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Ottawa aims to cool housing markets by tightening mortgage rules

Here are the new Down Payment Rules that will come into affect February 15th, 2016. Sounds like a big change, however, take a closer look at the chart below and you’ll see there is not that much difference for those purchasing a home between $500,000 – $999,000.

Most people purchasing a home in this price range should be able to come up with the extra funds to make it work.

The majority of First Time Home Buyers will be unaffected as these purchases tend to be under $500,000.

by Bill Curry and Tamsin Mcmahon, The Globe and Mail with a file from BNN staff.

The Liberal government is raising the minimum down payment for new insured mortgages to 10 per cent from 5 per cent for the portion of house prices above $500,000.

Finance Minister Bill Morneau, who announced the change in Ottawa Friday, said the new rules will take effect on Feb. 15, 2016. Down payment rules for mortgages for properties below $500,000 will be unchanged.

Mr. Morneau said the rule change is intended to target high-priced properties and should have less of an impact on first-time home buyers.

The move is aimed at cooling overheated housing markets in Toronto and Vancouver but that could risk exaggerating a home price correction in the Prairies.

Ottawa had previously restricted its mortgage insurance to homes valued at less than $1-million, so the minimum down payment for more expensive homes remains unchanged at 20 per cent.

“The Ministry of Finance is touching the untouchable,” said Canadian Imperial Bank of Commerce economist Benjamin Tal.

Just 17 per cent of home sales across Canada over the past year were for between $500,000 and $1-million, although that figure rose to 33 per cent in Vancouver and 40 per cent in Toronto.While the move represents the most significant tightening of mortgage rules since Ottawa implemented the minimum 5 per cent down payment in 2008, the effect may be smaller than expected, writes Mr. Tal.

Roughly 23 per cent of outstanding mortgages in Canada are considered “high-ratio,” with owners requiring government-backed mortgage insurance, meaning the rules will affect less than 4 per cent of new mortgages, writes Mr. Tal.

A source told BNN the previous government considered making this kind of change to mortgage rules but “knew it wouldn’t impact very many people directly, [and] would have likely had a broader psychological impact.”

Average resale home prices rose an annualized 9.4 per cent in November, the Toronto Real Estate Board reported, while the Greater Vancouver Real Estate Board said benchmark prices for homes in the Metro Vancouver area rose nearly 18 per cent since last November.

The share of properties valued at between $500,000 and $1-million is actually smaller in Toronto and Vancouver than given that sizzling markets have pushed many properties, particularly detached homes, over the $1-million mark.

Sizzling markets have pushed the prices of many homes, particularly detached houses, above the $1-million mark in Toronto and Vancouver, pushing out many of the first-time buyers who would most likely be affected by the new rules. A survey earlier this year by private sector mortgage insurer Genworth MI Financial found the average down payment among first-time buyers in Toronto and Vancouver was 20 per cent.

The new rules will likely affect just 5 per cent of new sales in Toronto, and just 2.5 per cent in Vancouver, writes Mr. Tal. But will affect nearly 10 per cent of sales in Calgary, where homeowners tended to have relatively small down payments.

“The overall impact will be felt only at the margin, given the relatively small segment of the market that will be impacted – even in the target markets.”

Even so, the government’s move has widespread support, according to a RE/MAX survey released earlier this week that found two thirds of Canadians agree that the minimum down payment for a home should be at least 10 per cent.

Canada Mortgage and Housing Corporation also announced it was raising the limits on its government-insured mortgage-backed securities program to $105-billion in 2016 from $80-billion this year. The program is an important source for lenders, allowing them securitizes insured mortgages and sell them to investors, with Ottawa providing insurance on both the mortgages and the mortgage-backed securities themselves. The amount of government-backed securities that individual lenders can issue each year was raised from $6-billion to $7.5-billion. CMHC said it was hiking the fees it charges to lenders who go over the prescribed annual allotment, but would lower the fees for lenders who used the government’s Canada Mortgage Bond program.

“The revised fee structure is intended to encourage the development of private market funding alternatives by narrowing the funding cost difference between government sponsored and private market funding sources,” the federal housing agency wrote.

______________________________________________

Reaction to Ottawa’s move:

TD Economics:

“…the impact on housing activity is likely to be relatively modest and short-lived.”

BMO Economics:

“Ottawa’s changes to down payment rules should have a minimal impact on home sales and prices, and are a less aggressive move than those brought in back in 2012.”

CIBC Capital Markets:

“…for the market as a whole the new measures will impact an estimated 3.9% of mortgage originations.”


Canadian dollar sinks to 73.6 cents US as TSX hits 2-year low

 By Pete Evans, CBC News

A day after setting a new 11-year low, the Canadian dollar today shed another half-cent to 73.60, while the benchmark Toronto stock index slid to a two-year low.

Crude oil prices have declined since last week after OPEC effectively said over the weekend that it would no longer limit the amount of oil it was willing to sell on the market. In practice, that says the oil cartel is prepared for a race to the bottom on prices in order to keep its market share at any cost, and drive more expensive North American oil companies out of business.

 

10-YEAR CRUDE OIL CHART

10-YEAR CANADIAN DOLLAR CHARTThe loonie is also moving lower against the backdrop of the U.S. Federal Reserve getting ready to raise rates as early as next week — something that would likely send the loonie even lower.

Bank of Canada governor Stephen Poloz delivered a speech on monetary policy to a Toronto business audience Tuesday afternoon, saying that he would consider dropping interest rates into negative territory, if needed, to stimulate the economy.

The bank has twice this year moved to lower its benchmark interest rate, but Poloz was clear that he was speaking theoretically and that his remarks “should in no way be taken as a sign that we are planning to embark on these policies.”

