Siddall Launches Latest Volley in War of Words with the Mortgage Industry

For anyone who has been following the saga, it should be plainly obvious where Evan Siddall, head of the CMHC, stands on the mortgage stress test.

In a recent editorial, we took an in-depth look at Siddall’s at-times passionate defence of stricter mortgage qualification rules. Part of that included public comments in which he accused Mortgage Professionals Canada President and CEO Paul Taylor of “bold” self-interested rhetoric and “reckless myopia” for the association’s calls for tweaks to the stress test.

In an interview with the Globe and Mail on Monday, Siddall doubled down on his hardline stance against those in the mortgage and real estate industries who are calling for changes to the new regulations.

“The real estate lobby is on the wrong side of this issue, they’re being intensely self-interested, and somebody had to call them on it frankly because they were getting traction,” Siddall told The Globe and Mail, adding that he has received strong support from other policy-makers, economists and the public at large through his Twitter feed.

Siddall reiterated his conviction that loosening the requirements of the stress test or extending amortizations would result in increased debt levels and higher home prices.

Only a “calamity” in the housing market would warrant revisiting the stress test, he said, adding that the declines in home sales and prices since the stress test was introduced have been welcome.

In response to the comments, Mortgage Professionals Canada’s Paul Taylor told CMT, “I’m increasingly disappointed with the language choices of Mr. Siddall; the continued public mischaracterization of our positions, and more recently, his attacks on our industry’s character rather than our policy positions. The partisan political posturing is damaging the industry’s and government’s ability to engage in healthy conversations about the significant social impacts the fiscal policies are having across Canada.”

Taylor added that the association’s positions are formed with careful consideration of economic data, and that a “growing chorus” of economists are now asking whether the stress test may be too high, particularly given falling rates and the fact the benchmark rate remains unchanged.

Stress Test Formula Challenged

Siddall also participated in a panel discussion hosted by the Global Risk Institute this week where he was challenged on the formula behind the stress test by CIBC World Markets Deputy Chief Economist Benjamin Tal, who argued the formula should be more flexible to allow for adjustment when rates rise and fall.

“Maybe we have to inject a little bit more science into this,” he said, adding, “I really don’t know where it came from, and I think that if there is research around it, we need to see it.”

To which Siddall replied: “When you’re trying to convince a Minister to make a decision, you ought to make it simple and communicable and you don’t want to have to go back and have the conversation too many times,” Siddall replied, as reported by the Globe and Mail.

“The cost of simplicity here is too high,” Tal retorted, adding that “millions and millions” of Canadians are being impacted.

“Mr. Tal is 100% accurate when he suggests maintaining a poor solution because it is simple to explain is very bad policy,” Taylor said. “Given the magnitude of the economic impact the stress test can have, it is only logical to allow for continued discussion regarding the level at which it is set, and the manner in which it is derived.”

Siddall on 30-yr Amortizations: “I Think it’s Dumb”

Siddall was reportedly asked by an audience member for his thoughts on extending amortizations back up to 30 years, or potentially even 50 years.

“If you extend amortization, you’re increasing demand and increasing debt. So, you know my answer: I think it’s dumb,” he replied, before adding, “Fifty years is dumber than 30.”

More Details on the First-Time Home Buyers Incentive

Details on the CMHC’s First-Time Home Buyers Incentive have been slow coming out since the down payment assistance program was first announced as part of the Liberal government’s 2019 budget. Subsequent details have trickled out over the following months (here and here), with a few additional points being confirmed this week.

The $1.25 billion program is still on track to begin in September and will provide 5% of a first-time buyer’s down payment for the purchase of existing homes, or 10% for the purchase of a new build.

Siddall said homeowners would have to repay the government for its current market value share of the property after a maximum of 25 years if the house hasn’t been sold. He added homeowners would have the option to buy out the government’s share at any point before.

OSFI Says Stress Test is “Working”

Meanwhile, the Office of the Superintendent of Financial Institutions (OSFI), which was responsible for introducing the mortgage stress test, said this week that the new rules are “working.”

