CIBC Being Sued: Unfair payout penatly calculations continue

Posted on January 19, 2012 by

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 MortgageBrokerNews.ca, 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.

Posted in bank, Bank rates, Uncategorized | Tagged , , | Leave a comment

Canada’s East-West economic divide deepens

Posted on January 11, 2012 by

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.

Posted in Uncategorized | Tagged , , , , , | Leave a comment

Credit Score Info – this is great data

Posted on January 6, 2012 by

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 Monstermortgage.ca 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.

Posted in Uncategorized | Tagged , , , , | Leave a comment

Why you should get a rate hold right now.

Posted on December 19, 2011 by

Why you should get a rate hold now.

Let’s get right down to business; the advantages of using a top mortgage broker are listed near the end of this entry but reasons to use us should be pretty obvious by the time we get that far. Good brokers earn our salt because we watch the markets, the lenders, the rules, and the mortgage rates all day for a living. Or the good ones do anyway.

So … What is going on with these super low mortgage rates?

Right now interest rates are at their 111-year lows at about 3.4% for a 5-year fixed, closed, mortgage. The banks consider anything under 4.0% to be free money. Consider the banks have to borrow the funds, include the cost to administer the funds and also make a profit. At 4% there is not much room left for profits – they say.

Now consider the recent US debt ceiling issue (they have not really done anything about facing their debt problems yet) and pile the EU issues on top with the PiiGS – Portugal, Italy, Ireland, Greece and Spain – and the stock market freaked out and did a general sell-off. That is the 49-word summary of the world economy right now.

When the sell-off happened, all those (literally) trillions of dollars have to go somewhere and they go into American Treasury Bonds – the standard for where banks put their short term cash. Those bonds then pay almost no “incentive” or interest to the buyers as banks really have no choice and are going to buy the treasury bonds anyway. This means the interest the bonds now have to pay to get banks to buy them is way less – around 0.25%. The circle is complete when the banks that fund your mortgage borrow money from a bond (the Canadian Mortgage Bond, or CMB) that charges them almost no interest – they then pay the bond almost no interest, and in turn, charge you less to you too. That is how rates are now below the theoretical minimum of “the 4% barrier” and down to these never-seen-before, short term, 3.4% rates.

If you did not follow that paragraph above don’t worry about the background data. Just remember this; as soon as there is even a sniff of economic recovery, as in, the EU or the USA gets it’s mess sorted out, money will rocket back into the stock market and then these treasury bonds (and the CMB) will have to pay more interest to get banks to buy them. That interest cost then gets passed along back to you, the mortgage consumer, and rates go back to above that 4% hurdle. (The long term, 20-year, average for the 5 year fixed mortgage is about 6.5%.)

The news is that the stock market rally might be here very soon because we watch the stock markets very closely too. Then rates go up, everyone gets more confident, people start buying things that they were putting off – like homes, prices start to go up, people from all over Canada move back to Alberta – the CBC National on Nov. 15th just had a 25 minute focus on Alberta and Saskatchewan jobs and worker shortages – and the cycle accelerates with rates and prices increasing. More on my blog here: http://wp.me/pVaY9-5W

 

How to take advantage of this now

You CAN get a 120 day mortgage rate hold at no cost or risk to you BEFORE the rates go up if you are thinking about buying. We get your file worked up in a day – all that is needed is an application, employment letter, pay slip and some verification of down payment funds – and if rates change we put your file in for the rate hold. If rates come back down you get the lower rate, if they go up you have the rate hold – like free insurance – that can save your thousands a year. Your file waits in the “Rate Watch File” and is sent in when we get notice from the lenders rates are going up. Then the clock starts ticking. We work the system, to your advantage, for you, at no cost to you. It’s true.

So now is the time to get your rate hold BEFORE things improve and rates are at the all time lows. Your grandparents would be envious of our situation right now. When the rush is on there is only so much time to jam deals into the system and it does get crazy busy. Best not to be the person that just misses the old rates. No one wants to be the focus of the “just missed” story others talk about.

What about your bank?

Our lenders give us 1 hour – 2 days notice of a rate increase so we can send in all the files we are working on. I don’t remember a bank ever calling me to say their rates are going up, or even offering to hold my fully worked-up file for the last second before rates change. I would never trust my bank to do that anyway as whomever I talk to seems to always be: on holiday, in training, moved-on, at a different branch, etc, and isn’t the bank supposed to try to make as much money off of me as possible anyway?