A barrel of benchmark WTI oil closed down slightly at $37.51 US a barrel, after earlier having been down below the $37 level and in the process breaking a six-year low that it set Monday. Prior to that, the world hadn’t seen crude oil prices that low since the depths of the global recession in 2008 and 2009, when oil bottomed out at just under $34.

The Toronto Stock Exchange’s main index finished down 120 points, or 0.9 per cent, at 12,922. That follows a 316-point drop the day before and drags the TSX to levels not seen since October 2013.

Currency ‘under pressure’

Oil’s slump is hammering Canada’s currency almost as hard.

“The focus is on oil prices, with WTI and Brent trading at levels last seen in early 2009,” Scotiabank currency strategist Eric Theoret said. “Downside [Canadian dollar] risk is high.”

“If you are looking to play weak oil prices, you would want to sell the Canadian dollar and the Norwegian crown,” said Jeremy Stretch, head of currency strategy at CIBC World Markets. “With oil prices falling and some even talking about oil falling to $30 a barrel… their currencies will remain under pressure.”

The loonie has dropped by more than 15 per cent in the past year compared with the U.S. dollar.

At least one analyst said the loonie may have hit bottom, and takes the contrarian view that some sort of modest rebound in 2016 is possible.

“Our bearish views on the Canadian dollar at the start of the year have proven well founded, but we see no good reason to expect it to tumble much further,” David Madani at Capital Economics said in a research note. “While there are near-term downside risks, we anticipate that energy prices will rebound next year [and] if we’re right, the Canadian dollar could recover too.”

PRESSURE ON RATES… NOW WHAT?

It seems like we’ve been saying rates can’t stay this low forever for quite some time now!  However, this past week, we’ve seen most of our lenders start increasing their Five Year Fixed Rates and the Variable Rate Discounts.  Here’s a good article from our friends over at RateSpy.com

Rates Up. What Now?

By Spy2 on November 12, 2015

Those of you shopping for a mortgage can be forgiven for cursing the Federal Reserve. The U.S. Fed is hinting that December will mark its first rate hike in nine years. Most interest rate traders are thinking it’s a done deal, which in turn is pushing up Canadian mortgage rates.

Have a look at what Canada’s 5-year bonds have been up to lately.

5-year-bond-yield-leads-fixed-mortgage-rates

That recent spurt in yields has motivated lenders to jack up fixed rates anywhere from 5 to 15 basis points (a basis point is 1/100th of a percent). That’s increased borrowing costs by $235 to $705 over five years, for every $100,000 of mortgage.

Where we go next is the big question. Keep an eye on the 1.20% mark for the 5-year yield. A close above that level should send 5-year fixed rates closer to 3%.

Speaking of which, remember when 2.99% was a good rate? We’ve been so spoiled by 2015’s mortgage market. It’s easy to forget how quickly rates can climb. Back in April 2013, 5-year fixed rates shot up 60+ basis points (0.60%) in just a few months after the Fed said it planned to slow its bond buying. Today the market is pricing in about 70% odds of a Fed hike on December 16. If that gets near 100%, chances are good that Canadian yields (and fixed rates) will take off—at least for a little while.

But fixed rates aren’t all that’s moving. Variable discounts have also been shrinking. The banks are moving en masse to improve variable-rate profitability in light of competition for deposits (which hurts variable mortgage spreads), a tick up in bankers’ acceptance yields (which track some lender’s funding costs), higher market risk and liquidity premiums (demanded by floating-rate mortgage investors).

So if you’re looking for variable-rate bargains in the near term, know that the odds of discounts shrinking further are greater than the odds of them improving.

The chart below shows the average best rates for each mortgage term on RateSpy.com. It paints a good picture of the rate premium you’ll pay for the security of a fixed rate and/or longer term.

Canadian Mortgage Rate Curve

At the moment, all rates under six years are still remarkably cheap.

And for those who say:

  • Rates can’t stay this low forever
  • Fed rate hikes are a done deal
  • It’s time to lock in…

…remember this…

Their Magic 8 Ball is no better than yours. The truth is this: Negative interest rates (yes, negative rates) have become “normal” in a growing number of developed countries. There are global trends at play there (not the least of which is falling oil) and those same trends impact Canadian rates, to at least some small extent.

Even when rates finally do ascend, Fed chief Janet Yellen expects them to follow (read: wants them to follow) “a very gradual path” higher. Given that expectation, and the low probability of inflationary threats, there’s a reasonable chance that “happy medium” terms like the 3-year fixed (at 2.09% +/-) could outperform a 5-year fixed. The reason? You still get some rate protection and after maturity in three years, you’ll potentially be able to renew into a reasonably priced variable or short-term mortgage—thus keeping your five-year average rate under today’s typical 5-year fixed rate. (Note: This strategy is for financially secure borrowers who can handle the potential risk of higher payments in three years.)

We’ll close with this: If you’re betting on continued low rates, you still have to prepare for high rates. Check how much your mortgage payment could rise with the Spy’s mortgage renewal payment calculator. Then be confident that your future budget can withstand it. If the thought of renewing at a 5.00%+ rate makes you reach for the Gravol, you may well need a smaller mortgage and/or a longer fixed term.

Those of you shopping for a mortgage can be forgiven for cursing the Federal Reserve. The U.S. Fed is hinting that December will mark its first rate hike in nine years. Most interest rate traders are thinking it’s a done deal, which in turn is pushing up Canadian mortgage rates.

Have a look at what Canada’s 5-year bonds have been up to lately.

5-year-bond-yield-leads-fixed-mortgage-rates

That recent spurt in yields has motivated lenders to jack up fixed rates anywhere from 5 to 15 basis points (a basis point is 1/100th of a percent). That’s increased borrowing costs by $235 to $705 over five years, for every $100,000 of mortgage.

Where we go next is the big question. Keep an eye on the 1.20% mark for the 5-year yield. A close above that level should send 5-year fixed rates closer to 3%.

