Morneau taking close look at return to 30-year insured mortgages

By Bill Curry | Ottawa

The Globe and Mail

The federal government appears to be considering a budget announcement that would allow first-time homebuyers to obtain 30-year insured mortgages, up from the 25-year limit now, according to the Canadian Homebuilders’ Association.

Such a move would represent a change in direction after more than a decade of measures by federal Conservative and Liberal governments since the 2008 recession aimed at cooling housing markets and encouraging Canadians to take on smaller mortgages.

While the Bank of Canada continues to express concern about high household debt, politicians are also getting an earful from younger Canadians – a potentially key voting demographic – who can’t afford to enter the housing market.

Finance Minister Bill Morneau’s coming budget will be the government’s last before the scheduled October election. The minister recently said he is looking at home affordability issues for millennials, but he has not publicly speculated on potential policy options.

Over the past two weeks, top officials from the Prime Minister’s Office and Mr. Morneau’s office met with Kevin Lee, the chief executive of the Canadian Home Builders’ Association, to discuss potential budget measures.

Association spokesman David Foster said there is clear interest from government in the request put forward by housing industry groups to bring back 30-year insured mortgages.

“They keep wanting to talk with us about it, and it wouldn’t cost them a dime, so I’ve got to think those are somewhat positive signals,” Mr. Foster said on Wednesday.

The association discussed the matter earlier this week with Mr. Morneau’s chief of staff, Ben Chin. They also met last week with Sarah Hussaini, a policy adviser in the Prime Minister’s Office.

Pierre-Olivier Herbert, a spokesperson for Mr. Morneau, declined to comment, saying the office does not speculate on potential budget measures.

The association has had several meetings with officials and MPs over the past year in the run-up to the 2019 pre-election budget and recently narrowed down its wish list to just two items: a return to 30-year insured mortgages for first-time homebuyers and an easing of stress test measures that restrict access to non-insured mortgages.

Mr. Foster said officials are expressing interest in both options, but especially the 30-year mortgage proposal because it can be enacted unilaterally by the Finance Department. Changes to the stress test would require the co-operation of the Office of the Superintendent of Financial Institutions, an independent regulator that just this week defended the existing rules.

MP Francesco Sorbara, who chairs a Liberal caucus on housing affordability issues that formed last year and is a member of the House of Commons finance committee, did not dismiss the 30-year mortgage proposal as a way of helping first-time homebuyers.

“It is one idea of many that is worthy of consideration, with the caveat that we maintain a secure and healthy housing market and that individuals are not overextending themselves,” he said.

Paul Taylor, president and CEO of Mortgage Professionals Canada, is also advocating for the 30-year mortgage option and said he was “encouraged” by Mr. Morneau’s recent comments about addressing affordability for millennials. However, Mr. Taylor said he has not received any indication from federal officials that a decision has been made.

The date of the budget has not yet been announced. The House of Commons only sits for one week in March, which makes the week of the 18th a likely window for the minister to deliver the budget. However, there is also speculation in Ottawa that the budget could be released in the final week of February.

Homebuyers with a down payment of at least 5 per cent of the purchase price but less than 20 per cent must be backed by mortgage insurance. This is offered by the Canada Mortgage and Housing Corp. – a Crown corporation – as well as two private insurers.

In 2008, after briefly allowing insured mortgages with a 40-year amortization period, then-Conservative finance minister Jim Flaherty reduced the maximum period to 35 years. The Conservative government lowered the maximum to 30 years in 2011 and acted again in 2012 to bring it to 25 years, where it has stood since. The moves were promoted as a way to prevent high-risk borrowing.

Shortly after the Liberals formed government in 2015, Mr. Morneau announced further mortgage tightening rules that December by doubling the size of the required down payment for insured mortgages for the portion of a home’s value from $500,000 to $1-million.

Mr. Foster, of the home builders’ association, said restricting insured 30-year mortgages to first-time homebuyers should prevent consumers from getting in over their head.

Millennials have most of their working years ahead of them and would likely pay off the mortgage sooner than 30 years, he said.

“We don’t think it involves any additional risk,” he said. “These are prime borrowers.

Source: The Globe and Mail

CMHC passes stress test for severe scenarios such as cyber attack and earthquake

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Laurentian Bank looks to leave mortgage loan review woes behind

MONTREAL _ Laurentian Bank Financial Group expects to put troubles related to a mortgage loan review behind it this year, chief executive Francois Desjardins said Friday as the bank raised its dividend and reported a better-than-expect profit in its second quarter.

