CIBC Being Sued: Unfair payout penatly calculations continue

This is interesting.

We have always thought that the way they do their math was odd or different or something.

Another reason to use a good Calgary broker that has other options than the Big 6 banks that continue to take advantage of their own customers. Why do they do this?

CIBC class action attracts hundreds of inquiries

By Vernon Clement Jones

Lawyers spearheading twin class-action suits against CIBC over “vague prepayment terms” have fielded interest from hundreds of the bank’s mortgage clients — that as a case management judge in B.C. gets assigned to the legal action.

“There have been hundreds of inquiries about these cases to our office and that of our co-counsel in Ontario,” Kieran Bridge, a Vancouver lawyer with the Construction Law Group, told, pointing to borrowers who paid out CIBC mortgage from April 2005 onward.

Firstline clients areamong those concerned that they may have been adversely affected by the lender’s prepayment policy.

A Case Management Judge has also been assigned, what Bridge calls a key, mandatory step in moving class actions forward in British Columbia.

“We applied in November for a judge to be appointed, in order to move the case ahead, and are pleased this has happened,” he said.

The twin lawsuits were filed in B.C. and Ontario last October, alleging some CIBC mortgage borrowers have been unfairly penalized by unclear prepayment terms giving rise to two substantive complaints.

Aside from what Bridge terms “uncertain and unenforceable language” in contracts dating as far back as 2005, he also points to the mathematical formula CIBC used to determine those prepayment charges, calling them “invalid,” or in legal speak a “miscalculation.”

The suits rely on individual representative plaintiffs in B.C. and Ontario. Each of those two notices of claim alleges CIBC applied terms and conditions to certain mortgage contracts that allowed it “unfettered discretion” in calculating mortgage prepayment penalties.

The suits also allege that the actual amounts of those penalties were themselves in breach of the mortgage contracts.

CIBC will haven’t yet filed a statement of defence against the allegations.

“Because these cases are intended class actions, the normal time limit for filing a Statement of Defence is rarely applied,” said Bridge.”There has been no Statement of Defence filed, and no substantive response from CIBC.”

The assignment of a management judge notwithstanding, the suit still must be certified in order to proceed to trial. That could take a year or more.

The collective legal action effectively echoes some of the more-perennial and broader concerns of brokers, who grapple with the widely varying interest rate differential and prepayment penalties many lenders demand of borrowers. The former, sometimes stretching into the tens of thousands of dollars, has presented a major impediment to helping clients take advantage of historically low rates by switching or refinancing clients before maturity, argue many mortgage professionals.

Those challenges have led to broker calls for industry-wide standardization of penalties.

Undoubtedly, broker-arranged mortgages through Firstline are among the thousands of transactions the dual suit is meant to address, said Bridge, at the same time expressing his support for mortgage professionals.

The B.C. lawyer led a similar case against RBC about ten years ago. It ultimately ended in a settlement, said Bridge.

Canada’s East-West economic divide deepens

As the divide gets greater the West continually does better. Alberta is the best place to live and do business in North America right now. That creates home demand and supports home prices.

This is from the Globe and Mail:

Saskatoon will lead the country’s economic growth this year, along with the other resource-rich cities of Calgary, Edmonton and Regina.

The Conference Board of Canada’s annual metropolitan outlook of 27 cities also sees a deepening economic divide between the West and the rest. Growth in factory-heavy central Canada will be tepid and St. John’s, which had led the country’s growth in the prior two years, will tumble to the bottom of its economic growth ranking.

For this year, Saskatoon will tally the strongest expansion, pegged at 4 per cent. The country as a whole is seen growing a modest 2.4 per cent in the year.

Despite global economic turmoil, “high prices for agricultural products, minerals and oil are likely to continue,” said Mario Lefebvre, director of the board’s centre for municipal studies. “Canada’s prairie cities will reap the benefits of this global demand for commodities.”

Saskatoon’s growth this year, underpinned by a resource boom in the province, is actually a slowdown from an estimated 4.6-per-cent expansion last year. Still, the city’s jobless rate of 5.4 per cent is well below the national average, and the jobs boom has meant international migration to Saskatchewan in the third quarter of 2011 hit its highest level since 1971.