Speaking of which, remember when 2.99% was a good rate? We’ve been so spoiled by 2015’s mortgage market. It’s easy to forget how quickly rates can climb. Back in April 2013, 5-year fixed rates shot up 60+ basis points (0.60%) in just a few months after the Fed said it planned to slow its bond buying. Today the market is pricing in about 70% odds of a Fed hike on December 16. If that gets near 100%, chances are good that Canadian yields (and fixed rates) will take off—at least for a little while.

But fixed rates aren’t all that’s moving. Variable discounts have also been shrinking. The banks are moving en masse to improve variable-rate profitability in light of competition for deposits (which hurts variable mortgage spreads), a tick up in bankers’ acceptance yields (which track some lender’s funding costs), higher market risk and liquidity premiums (demanded by floating-rate mortgage investors).

So if you’re looking for variable-rate bargains in the near term, know that the odds of discounts shrinking further are greater than the odds of them improving.

The chart below shows the average best rates for each mortgage term on RateSpy.com. It paints a good picture of the rate premium you’ll pay for the security of a fixed rate and/or longer term.

Canadian Mortgage Rate Curve

At the moment, all rates under six years are still remarkably cheap.

And for those who say:

  • Rates can’t stay this low forever
  • Fed rate hikes are a done deal
  • It’s time to lock in…

…remember this…

Their Magic 8 Ball is no better than yours. The truth is this: Negative interest rates (yes, negative rates) have become “normal” in a growing number of developed countries. There are global trends at play there (not the least of which is falling oil) and those same trends impact Canadian rates, to at least some small extent.

Even when rates finally do ascend, Fed chief Janet Yellen expects them to follow (read: wants them to follow) “a very gradual path” higher. Given that expectation, and the low probability of inflationary threats, there’s a reasonable chance that “happy medium” terms like the 3-year fixed (at 2.09% +/-) could outperform a 5-year fixed. The reason? You still get some rate protection and after maturity in three years, you’ll potentially be able to renew into a reasonably priced variable or short-term mortgage—thus keeping your five-year average rate under today’s typical 5-year fixed rate. (Note: This strategy is for financially secure borrowers who can handle the potential risk of higher payments in three years.)

We’ll close with this: If you’re betting on continued low rates, you still have to prepare for high rates. Check how much your mortgage payment could rise with the Spy’s mortgage renewal payment calculator. Then be confident that your future budget can withstand it. If the thought of renewing at a 5.00%+ rate makes you reach for the Gravol, you may well need a smaller mortgage and/or a longer fixed term.

– See more at: https://www.ratespy.com/rates-up-what-now/#sthash.U24FujIf.dpuf

Mortgage Fraud is very alive!

 Low interest rates, skyrocketing home prices and household income levels not keeping pace with household debt levels are the primary cause of the rise in fraudulent mortgage transactions.  It doesn’t matter where you go fraud is prevalent.  Although the majority of Ontario’s mortgage applications are in the GTA; Sudbury, Kanata, Barrie, London and Thunder Bay applications are just as likely to involve “doctored” documents to help a borrower get into a home.
 
Here’s a great article from the Globe and Mail about Mortgage Fraud and how its being played out in today’s lending environment.

How mortgage fraud is thriving in Canada’s hot housing market

by Tamsin McMahon – REAL ESTATE REPORTER
The Globe and Mail

In early 2013, Kelly Vandenham and her boyfriend were preparing to put an offer on a charming Craftsman-style house in West Kelowna, B.C. They had been preapproved for a mortgage with Canadian Imperial Bank of Commerce, but the couple’s realtor suggested they could get a lower interest rate at Toronto-Dominion Bank, where their realtor’s boyfriend, Kulwinder Dhaliwal, worked as a mobile mortgage specialist. What happened next is a problem that continues to plague the financial industry despite steady changes to mortgage lending rules, a dilemma that some warn threatens to undermine faith in the country’s robust housing market.

Shortly before the deal was set to close, according to court and regulatory tribunal documents, Mr. Dhaliwal e-mailed to say there was a problem with their application. Ms. Vandenham’s job letter from Interior Health Authority was missing some information, prompting the bank to take a closer look and potentially putting the deal at risk. In a statement she filed with a B.C. court later that year, Ms. Vandenham wrote that she offered to get a new letter the next day. Mr. Dhaliwhal responded that he “would figure something out.”

Although TD was still reviewing the application, Mr. Dhaliwal instead cut out the Interior Health letterhead along with the signature of the agency’s human resources worker from the couple’s application and pasted them onto a fake new letter, which he submitted as part of a different application to Bank of Nova Scotia.

When Scotiabank called Interior Health to confirm some of the details of the letter, Ms. Vandenham was placed on unpaid leave and barred from setting foot on Interior Health property while it investigated her for fraud. “I was told my job was in jeopardy and I was worried I would lose my house I had just bought,” she wrote in a lawsuit against Mr. Dhaliwal that was eventually settled out of court. “I cried every day.”

According to court documents, Mr. Dhaliwal eventually admitted to what he had done and resigned from his job at the bank. TD ultimately approved Ms. Vandenham’s mortgage using her original – legitimate – employment letter. (Ms. Vandenham did not respond to requests for comment.)

Earlier this year, B.C.’s financial services regulator approved Mr. Dhaliwal’s application to become a mortgage sub-broker, someone who works as a broker but doesn’t own a brokerage.

In granting Mr. Dhaliwal a conditional licence, Carolyn Rogers, head of the provincial Financial Institutions Commission, put the blame on Mr. Dhaliwal’s former employer, TD Bank, for putting intense pressure on Mr. Dhaliwal, whom she described as poorly trained and financially naive.