“I am pleased with the progress we have made, and although not yet complete, management is confident that we have a clear path to resolution,” Desjardins said on a conference call with financial analysts.

“Managing this file has been a learning experience that will help us better manage our business, implementing enhanced quality control and origination processes throughout the group, strengthening our compliance and risk management practices.”

The bank said earlier this week that it has successfully resolved issues related to mortgage loans sold to an unnamed lender that was first disclosed last year.

However, Laurentian also said Tuesday a CMHC audit during the bank’s most recent quarter found mortgages that were inadvertently portfolio insured while they did not meet CMHC portfolioinsurance eligibility criteria.

As a result, the bank said it will repurchase those other mortgage loans that were inadvertently portfolio insured and sold to the CMHC securitization program. Based on the results of CMHC’s audit, the bank estimates the total amount to be repurchased at between $125 and $150 million.

Laurentian shares closed up $1.29 or 2.85 per cent at $46.49 on the Toronto Stock Exchange Friday after the bank announced it will now pay a quarterly dividend of 64 cents per share, up a penny from its previous rate. It also reported it earned $55.9 million attributable to common shareholders or $1.34 per share in its second quarter ended April 30.

That compared with a profit of $40.3 million attributable to common shareholders or $1.19 per share a year earlier when the bank had fewer shares outstanding.

On an adjusted basis, Laurentian said it earned $1.47 per share for the quarter, up from an adjusted profit of $1.39 per share a year ago.

The adjusted result topped the $1.38 per share that analysts on average had expected for the quarter, according to Thomson Reuters Eikon.

Mortgage rate increases at Big Six banks could trigger rise in qualifying rate

By Armina Ligaya

THE CANADIAN PRESS

TORONTO _ Canada’s Big Six banks have all increased their benchmark fixed-rate mortgage rate, a move analysts say could trigger a rise in the Bank of Canada’s qualifying mortgage rate as early as Wednesday, making it more difficult for some to take on home loans.

The Bank of Nova Scotia on Tuesday became the last of Canada’s biggest lenders to raise its posted rate for a five-year fixed-rate mortgage  from 5.14 per cent to 5.34 per cent. They also increased the posted rates for other fixed-rate term lengths.

Such rates are different from the actual mortgage rates offered by banks to borrowers, which are not seeing the same increases. But the Bank of Canada uses the posted five-year fixed mortgage rates at Canada’s biggest banks to calculate the rate used in stress tests to determine whether borrowers can qualify for both uninsured and insured mortgages.

The central bank’s conventional mortgage five-year rate, which is updated weekly, was 5.14 per cent as of May 2. It posts the rate every Wednesday.

“This will raise the qualifying rate,” said Cormark Securities analyst Meny Grauman.

“On the margin, every time that goes up, you’re excluding more people from being able to get mortgages, all else equal… But people have different strategies to bring themselves on side.”

Homebuyers with less than a 20 per cent down payment seeking an insured mortgage must qualify at the central bank’s benchmark five-year mortgage rate. And as of Jan. 1, buyers who don’t need mortgage insurance must prove they can make payments at a qualifying rate of the greater of two percentage points higher than the contractual mortgage rate or the central bank’s five-year benchmark rate.

Nearly half of all existing mortgages in Canada will need to be renewed this year, according to a CIBC Capital Markets report released earlier this month.

In late April, TD Bank was the first of the Big Five lenders to raise the benchmark rate, increasing it from 5.14 per cent to 5.59 per cent, due to factors including the “competitive landscape, the cost of lending and managing risk.”

Royal Bank later raised its benchmark rate to 5.34 per cent, followed by CIBC which raised its posted rate for five-year fixed term mortgages to 5.14 per cent. Earlier this month, National Bank of Canada raised its posted five-year fixed rate to 5.34 per cent while the Bank of Montreal upped the benchmark rate slightly to 5.19 per cent.

Mortgage planner and rate comparison website founder Robert McLister said after the recent string of rate increases, he expects the central bank’s minimum mortgage qualifying rate will jump 0.20 points to 5.34 per cent on Wednesday.

Grauman said a higher qualifying rate will make it more difficult for some borrowers to qualify for a mortgage, but expects that some may make some adjustments such as seeking a smaller home as a result. He anticipates that this will have a “small impact” on the banks’ mortgage portfolios.

The mortgage rate increases from Canada’s biggest lenders come as government bond yields rise, signalling higher borrowing costs for corporations. The yield on the Government of Canada benchmark five-year bond was 2.14 per cent on Monday, compared to 1.01 per cent roughly one year ago.

Grauman said there are a number of factors which are driving these increases, including higher funding costs.