Our broker rates are usually always lower than the Big-6 banks because our lenders have lower costs than the banks do. They pass those savings on in lower rates. If the big banks want our business – and they do – then they need to match the other broker-only lenders rates that are lower. Your mortgage can be placed at one of the Big-6 but the broker-only lenders usually have better rates, terms & conditions and are totally secure. A few are actually bigger than the Big-6 banks themselves. How would you feel if your personal banker did not give you their best rate, or use their maximum discretion for you? We always give you the best rates possible.

And here is the killer point. The only thing we do, all day, is mortgages. Bank people do car loans, checking and saving accounts, RRSPs, RESPs, mutual funds and try to give you an iPod to change your main account over to them. All we do is: self-employed mortgages, employee mortgages, Lines of Credit (LOCs), first time home buyers, complicated divorce mortgages, real estate investors, move up’s, move down’s, help pay off debts and credit cards with trapped home equity, New-To-Canada mortgages, 2nd home purchases, recreational property mortgages, and lots more. We know what we are doing mortgage-wise. Your bank may not and probably only has 4 mortgage products. We have access to more than 40 lenders and 100 products.

There are other advantages to using a broker but that is enough for now. If you have been able to hang in here to the end you probably have a question. Feel free to call anytime for a quick chat. We are busy and do not have time to become your mortgage-stocker or send hundreds of emails, which is really what you want anyway; other than the best possible mortgage for your individual situation.

Getting your application in will take the stress of buying away, and end those sleepless nights because you know what your maximum mortgage will be, what the payments will be, and that you took advantage of this window to save thousands when you could. Good work.

Posted in Uncategorized | Tagged , , , | Leave a comment

Variable mortgage rates are no longer as attractive

Posted on December 19, 2011 by

variable rate mortgage are over — again.

Those mortgages, tied to prime, have become a mainstay of the housing market. And, why not? While prime has stood at 3% at most major financial institutions, the discount has meant a rate as low as 2.1% at times this year.

However, in the last 10 days what was left of that discount — it had already been shrinking for weeks — has disappeared at all of the major banks.

You have to head back to the credit crisis of 2008 to find a similar period where the discount disappeared. At the time, consumers were paying a 100 basis point premium above prime for the privilege of a floating rate.

The new reality is expected to reshape the mortgage market in the coming months, reversing a strong trend that had seen consumers roll the dice on interest rates, confident in the belief they were not going up.

How confident were they? Well the Canadian Association of Accredited Mortgage Professionals says 37% of consumers opted for variable rate mortgages over the last year, bringing the total percentage of those with a floating rate to 31%.

To be clear, anybody with an existing mortgage is unaffected until they renew. Why would you want to renew early or lock in if your present rate is 2.1%?

“If you have three and half years left on that term you are not going to give it up,” said Vince Gaetano, of Monster Mortgage, adding you can borrow at 3.29% if you lock in for five years or 3.09% for four years. “The last decade I’ve been telling people to go variable but I’m saying go fixed [for new clients].”

The other key advantage for a term five years or longer is you get to use the rate on your contract to qualify for a mortgage as opposed to the current five-year posted rate of 5.39%. The difference means you’ll qualify for a larger loan by locking in.

“People are being heavily compelled to lock in,” says Doug Porter, deputy chief economist with the Bank of Montreal, in talking about the negligible spread between short and long-term money.

Will Dunning, an economist CAAMP, said his group was not surveying consumers the last time short-term rates climbed like this so he can’t be sure what the reaction will be this time around.

Meanwhile Farhaneh Haque, director of mortgage advice and real estate secured lending with TD Canada, says she’s already seeing the effects as people shy away from variable. Her financial institution is not offering any discount at all on prime these days, a move necessitated by rising borrowing costs for the bank.

“I think there is a whole different conversation that we are having now than we were a few years ago,” says Ms. Haque, adding at today’s rates fixed products have their own attraction. “The stability it offers with a low rate makes it more affordable.”

While Benjamin Tal, deputy chief economist with CIBC World Markets, doesn’t think variable rates premiums will rise above prime, the drop in the discount we’ve seen in the last few months could impact on the housing market.