What little coaching Mr. Dhaliwal received on how to properly conduct business, she wrote, “was overwhelmed by a focus on the volume of mortgage business Mr. Dhaliwal was bringing to the bank and relentless pressure to sell creditor protection insurance to as many borrowers as possible.”

Reached by phone last week, Mr. Dhaliwal said he needed to consult with his brokerage before making a comment. “I went through quite a bit of an ordeal with this whole situation,” he said. “I don’t want to get in any extra trouble for saying anything.” He did not respond to subsequent attempts to reach him.

Cases such as this represent what many in the mortgage industry say is the growing, yet under-reported, problem of mortgage fraud, perpetrated not by criminals looking to scam a bank, but by mortgage industry professionals looking to help their clients qualify to buy a home.

It’s an issue that has been exacerbated in recent years by soaring home prices, stagnating incomes, fierce competition among brokers, lenders and real estate agents, and tighter federal mortgage lending rules that have made it harder than ever for many Canadians to afford home ownership.

“The people who are salaried and altering their income for the most part are probably just facing into some of the affordability pressures because of the level of house prices today and are trying to buy a home that’s out of their reach,” says Stuart Levings, chief executive officer of mortgage insurer Genworth MI Financial Inc. “You know how it is these days, folks just want that home. They could qualify if they looked at a lower-priced home.”

Earlier this year, Home Capital Group Inc., the country’s largest alternative mortgage lender, revealed it had cut ties with 45 mortgage brokers after an anonymous letter to the company’s board of directors sparked an investigation into forged documents, such as fake employment letters and income statements. Collectively, the brokers who were fired generated nearly $1-billion worth of mortgages for the company last year.

While scandals such as the one at Home Capital occasionally shed light on the dark side of Canada’s $1.3-trillion mortgage industry, much of the problem of mortgage fraud remains hidden from public view.

In an online presentation on fraud and identity theft from 2012, mortgage insurer Canada Guaranty notes that “one in 10 mortgage applications will have some element of fraud.” Credit bureau Equifax says it had been able to flag nearly $1-billion worth of attempted mortgage fraud among its lender clients since 2013.

“It’s happening on such a level that the consumer is aware that this is something that can be done,” says an Ontario mortgage broker who didn’t want his name used and who once complained to federal and provincial regulators after being referred a deal that involved a family looking to buy three homes without any reportable income. “It’s happening on such a level that some bank reps, mobile mortgage reps, have said: Call a mortgage broker, they can probably find a way to make your income higher.”

‘Soft fraud’

Those in the industry agree that much of what constitutes mortgage fraud in Canada is what’s known as “soft fraud” or “fraud for shelter” and usually involves people who are genuinely looking to buy a home and pay their mortgage, but can’t quite qualify for a conventional loan.

In some cases borrowers are simply trying to buy a home that is out of their reach financially. In others, the borrowers could qualify if they had a bigger down payment and paid a higher interest rate, but instead alter pay stubs and bank statements in order to qualify for the cheapest possible mortgage. Still, more involve people like Mr. Dhaliwal, who forge documents in order to save a deal that is up against a tight deadline.

One of the “red flags” that makes Toronto-area mortgage broker Mark Cashin suspect a deal may involve fraud is when a client comes in asking how much he charges. Brokers typically don’t charge clients fees up front, instead collecting commissions from lenders when a deal closes. Some, however, charge fees into the thousands to create fake pay stubs, bank statements and tax documents and will often hit clients with steep charges when they go to renew a mortgage that was funded based on forged documents.

“When I first started in the business, I thought this is the greatest business ever, people are willing to pay you money up front,” Mr. Cashin says. “And then my broker told me: ‘They want you to create documents.’ I figured that one out pretty quick.”

Others come in clutching suspiciously perfect mortgage applications complete with all the required documents. Most legitimate clients have to be hounded for ages to submit all the necessary paperwork, Mr. Cashin says.

Montreal mortgage broker Walid Hammami once turned down a client because the copy of his Canada Revenue Agency notice of assessment looked too good. “The quality of the paper this thing was printed on was so classy,” he says. “It’s impossible the government would have the means to do that for every person.” In another instance, he called a client to verify documents given to him by a realtor that said the client worked as a butcher, only to find out he was actually a truck driver on disability.

Equifax has noticed the trend of people coming into its offices looking to upgrade their credit score with new employment details using fake job letters. “They’ll use the same template which has the same words spelled incorrectly,” says John Russo, Equifax’s legal counsel and chief privacy officer. Such attempts at “soft fraud” are up 15 to 20 per cent this year, he says. “We’ve seen many instances, in the thousands, come across our desks.”

In August, researchers at Veritas Investment Research visited 10 Toronto-area mortgage brokers, posing as buyers who were employed full-time and had a good credit rating, but were looking to take on more mortgage debt than they would qualify for under current rules. They offered to get fake employment letters from a relative who owned a business saying they also worked for him part-time.

Three brokers suggested they could get the deal approved through a “B lender,” or one specializing in subprime borrowers, including one broker who suggested the family member process a fake pay stub to include with the application. “This, of course, would only be acceptable for an upfront fee to the broker,” wrote investment analyst Mike Rizvanovic.

‘Project Cut and Paste’

While much of the focus on mortgage fraud is directed toward alternative mortgage lenders and independent mortgage brokers, a review of court files and provincial financial regulators’ disciplinary records paints a picture of a problem that is far more widespread. Major banks, private lenders, credit unions, monoline lenders – non-bank financial institutions that only deal in mortgages– have all been victims of both soft and hard fraud, perpetrated by mortgage brokers, lawyers, government workers and even the bank’s own employees.

The Ontario Ministry of Community and Social Services uncovered an unauthorized mortgage brokerage operating out of the Family Responsibility Office, a provincial agency that enforces family court judgments for child and spousal support payments. It fired at least one employee after searching his computer and finding fake pay stubs for companies with names like Express Law Services and the Ontario Dental Institute.