“There’s that element which motivates the banks to raise the rates at which they charge their clients,” he said. “But you also have competitive dynamics as well that are at play.”

At the same time, several of Canada’s biggest banks have cut their posted variable mortgage rates, which are more directly tied to changes in the Bank of Canada’s interest rate.

BMO is now offering a five-year variable closed mortgage rate of 2.45 per cent until the end of May.

“Our five year variable rate is reflective of the competitive environment and is a great rate for customers seeking a variable mortgage,” said a BMO spokesperson in an emailed statement.

“Customers that choose this product can also renew to a fixed rate mortgage with the same or longer term at any time with no fees.”

RBC late last month said it will reduce its offered rate for a five-year variable closed mortgage to 3.3 per cent from 3.45 per cent.

TD Bank last month cut its five-year variable closed rate offering for new and renewed mortgages earlier this month to 2.85 per cent which is 75 basis points less than its prime rate. Previously it was 2.95 per cent.

McLister said in a rising rate environment, banks are inundated with demand for fixed rates and these discounts in part reflect banks’ efforts to balance their books.

As well, the margins or profit made on loans on variable rate mortgages will improve if interest rates rise, he added.

Still, the difference between mortgage rates banks offer and their funding costs for a given term, known as the spread, is shrinking, McLister said.

“This is true for both fixed-rate mortgages and variable rates,” he said in an email.

“In short, banks are accepting less profit as competition gets more aggressive for the fewer and smaller prime mortgages that now exist.”

New mortgage rules behind slide in B.C. home sales: real estate association

VANCOUVER _ The British Columbia Real Estate Association says tough mortgage qualification rules are a key reason for a provincewide drop in housing demand last month compared with February 2017.

The association says home sales fell 5.7 per cent in February, with about 6,200 properties changing hands.

Chief economist Cameron Muir says on a seasonally adjusted basis, sales have plummeted more than 26 per cent since new federal mortgage rules took effect at the beginning of the year.

But the association says prices continue to climb, with the average home selling for just over $748,000, an 8.8 per cent jump over February of last year.

The Office of the Superintendent of Financial Institutions implemented new lending guidelines in January that require borrowers who don’t need mortgage insurance to show they would still be able to make payments if interest rates rise.

In order to get insurance, homebuyers must prove they can service their uninsured mortgage at a qualifying rate two percentage points higher than the lender’s rate or the Bank of Canada’s five-year benchmark rate, currently set at 5.14 per cent.

Mortgage 101 For First-Time Homebuyers

Article by The Ross Firm

Entering the housing market for the first time can be a bewildering experience, especially where financing is concerned. Our post this week looks at the bare basics of residential mortgages and how a real estate lawyer can help ensure that a housing newbie’s first go at financing is a smooth one.

Mortgage Types – Conventional vs High-Ratio

Mortgages fall into two categories depending on the amount of home that a buyer finances. Those able to finance less than 80 per cent of a property’s value can apply for a conventional mortgage.

High-ratio mortgages are for purchasers who finance between 80-95 per cent of the property’s value. These mortgages allow more individuals to join the housing market, but with the higher risk involved, the law imposes mandatory mortgage loan insurance on these transactions as a safeguard against mortgage default. Read more about mortgage loan insurance in one our previous post.

It Pays To Shop Around

The first place that first-time homebuyers logically turn to for mortgage help is their own bank. This can be a good starting point to obtain information and do some number crunching, but a number of alternative options exist. These include trust companies, insurance companies, credit unions and private lenders.

Rates, options, conditions, risks and benefits differ, so it’s wise to treat a mortgage no differently from any other major purchase decision. Shopping around could also sizably impact the total money a buyer saves or loses in interest over the long term.

Working with a mortgage broker instead of a single lender opens up options. These brokers do the shopping for the mortgagee, scouring various institutions to gather the best possible packages to suit the needs in each transaction.

The Role Of A Real Estate Lawyer In Financing

Meeting with a real estate lawyer is the next wise investment, especially for a first-time buyer. Experienced lawyers have reviewed hundreds and thousands of mortgage agreements. They can cut through the fine print and provide clarity to ensure that buyers know exactly what they are signing to.

Real estate lawyers can also spot existing and potential problems that buyers are often not aware of. They can also ensure that legal provisions are in place to protect against possible future risks. With one of life’s largest investments involved, professional scrutiny makes good sense – both financially and practically.

Buying or selling?

Call us.

On behalf of Quinn Ross of The Ross Firm Professional Corporation posted in Residential Real Estate on Wednesday, April 12, 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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