Calgary, meantime, is seen expanding 3.6 per cent this year. In 2013, the city is forecast to lead all Canadian cities with growth of 4.9 per cent.

In Edmonton, job growth of nearly 40,000 new positions last year alone is seen supporting domestic demand. A strong energy sector will drive growth of 3.4 per cent this year. Regina’s growth is pegged at 2.9 per cent.

It’s a different story elsewhere. “The outlook is not as promising for cities in central and eastern Canada,” Mr. Lefebvre said. “The uncertain global economy, a continued slow recovery in the manufacturing sector and the windup of fiscal stimulus introduced by governments in recent years will hamper overall economic growth.”

Ontario will be hobbled by a slow U.S. recovery, strong Canadian dollar and government austerity. Manufacturing, meantime, remains well below pre-recession levels.

Belt-tightening in Ottawa will weigh on that city’s economy. Public administration employment tumbled 2 per cent last year, and is forecast to slide another 3.6 per cent this year — a loss of 9,000 jobs over these two years. As result, real GDP growth is pegged at just 1.8 per cent this year.

Toronto’s economy is forecast to grow 2.6 per cent this year, while Hamilton, London, Kingston and Niagara will all see below-average growth.

In Quebec, Montreal’s economy will grow a modest 2 per cent this year as a third straight year of growth in the manufacturing sector helps offset an expected downturn in construction. Quebec City is forecast to expand 2.1 per cent.

Saguenay’s economy will expand by 1.5 per cent this year, its best performance since 2002. The manufacturing sector is expected to resume growth this, boosting employment in the sector.

“The brightest development in Saguenay has to be the return of positive population growth in both 2010 and 2011,” the report said. “As a result, domestic demand has been stronger and should continue to expand in 2012, leading to an almost 2-per-cent rise in overall services sector output.”

St. John’s is expected to see the country’s weakest growth, at just 0.7 per cent this year.

“After two spectacular years, the St. John’s economy has limited growth prospects this year,” the report said, amid a booming construction sector. Looking ahead, “waning offshore oil production wells, fewer housing starts, and the end of the infrastructure spending program will weaken economic growth.”

In B.C., Vancouver will grow 2.6 per cent amid a decline in residential construction and growth in the services sector. Victoria will grow a scant 1.9 per cent.

Credit Score Info – this is great data

Below is a good article on credit scores.

Mortgage applications are evaluated on 4 factors. You can think of them as “legs of a chair.” If 1 or 2 legs are shaky it could still stand if the other 2 are strong. Obviously, a 1, 2 or 3 leg chair does not work so well.

The 4 factors are:

  1. Credit report and score – this article is all about this point
  2. Down payment amount and source of funds
  3. Employment history
  4. and Property quality.

There is lots of good info below on #1 and here are the magic percentages that are hard to find:

  • 35% of your score is your debt -to-limit ratio of your existing credit. There are extra points for balances at less than 50% of the max and you slowly lose points as you get up to 75%. Even $1 over limit can cost you 50 points or more.
  • 30% of your score is your repayment history. Ensure you make ALL of your payments on time, even if it is only $10. These are tracked for 7 years so on time payments are super important. Remember to pre-pay if you are going to be away on holiday – this is where most people get caught.
  • Only 10% of your score is based on “credit inquiries.” There is more on that below.
  • The final 25% of your score is based on a few other “things” like:
  1. your credit mix (installment payments like car loans and RRSP loans, and revolving credit like credit cards)
  2. the length of time your that you have had credit – banks like to see 2 years for each to get a good idea of what your long-term behavior is like.
  3. and collections, judgments, other “things”

So … Why is it so important to have a good credit score? 

“When a client is applying for a mortgage, they need to bear in mind that lenders (and in most cases, the insurers as well) put considerable weight on the applicant’s credit score,” explains Leslie Penney, a mortgage professional in St. John’s.

“It’s basically a snapshot of a client’s credit situation at that moment in time, although it also reports on the client’s credit history.” 