“The revisions to B-20 are working; strengthening mortgage underwriting across Canada and improving the resilience of the Canadian financial system to future shocks,” reads an information sheet released by OSFI.

“Since the B-20 revisions were put in place, lenders are approving fewer mortgages for the most highly indebted or over-leveraged borrowers,” OSFI added, saying new uninsured loans at 450% of a borrower’s income have levelled off at 14%, down from a peak of 20%.

In response to criticism that the stress test reduces options and hinders competition for renewals, since it applies to existing borrowers wanting to switch lenders, OSFI noted the difference between renewal and new mortgage rates for uninsured five-year fixed and variable rate mortgages has remained “largely unchanged” since the new rules were introduced.

“If a borrower decides to change lenders, the new lender must act responsibly by following their own established underwriting standards,” OSFI commented. “Business models and risk tolerances are different across lenders; it is not responsible for lenders to rely on the past underwriting standards of another lender.”

-STEVE HUEBL

99 YEAR MORTGAGES AND THE POWER OF AMORTIZATION

Back in the late 80’s, the Japanese housing market came to a grinding halt. Homes were no longer affordable for your average Japanese consumer. The government came to the rescue with a novel idea: 99 year mortgages. You could buy a house, pay lower more affordable payments, your son or daughter would take over and pay the mortgage down and finally your grandchild at some time close to retirement age would finally pay off your mortgage.

Who would want to do this? This was a short term solution. In 2007, we had 40-year amortized mortgages which allowed a great number of people to buy homes who normally would have continued to rent. This created a housing boom, but it made the banks nervous and terms were cut back to 35 years, then 30 and finally back to where they were in 2005 at 25 years. While longer amortizations mean lower monthly payments, the flip side is that you end up paying a lot more interest over time.

Mortgage professionals use amortization as a tool to help their clients at various stages in their lives. Often we use the maximum 25 years to help people get into their first homes. The idea is to get them into home ownership regardless of the cost. Later when they renew we often suggest a shorter amortization if it’s possible.
For example, after paying down a mortgage for 5 years, a couple with a $300,000 mortgage renewing today would be offered a 20-year amortized mortgage with monthly payments of $1659. In 5 years the couple will have paid $40,356 in interest $59,214 in principal and have a balance of $240,785 left on the mortgage.
If the amortization was shortened to 17 years the payment would go up to $1,874.95, an increase of $215.95. but at the end of 5 years they would have paid  $39,365 in interest, $73,131 in principal and have a balance of $226,868.11. In addition, they would now only have 12 years instead of 13 years on their mortgage.

Now, if they are at a stage in life where their twins are going to be going to university or if they need to build a granny suite for aging parents, they may need to lower monthly payments in order to pay for renovations. If they have 20% equity in their home, they could extend their amortization to 30 or even 35 years with some lenders.
Now their monthly payment drops to $1,260 with a 30 year amortization.
And it drops to $1,149 with a 35 year amortization.

Amortization is only one tool that your Dominion Lending Centres mortgage professional can use to save you interest, help you to pay off your mortgage quicker or to lower your mortgage payments. Be sure to call and ask them for help.

–DAVID COOKE

WHO REALLY SETS INTEREST RATES?

A recent article in the Huffington Post addressed the pricing strategy for the Big Six Banks, BMO, CIBC, National Bank, RBC, Scotia and TD and who really sets interest rates.  RBC announcing a rate drop in January and the other banks soon followed.  For consumers the banks are seen as leaders of the pack and everyone waits to see what else they will do.  The reality is the bank rates were higher than the market for some time.

The Huffington article states “Canadians pay attention to the big guys, however, because they’re either too comfortable to make a change or simply not aware they’re being taken for a ride. The banks have a 90-per-cent stranglehold on the Canadian mortgage market and we’ve been slow to start paying attention to the alternative — often cheaper — options out there.”

The drop in rates was a measure to bring bank rates in line with the non-bank lenders who have already been offering lower pricing. The only difference is the banks have high market share of the business and more profit each year so they can afford to spend money on media and other forms of advertising. The media attention helps them to capture more business with a rate drop after a lag time of passing on higher rates to consumers. The informed consumer working with an independent mortgage broker will already know the market and what mortgage product is best for their needs.