One of the pay stubs was for an employee of the Family Responsibility Office who made $57,000 at her government job, but claimed to make $75,000 working for a company called Freedom Mortgage Financial Solutions, which was the name of a brokerage being run by one of the office’s managers. Investigators confirmed that a lender had given her a mortgage on a $320,000 townhouse based on the fake documents.

Last year, Frank Wong, a Scotiabank employee at a branch in Brampton, Ont., was convicted of fraud for altering details such as credit scores on more than 110 mortgage applications totalling $46-million. He was sentenced to a year in jail, as was his partner in the scheme, Praimraj Chansingh, an unlicensed, self-professed mortgage broker who paid Mr. Wong from $500 to $1,500 to process the fraudulent applications.

As part of the investigation, police also charged a Toronto police constable whom investigators alleged had received an inflated mortgage on a rental property he owned, an employee of a local law firm that did work on the mortgage applications, and a supervisor at CIBC who allegedly provided copies of her pay stubs to be used in at least five other mortgage applications as a favour for getting a large mortgage through Scotiabank. (Charges against everyone except Mr. Wong and Mr. Chansingh were eventually dropped.)

A Canada Post employee was fired after the postal service discovered he and his wife had been given a mortgage for nearly $800,000 on their Mississauga home as part of the Scotiabank scam using a forged job letter that claimed he was a supervisor making $90,000, when he was actually a letter carrier who made $48,000. (He was later reinstated by a labour arbitrator.)

While it went on for years, the Scotiabank fraud was not particularly sophisticated. Police dubbed their investigation “Project Cut and Paste” for the method Mr. Wong used to lift credit scores and other details from legitimate mortgage applications and paste them onto fraudulent ones. The broker, Mr. Chansingh, used Adobe software to alter other financial documents.

Many of the borrowers were struggling financially and eventually defaulted. By last year, according to court records, the bank had lost at least $12-million.

“This offence has the potential to seriously damage the value of all homes in the Brampton and Mississauga area,” Crown prosecutors wrote in a court brief. “With a potential forecasted increase of 1 to 2 per cent on the mortgage interest rate, foreclosures will happen to some of these mortgage holders who can’t even afford the current mortgage rates. Many of these homes could be foreclosed upon and whole communities will suffer from a fall in home values. This scenario occurred in the United States with the subprime mortgages.”

Others play down the risks to the overall housing market from mortgage fraud, arguing that home buyers are merely responding to an overheated housing market that forces buyers to waive financing conditions to win a bidding war, meaning they’ll lose hefty deposits if they can’t get approved for a mortgage quickly.

An environment to cheat

Broker Mr. Cashin blames overly stringent federal rules governing insured mortgages, such as shorter amortization periods and higher mortgage insurance premiums, for making it harder for average Canadians to get a mortgage, especially in expensive markets like Toronto or Vancouver.

Such policies are aimed at ensuring the housing market didn’t experience a catastrophic U.S.-style meltdown. Mr. Cashin argues that they have had the opposite effect, pushing otherwise creditworthy borrowers who would have qualified for a conventional mortgage in the past into riskier areas of the market, including to industry professionals willing to commit fraud to get a deal done at all costs.

“They’re creating an environment for people to cheat because they want those low rates,” he says. “A lot of times it’s because they need it. House prices are going up. Everything is going up except people’s wages, but policy is keeping the cheap money away from the people who need it the most.”

Others say the driving force behind mortgage fraud is to help clients who have the means to afford the mortgage, but who work for cash or otherwise aren’t declaring all their income. That might make them tax cheats, but it doesn’t necessarily put them at higher risk of defaulting on a mortgage.

“If I feel a client can afford it, I’ll help them and guide them,” says one Toronto mortgage broker who spoke on condition of anonymity because he admits he helps clients fake job letters, income documents and employer phone references.

“Yes it’s fraud. But we are looking out for the bank. We are looking out for the economy in that we’re not giving the mortgages we know are going to screw up,” he says. “I will stop clients and deals that I know are headed for trouble because it’s not healthy for anybody.”

Home Trust CEO Gerald Soloway told an analyst conference call earlier this year that the mortgages it had flagged for fraud were actually performing better than the company-wide average.

Genworth’s Mr. Levings says the mortgage industry has gotten better at spotting fraud attempts through collaboration and new technology that makes it easier to identify suspicious applications, such as those that use job letters from the same non-existent employer, or applications that are being shopped around to several lenders with slightly different documentation each time.

Lenders don’t usually send Genworth the paper documents, but the insurer gets a set of about 160 data fields from each application that it feeds into a software system that scores every deal based on details such as the borrower’s age, income, the industry they work in, the type of home they’re buying and where they live. Applications that score high often get approved with little follow-up, while those that score low are sent for a more detailed review. Since the 2008 global financial crisis, the rate of mortgages that Genworth sees defaulting within the first year – a sign of fraud or borrowers in over their heads – has dropped by half, he says.

The industry also improved after the Office of the Superintendent of Financial Institutions, the federal regulator, brought in new underwriting standards requiring both lenders and insurers to make reasonable attempts to verify employment letters and other financial documents. Mr. Levings says the “gold standard” for underwriting in the industry today, which most lenders are meeting, is to ask for two pieces of documentation and then back it up with independent research, such as checking a borrower’s credit score or looking up an employer on Google to see if it exists.

“You don’t need to go beyond that,” he says. “There’s a diminishing return. The more you get doesn’t necessarily mean you’re going to catch more.”

Yet just as technology has given the financial industry new tools to spot fraud, it has also given fraudsters better tools to avoid detection. Almost any document can be forged these days, the Toronto broker says. The only step that will guarantee that a deal will fail is if a lender asks for permission to call the Canada Revenue Agency to independently verify income details. “If you ever get to that point, you’ve got to drop the deal,” he says.

