3. Save Like Crazy
The larger your down payment, the smaller the loan you’ll need. In addition, the lower your loan-to-value ratio (LTV ratio), the less risky lenders will consider you. Both of these factors will make you more likely to qualify for a loan. Be aware that you may have to reach a certain down payment threshold, like 10 per cent or 20 per cent (with 20 per cent being the most conventional), before a larger down payment will help you qualify for a loan. (Learn more in Mortgages: How Much Can You Afford?)
4. Don’t Pay More Than the Bank’s Appraised Value
The bank will not want to lend more than the house is worth because they could be on the losing end of the deal, should you foreclose and owe more than the bank could get for it. A 20 per cent down payment also becomes much less valuable if the house is worth 20 per cent less than the purchase price. Collateral value is important to lenders, so it should be kept in mind when making an offer to purchase a property. (Read 10 Tips For Getting A Fair Price On A Home and learn how to make sure your house is worth the price you pay.)
5. Reduce Your Debt
To a lender, what constitutes excessive debt is not a set number – it’s a total monthly debt payment that is too high for you to be able to afford the monthly mortgage payment you’re asking for. When deciding how much loan you qualify for, lenders will look at what’s called the front-end ratio, or the percentage of your gross monthly income that will be taken up by your house payment (principal, interest, property tax and homeowners insurance), and the back-end ratio, or the percentage of your gross monthly income that will be taken up by the house payment plus your other monthly obligations, such as student loans, credit cards and car payments.
The more debt you’re required to pay off each month, whether it’s “good debt” like a student loan or “bad debt” like a high-interest credit card, the lower the monthly housing payment lenders will decide you can afford, and the lower the purchase price you’ll be able to afford. Decreasing your debt is one of the fastest and most effective ways to increase the size of loan you’re eligible for. (Learn what to watch for before you find yourself drowning in debt in Five Signs That You’re Living Beyond Your Means.)
Playing to Win
Qualifying for a mortgage isn’t always easy. Lenders require all applicants to meet certain financial tests and guidelines and allow a limited amount of flexibility within those rules. If you want to score a mortgage, you’ll have to learn how to play the game, and you’re likely to win if you take the steps outlined here http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/five-steps-to-scoring-a-mortgage/article1925218/page2/
Broker: Clients now suffering collateral damage from collateral mortgages
I have had to say “sorry, we can not help you” to clients with collateral mortgages more than ever in the last year. TD and RBC offer them and here is the bad news about what they mean below.
Short version is: they are not normal mortgages as you promise everything you have to pay them back so they could force you into bankruptcy AND other banks will not let you move into one of their mortgages from one of these so you have to pay legal and possibly appraisal fees again. These added costs usually make it uneconomic to get out of one of these mortgages and move to a different bank for better rates.
Broker fears that growth in collateral mortgages could darken their business horizons have come true, said one broker, pointing to his own impaired capacity to service clients.
“We’re saying ‘no’ more often now than we did in the past, and I can think of no less than six people since last year that we’ve simply had to turn away because there was nothing we could do for them,” David O’Gorman, broker/owner of MortgageLand Inc. in Markham, Ont., told MortgageBrokerNews.ca. “It’s because they’ve signed up for a collateral mortgage with the banks, and have pledged all their equity to that bank. It makes it all but impossible for a second lender to come behind and provide a second mortgage or refinancing or even for a homeowner to switch lenders at renewal.”
Last fall, O’Gorman and other brokers raised the specter of a loss of business stemming from collateral mortgages when one of the major banks announced all new home loans would be secured by promissory note and backed by collateral – usually a first or second lien on the property. That supporting charge can be for as much as 125 per cent of the value, although, doesn’t, in fact, mean the borrower will have access to all those funds.
The collateral charges allow lenders to switch up the interest rate on a loan and lend more money to qualified borrowers after closing, without the client incurring additional legal costs. There is, however, a downside: they also limit the borrower’s ability to shop around for a new lender at renewal or to win refinance or to take out a second mortgage at another institution.
Most mono-lines and banks – as well as the private lenders O’Gorman deals with – refuse to accept the transfer of collateral mortgages, forcing homeowners to pay additional fees to register a new conventional or collateral mortgage in order to move the loan from the lending institution.
The consequences for homeowners are tremendous, said O’Gorman, who wrote to Federal Finance Minister Jim Flaherty last November, outlining his concerns. He also challenged the motives of the bank industry, now prepared to extend its collateral mortgage portfolio.
“Lending money to people, with ‘different to the norm’ conditions and increasing the borrower’s exposure to significant loss, all the while flogging a cheap closing service, enticing the borrower to go without the opportunity of having an independent legal opinion of the documents they are signing, just plain stinks,” he wrote in the two-page letter. “We will have to wait awhile for a decision by a judge crushing the ‘one-sidedness’ of these contracts. In the meantime a significant number of consumers will make ill-informed decisions, unless consumers and/or bank regulators take action.”
A policy advisor for Flaherty did contact O’Gorman for a brief discussion, although the broker doubts the matter will move beyond that initial outreach. He’s more certain about potential negatives for the broker channel as banks continue to shift to collateral mortgages, used to help them retain clients for the full life of the mortgage and not just the first five-year term.
“This is all going to end when mortgage brokers are all working for the banks and they’ve eaten up all the business,” he told MortgageBrokerNews.ca, echoing the sentiments of more than 30 comments posted on the site last fall. “I’ll still make a living, but I’m also concerned about making sure that people are treated fairly.”