Mortgage Alliance OAC Mortgages

1 February 2012

First Line Closes door on Stated Income

Time may be ticking for some of the current lending policies with CMHC and the “Banks”..

Yesterday Firstline officially dropped the hammer on their “Stated Income” and “New Immigrant” programs. In English, you now have to borrow based on your actual declared income, (Average of the last two years, line 150 on your notice of assessments), and must have a 2 year Canadian Credit score if you want a mortgage from CIBC’s Firstline Mortgages.

http://www.thestar.com/business/article/1124551--mortgage-cmhc-firstline-ottawa-self-employed-new-immigrants-housing-market?bn=1

It looks like some of the Banks are not going to wait until April 1 2012 until Flaherty announces the upcoming changes for CMHC .

BMO was first out of the gate by restricting their new 5 year mortgage special to 25 year maximum amortization.

There is a distinct possibility that April 1^st will bring some of the most significant changes to the current lending policies, which will affect a large percentage of mortgage holders, both current and future.

Here are a few that policies that could be affected:

1. Amortizations reduced back to 25 years, (The 30 year amortization may disappear)

2. The elimination of self-employed applicants over stating their income, beyond the 2 year average of line 150 on their Notice of Assessments

3. Elimination of New Immigrant Program

4. Establishing ceiling amounts for mortgages, ie $1,000,000, but this could filter down into the first time homebuyer market with lower ceilings in different markets

5. 5% Down could only be for 1^st time home buyers once again, that existing homeowners may have to come up with 10% down on their next purchase.

6. 80% Conventional Mortgages could move back to 75%

Now please keep in mind that until CMHC announces any actual changes, these are all completely speculative at best, and it is not likely all of these may happen.

But one thing is certain at this point, and that is that we will likely see some form of changes get announced in April that will have some effect on some applicants qualifying for a mortgage.

References to CMHC needing to increase their $600 Billion Cap, are somewhat of a concern, however I would be very surprise if they do not approve an increase in that cap at the same time they announce the upcoming changes to the lending policies.

With this in mind, my very strong suggestion is, if a home purchase is in your near future, or you have a mortgage maturing soon, or you have debts, renovations or any other reason to consider refinancing your current mortgage, and any of those possible changes are a concern to you, then get your application in soon.

The self-employed applicants will likely be the most affected by these upcoming changes.

It is still status quo with most of our current lenders.

This is a perfect example as to why using an independent mortgage agent, with access to multiple lenders is your best option today, if one lender changes their policies, we likely have other lenders who may not have changed yet.

David Kendall

Mortgage Agent
License # M08004045

211 York Road, Unit 3, Dundas, Ont. L9H 1M9
OAC Mortgages Brokerage License # 10928
An independently owned and operated franchise of the Mortgage Alliance Network

1 December 2011

Variable Discounts Turn to Premiums

December 01, 2011

Variable Discounts Turn to Premiums

In the last few days, RBC and Scotiabank have eliminated their advertised variable-rate discounts.

They’re now promoting variable mortgages at prime + 0.10%, twenty basis points more than their previous “special offers.”

Prime + 0.10% (i.e., 3.10%) is an interesting number. A few months ago consumers thought that fat variable-rate discounts were here to stay. Variables above prime will now come as a shock to some people.

The banks are well aware of that. They know that pricing above prime impacts consumer psychology.

They could have priced at prime. Spreads are not that horrendous. But pricing above prime makes more of an impact. It makes higher-profit fixed rates more appealing and it mentally prepares consumers for potentially higher VRM premiums down the road.

That said, banks are not just arbitrarily sticking it to borrowers. Far and away, the main reason variable rates are worsening is that banks' costs are rising.

At the moment, there are multiple factors at play:

Higher risk premiums are compressing margins.

We have Europe to thank for the that.
The TED spread, a measure of interbank credit risk, just made a new 2½ year high. As volatility increases, banks have to factor that into their funding models.
Another reflection of risk is the most recent floating rate Canada Mortgage Bond (which some lenders use to fund variable-rate mortgages). It was issued at a 15 basis point premium over the prior issue in August.

Margin balancing is an underlying bank motive.

Banks have publicly stated their desire to even out margins between profitable fixed rates and low-margin variables, and they’re slowly doing just that.
Back in September, RBC Bank exec David McKay put it this way: “…Given the dislocation between fixed and variable, the very, very thin margins (of variables), we felt we needed to move prices up in our variable rate book.”

New regulations (e.g., IFRS) have boosted the amount of capital required for mortgage lending.

That has lowered the return on capital for mortgages, and thus influenced rates higher.

Status Quo for prime rate doesn't help margins.

Lenders partly rely on deposits (that money rotting in your chequing and savings accounts) to fund VRMs.
Demand deposit rates rise slower than prime rate. So, when prime goes up, some lenders get wider margins temporarily.
When expectations changed three months ago to suggest that prime rate will fall or stay flat (instead of rise like expected), it was bad news for some deposit-taking lenders. That’s because they now have no spread improvement to look forward to in the near-to-medium term.
MBABC President Geoff Parkin says that until recently, “lenders have been prepared to accept low (VRM) profit margins with the knowledge that, as the prime rate inevitably rises, so too will their profit on variable mortgages.” As it turns out, the inevitable is taking longer than the market expected.

Rob McLister, CMT

Posted at 01:49 AM in Mortgage Rate Trends | Permalink