Vetting every application with a call to the CRA is not a realistic solution, Mr. Levings contends. “Frankly, I very much doubt that the CRA would ever be willing to give that up,” he says. “The privacy risk is so huge with that.”

However, many say more thorough due diligence by lenders will only go so far in solving the problem and that the mortgage industry has to do more to curb the incentives for home buyers and mortgage professionals to want to commit fraud in the first place.

Regulators need to threaten stiff penalties for even minor fraudulent activity, mortgage broker Mr. Hammami says. Banks and mortgage brokerages, many of which have been aggressively hiring, have to do a better job of checking into the backgrounds of new employees. “Some of these mortgage reps working for the banks move from one bank to another because they got caught,” he says. “And after doing it to a few banks, they move to the brokerage industry.”

Mr. Hammami is among those pushing for national industry standards and a Canada-wide regulatory body for brokers, who are now regulated at the provincial level. New brokers need help coming up with a business and marketing plan, he says. Unless they have a steady pipeline of new clients, brokers can go months without closing a deal and getting paid, so he thinks brokerages may need to rethink the commission-only business and start paying new employees a salary for the first several months until they get a feel for the industry.

“We need to speak up about these things,” he says. “People are treating the mortgage industry like a free ride.”

With a new Liberal federal government professing to tackle the country’s affordable housing crisis, Mr. Cashin believes Ottawa may need to take a second look at all of the regulations put in place in recent years to safeguard the housing market if it really wants to curb the demand for fraud.

“The mortgage business has become more complicated than it needs to be, all in the optics of protecting and stabilizing the economy,” he says. “People in general are just trying to provide the best place they can for their family to be raised. They’re trying to get to that cheap money like everyone else. If you create a situation that would motivate behaviour like that, well then shame on the government, shame on us.”

Canadian dollar plunges as Bank of Canada stands pat at 0.5%

 CBC News Posted: Oct 21, 2015 10:05 AM

Bank of Canada opts to hold rate steady after cutting twice this year to stimulate the economy

The Bank of Canada is keeping its benchmark interest rate right where it currently sits, at 0.5 per cent.

The bank, led by Stephen Poloz, meets every six weeks to decide on monetary policy and has cut its trend-setting interest rate twice this year in a bid to stimulate Canada’s economy.

The central bank’s interest rate influences the rates that borrowers and savers pay and earn for things like mortgages and savings accounts.

BANK OF CANADA KEY OVERNIGHT RATE

The consensus view among 27 economists polled by Bloomberg ahead of the bank’s decision was for the bank to do exactly what it did — nothing.

In explaining its reasoning, the bank said it kept its rate as is based on the impact of previous changes.

“Canada’s economy has rebounded, as projected in July,” the bank said in a statement. The low Canadian dollar has helped most Canadian industries outside the resources sector, and household spending is expected to increase at what the bank calls a “moderate pace” moving forward.

Future outlook downgraded

That’s good enough news that the bank thinks there’s no need for any more monetary stimulus quite yet. But the future isn’t looking entirely rosy, either, because the bank downgraded its economic expectations for the rest of 2015 and the two years beyond that.

The bank now thinks the economy will expand by one per cent in 2015, by two per cent next year and up to 2.5 per cent growth in 2017.

The bank’s next meeting to decide on interest rates is scheduled for Dec. 2. Economists don’t think the central bank is likely to move rates one way or the other at that meeting, either.

But given the gloomy forecast, more stimulus down the line is certainly possible, some say. “We still anticipate that further weakness in energy-related business investment, combined with an underwhelming performance from non-energy exports and possibly even some signs of weakness in housing, will eventually prompt the Bank to lower rates to 0.25 per cent early next year,” said David Madani at Capital Economics.

Indeed, the bank’s lowered outlook for the future was a much bigger story than its decision to sit on the sidelines on rate changes for now.

The Canadian dollar plunged as soon as the report came out, losing 0.8 of a cent to 76.25 cents US as investors digested the reduced growth picture, and the likelihood that another rate cut is possible. By the end of the day it was down .94 of a cent at 76.11 cents US.

All things being equal, rate cuts are a negative for a currency, as that makes investments denominated in that currency less attractive as investments.

USA vs. Canadian Banking Systems

 Here’s an interesting read from an advisor that has seen both banking systems up close. While we often think of our system as superior, there are still a few things we can tweak by looking at the positive attributes from our neighbor to the south.

The Differences Between Banking in the US and Canada

As a financial consultant, I spent more than 15 years in the U.S. banking sector. For the last six years I’ve worked in Canada, and the past two years I have worked exclusively for one of the largest Canadian Banks. Because of my experience across the two North American systems, I’m often asked to explain the differences between Canadian and U.S. banks.

It’s a fair question, made particularly relevant because the Canadian banking system did not suffer the same negative impact experienced by the U.S. financial system during the economic downturn from 2008 to 2010. Canadian banks, which are generally regarded as some of the safest and most stable in the world, avoided taxpayer-funded bailouts, and Canada’s economy enjoyed a faster recovery than its neighbor to the south. Here are several reasons why.

Canada Has Fewer Banks

While there are only 28 domestic banks in Canada, in the U.S. that number exceeds 7,000. Even when considering differences in population size, the U.S. is a more crowded space, and its banking environment is more competitive. As a result of this competition, in the last few years U.S. banks took more chances and subsequently created a less stable financial system — e.g. the Savings & Loan crisis.

Because there are fewer banks in Canada, its financial system is more concentrated. And the “Big 6” in Canada (Toronto Dominion, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, and National Bank of Canada) control more than 85 percent of $3.955 trillion in domestic assets. Although highly concentrated, Canadian banks are generally more diversified, with expansion into wealth management, insurance, deposit and loans, and brokerage services.

