Dave's E-mail: 11/18/08, Light at the End of the Tunnel

It seems every day I open the newspaper there is one article after anotherpredicting doom and gloom. Stories about Bank bail outs, houses that can'tsell, layoffs, and the plunging stock market, is really starting toobliterate consumer confidence.

Everyday it seems someone is asking me if I am busy, with an expectation of an answer of being slow. Well I have to say that this has likely been one ofmy busiest October/ November's that I have had in the last 5 years.

During the last 2 months we have also had greatest amount of change in our industry.

Some lenders have closed their doors in Canada altogether, those being Accredited, Money Connect, and Citi Financial, all owned by US companies.

Others have completely changed their entire product lines. They have moved away from previous high risk style of lending, to a more conservative approach.

I think the fallout in the US has definitely been the driving force of allthe changes in our industry.

To recap some of the changes....

No more true 100% financing. However we still have lenders who offer 5% cashback, and with 95% financing, we can technically still provide 100% financing.

No more 40 year amortizations, however there are still lenders on conventional deals, will offer interest only payments.

Beacon scores must be 600 + as a minimum score on high ratio mortgages.Previously lenders could approve deals with lower scores.

Most lenders have stopped the "Stated income" deals with lower beacon scores, less then 600 and on non owner occupied properties. Most variable rate mortgages and credit lines have been priced at PRIME+1.00, there are only 2 specific lenders with rates below prime +1.00.

For the first time in history when the Bank of Canada lowered the over nightlending rate the banks did not immediately follow suit, stepping outside ofmonetary policy.

The true effect of the changes.

We have not seen a significant tightening of lending on standard deals, withgood credit, verifiable income, and good properties. In fact the banks aregoing out of their way to get this kind of business. "A" BUSINESS

Where I have seen a drastic change is on the deals that are somewhat outsidethe box. The deals I like to call "Fence Sitters" , which could fall oneither side. Often there is some form of a challenge with the file which inthe past when explained to the lender, the deal would get approved. Thesetype of deals are being effected... "B" Business.

We had lenders who specialize in hard to place insured deals; these are thelenders that are being affected the most.

The "C" Deals which could be compared to Sub Prime, low credit scores, taxarrears, mortgage arrears, are still being funded, but the number of lenders available for this type of lending has drastically reduced.

We as brokers were often pairing up private 2nd mortgages with the C deals,the good news is our private lenders are all sitting on surpluses of moneyto lend, but they are being a lot more selective on the deals they arewilling to lend on.

So as you can see there are still lenders willing and able to fund mortgagesin this current economic slowdown.

However the one thing that is likely having the greatest affect on the consumer's ability to borrow money is the shrinking of equity in their home.During the last 10 years housing prices always went up in value. Up until the last 3 months... we are now seeing a verifiable reduction in value.

So regardless of the client's ability to qualify for a mortgage, the current market value of the property could be what is going to have the greatest effect on the "Tightening of Lending" and it effects all types of clients,A, B and C....

So what is the gist of this article....

Any one who has the possibility of needing to increase their mortgage in the near future should act now, because the current value of your home is likelyat its highest point today. The longer you wait... the lower your home is likely to be worth during the next 12 months and the harder it will be to borrow money against the equity.

We have a large number of client's who are currently in below prime rate variable rate mortgages, and they know if they try to increase the mortgage,they will lose their great rates. You now have options...

I have a lender who will put a 2nd position line of credit behind anylender's first mortgage or line of credit at a rate as low as 6.99% with a 1.00% minimum monthly payment. This way you don't have to lose your current great rate on your existing mortgage. You can then wait until you current mortgage matures, then combine the 2 mortgages.

So just imagine $50,000 Line of credit with a minimum monthly payment of$500.00 per month. It would be significantly lower then the minimum monthly payments on $50,000 in credit cards debts. And you now do not have to pay a 3 month interest penalty on your current mortgage, or have your variablerate mortgage go from prime minus to Prime plus 1.00%....

I still have access to PRIME rate borrowing, at 4.00%, which is fully open..

Currently 1.00% below all major banks rates...

In today's constantly changing mortgage industry using a Mortgage Broker with access to more then 40 separate lenders will significantly improve your access to some of the lowest mortgage rates and the some of the most flexible lending policies in the industry.

So as you can see there is still a light at the end of the tunnel, so if you would just like me to review your current financial situation, please giveme a call anytime.

Thanks,

David Kendall
Senior Mortgage Consultant
211 York Road, Unit 3, Dundas, Ont. L9H 1M9