In particular, the condominium market seems the most vulnerable as investors trying to stay cash flow positive — virtually impossible in Toronto’s current condo market based on rental rates and the costs of carrying a mortgage with a 25% down payment. Investors have opted for the cheaper variable rate products in an attempt to keep costs down as they waited for a payday based on capital appreciation.

“You know 80 basis points below didn’t make much sense either. I think variable at prime is the new normal. They won’t go higher unless we get a new crisis,” says Mr. Tal, adding banks were not making much money on variable with the steep discounts so they backed away from them.

Mr. Tal’s information points to the record high for variable rate products being driven by investors and he thinks the new rates will hit that segment of the market

“I think you will see an impact on the investor market in the next six months. The shift hasn’t happened yet,” says Mr. Tal.

Posted in Uncategorized | Tagged , , , | Leave a comment

Calgary housing market demand strong for 2012: RE/MAX

Posted on December 7, 2011 by

 

 Great news for the upcoming year.

By Mario Toneguzzi, Calgary Herald December 6, 2011

CALGARY — Fuelled by low interest rates and job security, demand for residential real estate in Calgary is on the upswing, says the RE/MAX Housing Market Outlook 2012 report released Tuesday.

And the real estate firm says Calgary will be a Canadian leader next year in the annual growth rate for MLS sales.

By year-end 2011, 22,500 homes are expected to change hands, an eight per cent increase over the 20,801 sales reported in 2010, it said.

And the average price in Calgary is forecast to appreciate as well, rising a “modest” one per cent to $405,000 in 2011, up from $401,186 one year ago.

The report forecasts the average MLS sale price will jump by three per cent in 2012 to $417,000 while sales will rise by five per cent to 23,600 units.

Lowell Martens, of RE/MAX Real Estate (Mountain View) in Calgary, said any hesitation on the part of some buyers in the city is more than likely a direct reflection of the uncertainty in the European economic situation.

He said commercial real estate construction taking place in Calgary “tells us the long-term feeling out there is very positive for Calgary.”

“We have a very stable market over the next little while. We don’t anticipate any big upswings but at the same time we don’t anticipate any big downswings either. It’s going to be very stable,” he said.

Buyers in the city are cautiously optimistic after more than two years of recession, making their moves while interest rates are at historic lows and housing values are affordable, said the report.

“Single-family homes remain most popular with purchasers, representing close to 60 per cent of total residential sales. Demand is greatest for entry-level product, priced between $350,000 and $450,000,” it said.

“Condominium apartments and town houses have also experienced solid momentum in recent months, with the lion’s share of activity occurring from $200,000 to $300,000. Luxury home sales — priced over $1 million — have been particularly brisk, up approximately 25 per cent over 2010 levels.”

While global concerns still loom overhead, the market appears to be gaining some traction moving into the new year, added the report.

“First-time buyers are expected to continue to capitalize on low interest rates, while move-up buyers cautiously enter the market in the mid-range price points. Sales in the upper-end are expected to remain robust,” said the report.

A recent housing market outlook by Canada Mortgage and Housing Corp. forecast a 2.3 per cent increase in MLS sales in 2012 for the Calgary census metropolitan area to 22,700 transactions and a 2.2 per cent hike in the average sale price to $411,000.

“Many factors that support resale housing demand have become or remained favourable this year, including growth in full-time employment, low mortgage rates and improved net migration,” said the CMHC.

“However, competing factors such as uncertainty in the global economy has kept some prospective buyers on the fence, and will continue to temper any large increases in sales.”

RE/MAX said the Canadian residential real estate defied conventional logic and outperformed expectations in 2011, posting another solid year of housing activity virtually across the board.

The trend is expected to carry forward into 2012 as Canadians “continue to demonstrate their faith in home ownership, despite concerns over the European debt crisis and its impact on the global economy.”

By year-end, an estimated 460,000 homes are expected to change hands, up three per cent from the 447,010 units reported in 2010. Sales are expected to climb one per cent to 464,500 units in 2012. The value of a Canadian home is set to climb to $363,000 by year-end — an increase of seven per cent over the $339,030 posted one year ago. By year-end 2012, the average price in Canada is forecast to appreciate two per cent to $371,000, added RE/MAX.