Credit scores are determined by using a complex formula and rating scale, says Penney.  Credit rating agencies look at your income, your debt repayment history, your total approved credit limits, your credit usage levels and more and that information is crunched into a scoring system that assigns a number of between 300 and 900. This is known as your FICO score. The higher you are on the scale, the less risky you are to a lender.

For example, says Putnam, a number of 750 to 799 is shared by 27 per cent of the population. Statistics show that only two per cent of the borrowers in this category will default on a loan or go bankrupt in the next two years. So that means that anyone with this score is very likely to get that loan or mortgage they’ve applied for. These scores, which are called beacon scores, may also be used to determine the interest rate you will pay on the loan for which you’re applying.

Credit rating agencies like Equifax Canada and TransUnion Canada are typically used in Canada to determine scores. Remember that your credit report or rating is not the same as your credit score, though they’re closely linked. You can get your report or rating from Equifax or TransUnion for free by going to their websites. Equifax now offers a phone based service for free reports without score at 1-800-465-7166. Your credit score will cost you approximately $23 and it will include your credit rating or report. See the appropriate websites for more information. 

Mortgage and credit experts all recommend getting a sneak peek at your credit rating yearly or every two years. The main reasons for this are to ensure that the information the credit bureau has is accurate and to make sure you’re not the victim of fraud. “Because we love to borrow money, that means almost every adult Canadian has a credit file,” explains Putnam. “More than 21 million of us have credit reports. And most of us have no idea what’s in them. Are there mistakes? Have you been denied credit and don’t know why? Is someone trying to steal your identity? A simple check of your credit report will probably answer all those questions.” 

Factors affecting a credit score are paying your bills on time. This one weighs fairly heavily with some estimates as high as 35 per cent, says Tanner Coles, a mortgage expert at Dominion Lending Centres in Surrey, B.C.   “Most of the public is aware that by failing to make debt payments on time or not at all, that will damage their beacon score,” he says.  “I cannot stress enough how important it is to make your payments on time, even if it is just the monthly minimum.  The credit report will show when you have made late payments and how many times.  This is a large red flag for lenders.  They want to see that you are able to pay your debts.  The riskier it is for the lender, the harder it will be for you to obtain a mortgage.” 

Don’t be afraid to use your credit as lenders want to see a history of repayment, says David Larock, an independent mortgage agent in Toronto. But keep your credit card balance well below your account limit. “Most people don’t realize that spending up to their limit every month will hurt their score, even if they pay in full each month,” Larock says. “There are two ways to address this: spend less or get your limit raised. In fact, raising your limit, if you qualify, is one of the easiest ways to help your credit score.” 

Consumers also need to be wary of heavy-duty credit seeking, says Kristian Harris, a mortgage broker with in Toronto. Harris is adamant that consumers should not apply for every credit card that comes their way as this will bode poorly on your rating.  “Unless you absolutely need it, don’t do it,” he warns. “Typically, the ones that need credit are the ones who use it, and they’re the ones who get in trouble.” 

Most credit holders are unaware that your credit is negatively affected every time a company checks your credit, says Coles.  Your score may decrease by a couple points every time you authorize an inquiry.  “This is a major benefit of using a mortgage broker rather than shopping for a mortgage on your own,” he says. “A mortgage broker is able to pull a credit report once and use this report to find you the best product.  A consumer who approaches five different banks about a mortgage will have five different credit inquiries which will hurt their beacon score.  Sometimes this is difference between being able to get a great discounted rate or not.”

Larock thinks borrowers need to be wary of having too many credit lines. A series of small loans can hurt your score because it looks like your cobbling together any credit you can get your hands on and lenders will worry that you could end up in a position where you have borrowed more than you can pay back.

The best way to avoid this is to consolidate your debt into one large loan, he recommends. Negative credit issues can stay on your record for quite a while, depending on what province you live in and the type of issue reported. Three to six years is the average length of time that negative credit information must stay on your record in most provinces.

If you have poor credit, don’t despair, says Harris. Resolve to improve your rating by paying down balances and paying your bills on time. People with exceptionally poor credit need to re-establish their credit by getting a secured credit card. These cards are similar to gift cards as you pay the credit company upfront and then make purchases on it until the balance depletes.