Also, because of the fewer number of Canadian banks, Canadian regulators are more involved in everything the banks do. This includes everything from capital requirements to underwriting standards. This level of scrutiny has helped the Canadian banks be more conservative in terms of risk taking.

By comparison, the “Big 5” in the U.S. (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs) control 44 percent of the $15.3 trillion in assets held by U.S. banks, according to data compiled by SNL Financial.

According to Canadian payments expert Sue Whitney, “In Canada, the small number of major players has resulted in a very coordinated market. Banks move in lock step on pricing, watching each other carefully for changes. A case in point was this year’s account package plan pricing changes, where they all made similar pricing moves within a few weeks of each other.”

Thus, Whitney explained, the smaller number of major players also allows regulators to form closer relationships with banks. Given this concentration, regulators get to know the banks, their risk policies and procedures, and their sources of revenue very well. Politicians also know the bank CEOs very well,

and don’t mind calling them to account, using moral persuasion if they don’t behave in a way that is conducive to the government’s agenda. When a major bank cut interest rates on mortgages a few years ago — creating the possibility that Canadians might take on risky levels of mortgage debt — lawmakers expressed dismay and the bank reversed its mortgage rate cut.

Canadian regulators take the position that having a banking license is a privilege and not a right, and that permeates the relationship. For this reason, major banks invest heavily in government relations, and actively manage their relationships and images in the market.

It’s also worth noting that Canada has around 650 credit unions, while the United States has nearly ten times as many.

Different Regulations

During the past 20 years, the U.S. Congress has mandated that the majority of Americans must have access to banking. This has resulted in a change from banking for the wealthy to a retail banking model, where all but the under- or un-banked have bank accounts. Unfortunately, the old banking system in the U.S., which relied heavily on fees from those using banking services, moved to a model where a relatively small percentage of customers support the rest. This penalizes disadvantaged populations that don’t have other banking options, and draws the ire of regulators like the Consumer Financial Protection Bureau (CFPB).

Additionally, U.S. banking regulation is more intrusive than the Canadian system. While Canadian regulations tend to focus on safety and soundness, U.S. regulations place additional focus on privacy, anti-money laundering, banking access, and most recently, consumer protection. For example, U.S. banks must comply with the U.S. Federal Community Reinvestment Act, which forces banks to lend to low-income customers, and lends itself to higher fees and pricing to support additional risk.

There are also significant differences in mortgage lending. While homeownership between the two countries is similar, interest on mortgages in Canada is not tax deductible, terms are typically shorter than 30 years, down payments are larger, and pre-payment penalties are significant. Thus, Canadians are less likely to take on speculative real estate propositions.

In addition, the U.S. indirectly subsidized mortgage lending through Government Sponsored Entities (GSEs) Freddie Mac and Fannie Mae, which provided not only mortgages and mortgage insurance, but also purchased mortgages from U.S. banks. Canada’s equivalent, the Canada Mortgage and Housing Corporation (CMHC), primarily provided mortgage insurance. Historically, this re-selling of U.S. mortgages allowed U.S. banks to take higher risks than their Canadian counterparts. In Canada, if a bank makes a mortgage, it typically keeps that mortgage rather than securitizing that asset.

Not only is the regulatory environment different, the relationships between banks and the regulators are more collegial. In Canada, the big banks cooperate on standards setting, which results in reduced market entry risks and costs.

For example, nearly a decade ago, Canadian market participants, banks, acquirers and the networks all worked collaboratively to develop common business requirements for EMV. This led to Canadian banks pursuing offline PIN as the right approach, rather than requiring more expensive security protocols like Triple DES on PIN transmissions.

The recent 2015 Canadian Bankers Association (CBA) Payments Security White Paper is another great example of industry collaboration. In this example, the top six banks coordinated an expressed concern about losing control over customer authentication during the migration to mobile. This has no doubt influenced recent regulations, and provided for a more level playing field between the banks and new market entries like PayPal, Google, and the telecoms.

Despite the differences, Canada and the U.S. regulation do have some similarities. Bank regulation in both countries is more fragmented than in other G10 countries, where most countries have only one bank regulator.

In the U.S., banking is regulated at both the federal and state level. In Canada, banking is regulated at the federal and provincial level. Both scenarios have resulted in a patchwork of standards. And in Canada, provinces like Quebec guard their jurisdictions carefully. In a recent legal case, the Supreme Court of Canada reaffirmed provinces’ rights to assert consumer protection jurisdiction on federally regulated banks and has resulted in a major legal/constitutional effort to sort out federal banking obligations, province by province.

Different Consumers

It’s hard to highlight just the banking differences because the financial system is very much a reflection of the customers served.

Canadians pay more in taxes, but receive more universal benefits such as paid maternity leave, healthcare, and low university tuition rates. However, the cost of living in Canada is generally higher.

According to a report published recently by New York Times that leveraged the Luxembourg Income Study Database, Canada has a large — and the world’s richest — middle class. By comparison, the U.S. has experienced an ever-widening income gap. While average salaries between the U.S. and Canada are similar, in Canada salaries are more centralized around the average, resulting in less income inequality. This also translates into a healthier banking system, which is better equipped to absorb economic stresses.

While Canadian household debt-to-disposable income levels are at historically high limits, when considering Canada’s social program benefits like universal healthcare, Canadian debt to income levels are still well below the U.S. This is partly due to Canadians paying off their mortgages faster than their U.S. counterparts. Statistics Canada says 43 percent of Canada’s homeowner households are mortgage-free.

Additionally, most Canadians are cautious about using credit, and this is reflected in Canadians being among the world’s heaviest debit card users. Similar to U.S. households, Canadians have recently begun paring down their debts and deleveraging across the board.

International Deals

Canada’s big 6 have traditionally been strong international competitors. Because the Canadian banking system is so small, these banks have been forced to look internationally for continued growth.