“What 2011 proves is that real estate continues to have momentum,” said Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada, in a statement. “The economic underpinnings support ongoing demand, particularly as job creation efforts continue and unemployment rates edge down further.”

mtoneguzzi@calgaryherald.com

Posted in Uncategorized | Leave a comment

ING now has the evil & dirty collateral mortgage – like TD and RBC

Posted on December 5, 2011 by

Also see the article from earlier this year about TD and RBC offering the collateral mortgage – which is an “IOU” for every single $ you have. (http://blog.markherman.ca/2011/05/09/why-you-do-not-want-a-collateral-mortgage-from-td-or-rbc/ ) Essentially YOU give them the right to sue YOU into bankruptcy if they need to repo your house. All other standard mortgages in Alberta only allow the bank to take the house back. Another reason to use a broker that knows what they are doing. Do you really want to put it all on the line for no reason?

ING Direct goes collateral charge

ING Direct will move this month to register all new mortgages as collateral charge, following on the heels of TD and other lenders.

The change is set to take effect on Dec. 10, 2011, with the bank to make a formal announcement to the broker channel later this week.

Posted in bank, Calgary mortgage, real estate | Tagged , , , | Leave a comment

Canada’s economy surges ahead

Posted on December 2, 2011 by

There is good news out there for the Canadian economy and home buying. Here is some below.

Christine Dobby Nov 30, 2011 – 7:06 PM ET

The Canadian economy was not as bad as first feared in the third quarter. In fact, it was much better than almost anyone had hoped.

Fuelled by record monthly output from the oil-and-gas and mining sectors and overall export strength as temporary headwinds drifted away, third-quarter economic growth shot past expectations.

Statistics Canada said Wednesday that gross domestic product for the period rose by an annualized 3.5%, beating economists’ more moderate average prediction of 3.0% growth and the Bank of Canada’s forecast of 2.0%. In September alone, the economy grew 0.2% from August, falling just short of a 0.3% increase economists predicted.

The growth during the quarter comes as a welcome change after a revised 0.5% contraction in the second quarter.

Net exports staged a decided recovery as external pressures like the fallout from the Japanese natural disasters in March were no longer a factor.

But the devil is in the details as flagging domestic demand and weak business investment lurked beneath the report’s strong headline growth. A close look at the data has economists forecasting only modest growth — in the range of about 2% — in the coming quarters and predicting the Bank of Canada will remain on hold with interest rate hikes.

Here’s what stood out from Wednesday’s report:

EXPORTS

The driving force behind the uptick in GDP for the quarter, exports grew at an annualized rate of 14.4%, up from a pullback of 6.4% in the previous quarter.

Paul Ferley, assistant chief economist at Royal Bank of Canada, said that factors that weighed on Canadian exports in the second quarter — including the Japanese supply-chain disruptions as well as wildfires in Northern Alberta that led to shutdowns of oil sand production facilities — were resolved in Q3 and contributed to the increase.

But, he cautioned, “The boost to third-quarter growth provided by the reversal of these factors is not expected to continue to the same extent into the fourth quarter.”

As the global economy stalls and prospects for a quick turnaround look increasingly grim, economists predict it will could spoil the Canadian export party.

HOUSING

Canada’s unstoppable real estate market was another bright spot during the quarter. Residential construction shot up 10.9% annualized, following on comparatively modest increases of 1.6% in Q2 and 6.7% in Q1.

“After quarters of booming housing starts data, the residential construction bonanza finally translated into the GDP numbers,” said Emanuella Enenajor, economist at CIBC Economics.

The expansion in this sector came from all three major components including fees and transfer costs related to resale transactions, new housing construction and renovation activity.

“Continued strength in new-home sales has elicited more and more new housing construction, particularly in the high-rise condo market,” said David Madani, Canada economist for Capital Economics.

He noted that a reported increase in housing starts bodes well for further strong growth in this category next quarter.

CONSUMER SPENDING

Canadians slowed their spending on goods and services during the quarter, raising red flags for economists concerned about sluggish domestic demand.

Personal expenditures grew at an annualized rate of 1.2%, down from an expansion of 2.1% in the previous quarter.

“A slowing pace of income growth owing to tepid hiring and weaker wage dynamics will likely continue to put downward pressure on consumption activity,” Ms. Enenajor said.

BUSINESS INVESTMENT

Business investment actually contracted during the quarter with a decrease of 3.6% annualized, down from last quarter’s 14.6% increase.

“Weak business investment is a worry, as it has been an important source of growth since early 2010 and replaced personal spending as the main source of domestic growth,” said Charles St. Arnaud, an analyst with Nomura Global Economics.

He noted that this, coupled with the fact that personal spending is likely to remain weak, “Could mean that domestic demand stays weak over the next few quarters, as global uncertainty remains high.”

FINAL DOMESTIC DEMAND

The combined slowdown in consumer spending and business investment was a drag on final domestic demand, which rose only 0.9% in the third quarter, down from a 3.1% gain in Q2. The other component, government expenditures, was flat in the quarter as government stimulus spending continues to slow to a trickle.

“Note that the pace of final domestic demand has been consistently slowing since 2010, weakening from around 6% to its current sub-1% pace,” Ms. Enenajor said.

Posted in Uncategorized | Tagged , , , , , | Leave a comment

Rates, spreads and all the rest

Posted on December 1, 2011 by

This is an article that was sent to me. It is totally technical and I love it. This is the real reason behind what are the lowest rates we have ever seen.

It also explains why the days of Prime -.95% are GONE for what looks like a long time.

In between the lines is says rates are going to go up quickly as soon as there is a sniff of recovery.

–

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.

O We have Europe to thank for the that.

O 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.

O 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.

O 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.

O 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.

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

•             Status Quo for prime rate doesn’t help margins.

O Lenders partly rely on deposits (that money rotting in your chequing and savings accounts) to fund VRMs.

O Demand deposit rates rise slower than prime rate. So, when prime goes up, some lenders get wider margins temporarily.

O 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.

O 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.

-

 

Posted in Bank rates, Calgary mortgage, Canadian mortgage, economy, Uncategorized | Tagged , , , , , , , , , | Leave a comment

Housing affordability improves: RBC

Posted on November 25, 2011 by
 

“After two consecutive quarters of deterioration, Canada’s housing affordability has improved modestly in the third quarter, according to the latest Housing Trends and Affordability Report released today by RBC Economics.

Elevated uncertainty relating to the European sovereign-debt crisis and the downside risk for economic growth have contributed to keeping interest rates at low levels,” said Craig Wright, senior vice-president and chief economist, RBC. “The lower interest rate environment – which also includes mortgage rates – has played a part in slightly reducing the costs of owning a home in Canada in the third quarter.”

The RBC housing affordability measure captures the proportion of pre-tax household income that would be needed to service the costs of owning a specified category of home at going market values. During the third quarter of 2011, measures for the national level fell for all housing categories tracked by RBC (a fall represents an increase in affordability).

Earlier this year, deterioration in affordability at the national level was skewed by substantial increases in homeownership costs in Metro Vancouver. In the third quarter, RBC measures in the majority of provinces and cities experienced modest declines (less than 1 percentage point). More remarkable improvements materialized in a few local markets across Canada, including Montreal (for two-storey homes and detached bungalows), Manitoba (for two-storey homes), and Vancouver (for detached bungalows).

“Housing affordability levels are quite good in most parts of Canada and will pose little threat to overall housing demand,” added Wright. “The Vancouver area market continues to be a major exception, with sky-high property values in upscale neighbourhoods making it both extremely unaffordable and the most at risk of a downward correction.”

Going forward, RBC forecasts that interest rates will remain exceptionally low in Canada until mid-2012 and rise gradually after that.

“We expect to see further slowing in the pace of home price increases next year, as housing demand levels out,” said Wright. “These factors will set the stage for a period of relative stability in affordability trends in Canada.”

The RBC report indicates that the cost of owning a home at market value remains close to historical norms in the majority of markets outside of British Columbia, implying that local markets are, for the most part, at worst, slightly ‘unaffordable’. Affordability tensions emerged earlier this year in Toronto, Ottawa and Montreal (particularly in two-storey homes) and continue to be in a slightly uncomfortable range.

RBC’s housing affordability measure for the benchmark detached bungalow in Canada’s largest cities is as follows: Vancouver 90.6 per cent (down 1.5 percentage points from the previous quarter), Toronto 52.1 per cent (up 0.1 percentage points), Montreal 40.9 per cent (down 1.3 percentage points), Ottawa 40.8 per cent (down 0.6 percentage points), Calgary 37.6 per cent (up 0.5 percentage points) and Edmonton 33.2 per cent (down 0.6 percentage points).

Posted in Uncategorized | Leave a comment