Canadian banking has also benefited from international trade deals like the Canada-European Union trade agreement that created new markets for Canada’s domestic banking sector.

Additionally, during the first round of WTO negotiations in the 1990’s and even as part of the North American Free Trade Agreement (NAFTA), Canadian regulators refused to allow foreign banks to set up in Canada as branches. Instead, these banks were required to set up subsidiaries because the government determined those entities would be easier to regulate. Eventually branches were allowed, but the government held firm in its initial stance far longer than in any other sophisticated market.

Conclusion

U.S. and Canadian banking systems are very different, due to factors including regulation, mindset, and customer base. Both systems have their advantages, and both have contributed to the prosperity and growth of their respective country’s economies.

Because of their differences — and the positive attributes found in each system – Canadian and U.S. Banks could learn from each other and gain insights on how to improve banking.

VACATION HOME FINANCING

 At this time of year, you’ll see some great prices on Vacation Properties.  Below you’ll find information on how Genworth Canada’s Vacation/Secondary Home Program works.  You may be closer to affording that weekend retreat than you think!

Vacation Home Product: Clients dreaming of owning a lakeside retreat?

Owing a weekend retreat can seem like an unaffordable luxury, but with the help of Genworth Canada, you can make this dream a reality for your customers.

Genworth Canada’s Vacation/Secondary Homes Program was designed to help qualified homebuyers purchase a vacation property with affordable monthly payments and as little as five per cent down.

This product can be particularly appealing to prospective clients who currently rent a summer lakeside retreat or a cottage for winter ski trips. Informing them of options available through the Vacation Home product may help them turn that occasional holiday into equity for the long-term.

The product offers two options: one for year-round winterized cottages, and another for seasonal properties. Qualifying criteria vary per option, with more stringent credit and down payment requirements for seasonal properties.

Genworth Canada distinguishes these options as “Type A” and “Type B” properties.

Type A properties require only five per cent down, while Type B properties require 10 per cent down.

A Type A property must be zoned as residential, with a permanent foundation (even if it’s located in cottage country). And it must be winterized with a permanent heat source and year-round road access.

These properties are typically used as a secondary home, though in some cases they may be used as a vacation home. The home must be owner-occupied or occupied by an immediate family member; it cannot be used as a rental property.

A Type B property is closer to a true definition of a cottage. A Type B property might not have a permanent heat source — maybe it has a wood stove or a fireplace. The foundation might be floating and it may have seasonal road use. Properties with a main access road that isn’t plowed in the winter or are only accessible by boat would fall into this category.

Because this type of property tends to be more remote or rustic, there are more stringent requirements for homebuyers, including a higher minimum credit score of 650 for all applicants. There are also limitations on down payment sources for Type B properties.

For Type A properties, homebuyers can use traditional down payment sources, including personal savings, RRSP withdrawal or a gift from a family member, as well as existing home equity. For Type B properties, the down payment must come from the homebuyer’s own resources.

To help prospective homebuyers better understand this product encourage them to watch the Genworth Canada HomeOpeners® Vacation Home product video at www.genworth.ca/HOV. This short illustrated video will help them visualize how they can afford that vacation home they may have thought was out of reach.

CELL PHONE BILLS

 Make sure to keep you Cell Phone Bills up to date.  Why? Cell Phone companies are starting to report your account status to credit bureaus.  If you’re behind in your payments, this will affect your credit score negatively.

Options

b1As mortgage brokers, we have options. Whether you’re a ‘AAA’ client or a past bankrupt, we have lenders for you.​ Here’s our Top 5 reasons for using our Mortgage Brokering Services.

  1. Mortgage brokers specialize in ​mortgages. We’re in the “know” with new rules and regulations. This could avoid timely delays when you need to waive financing in 5 days.
  2. ​We h​ave an exceptionally large network of lenders that​ we​ work with to get you the most favorable mortgage rates and terms.​ Lenders are constantly sending us Quick Close Specials (deals closing within 30-60 days) further enhancing your chances of getting the best possible rate on the market when you sign.
  3. Mortgage brokers are able to work one-on-one with ​you, evaluate ​you​r specific needs and find a lender that suits ​your short and long term goals.​
  4. When a bank says no, we have alternative lenders that are willing to take on the risk if you have enough down payment or equity in the home (typically 20-25%).
  5. All-in-all​, life is busy. Information is abundant. As mortgage brokers​, we’ll filter out this information for you specific needs and save you the groundwork of finding the best mortgage ​terms.​

Canadian debt levels rising with home prices, but mortgage rules helping to manage risks: BoC deputy

 OTTAWA — Rising home prices have increased household debt levels, but steps taken by regulators to tighten mortgage lending rules have helped manage the associated risks, according to the Bank of Canada.

In a speech in Kingston, Ont., deputy governor Lawrence Schembri said Tuesday that the strength in the housing market has increased household imbalances.

However, the risks stemming from these vulnerabilities have been well managed, he added.

The government has moved several times in recent years to tighten mortgage lending rules, including reducing the maximum amortization period for insured mortgages as well as making changes to the qualifying rules.

“Recent evidence suggests that these measures have resulted in higher average credit scores, which have improved the quality of mortgage borrowing,” Schembri told the Canadian Association for Business Economics.

He added that the trend rate of growth in mortgage credit fell from 14 per cent in 2007-08 to around five per cent in 2013-15.

Home prices have been rising relative to income in Canada and other comparable countries for about 20 years.

The increase has been driven by demographic forces as well as lower interest rates and changes in mortgage financing.

As well, constraints on supply, especially in urban areas, have played a role.

“In Vancouver, bounded on three sides by water with coastal mountains as a backdrop, condo development has dominated housing starts since the early 1990s,” Schembri said.

“We are now seeing a similar shift to condos in Montreal and Toronto.”

The Canadian Press

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