However, interest rates are not the only consideration when choosing a mortgage. Each time you make a purchase, renew your mortgage or take equity out to renovate, invest or other reasons, it is always best to consult with your mortgage broker for a review.

One of the big factors is the cost to exit that mortgage before maturity. Life happens. There are costs to breaking the contract early in the event of sale, marital break-up, death or need to consolidate other debts. Bank penalties for early payout are higher than non-bank penalties by a factor of 4 times. By reviewing your needs with your Dominion Lending Centres mortgage broker, we can discuss all of the options available from lenders including bank and non-bank, to ensure you are making an informed decision.

–PAULINE TONKIN

3 STEPS TO TAKE YOU FROM PRE-APPROVAL TO GETTING THE KEYS

Picture this: You’ve finally been able to put away enough for a down-payment on your dream home. It’s taken you five years of diligent saving, but you did it! You have also been diligently working on improving your credit score and paying off debts and are at a place of financial stability. So, first of all, KUDOS TO YOU! Second…now what do you do? Here are the three steps that will take you from browsing new homes to getting the keys to your new place.

STEP 1: PRE-APPROVAL
This should actually be the step BEFORE house hunting. Visiting your mortgage broker to get pre-approved is the first step anyone looking to buy a home should do. When you meet with your broker for the first time they will:
• Have you fill out an application (or you might be able to fill out one online)
• Pull your credit
• Determine what your maximum purchase price will be.

Be aware that you will also be asked for additional information when you visit your broker to apply, including a letter of employment/pay stub, down payment verification, two years notice of assessment and/or T4’s, a void cheque, and a number of other potential documents.
Once you are pre-approved it’s house hunting time for you! The benefit of having this done BEFORE you start looking is that you can work with your realtor to find properties within that price range.
When you do find just the right home for you, it’s on to step two.

STEP 2: APPROVAL
If you were able to provide the bulk of the paperwork for your pre-approval, then it will be smooth sailing from here. You may have to supply a few pieces of updated information but otherwise, it’s up to the lender to do the hard work at this point.
Your application will be re-assessed, and the lender will take a look at the property you are purchasing. Once they confirm that it aligns with the guidelines they have laid out for your loan, then it is sent off to the mortgage default insurer for approval. At this point, make sure that you do not remove the financing condition until all the lender conditions are met.
Now that you have final sign-off and are waiting for the final conditions to be met, it’s on to step three.

STEP 3: FINAL STEPS
Your broker will notify you once the conditions have all been met, and the lender will send the paperwork over to the Lawyer’s office. The lawyer will take a few days to go through the mortgage and prepare it for your final sign off. When you go, you will be asked to present:
• Void Cheque
• Two forms of identification
• Balance of the down payment in the form of a bank draft

On the day of funding, the lender will send the funds to the lawyer who sends them to the seller’s lawyer who upon receiving the funds will give you the all clear.
All that’s left is to hand you the keys to your new home!
As one final step, keep asking questions at each stage of the mortgage process. You should check in with your Dominion Lending Centres mortgage broker if you have any questions along the way. They are happy to guide you through the process of not only getting a mortgage but also having a mortgage too!

–GEOFF LEE

WHAT IS AN UNINSURABLE MORTGAGE?

With the mortgage rule changes in recent years, lenders have had to make some adjustments to their rate offerings.

There are different tiers and rate pricing based on the following 3 categories:
1) Insured – a mortgage that is insured with mortgage default insurance through one of Canada’s mortgage insurers, CMHC, Genworth or Canada Guaranty. A mortgage insurance premium based on a percentage of the loan amount is added to and paid along with the mortgage
2) Insurable – a mortgage that may not need mortgage insurance (20% or more down payment) but would qualify under the mortgage insurers rules. The client doesn’t have to pay an insurance premium but the lender has the option to if they choose.
3) Uninsurable – a mortgage that does not meet mortgage insurer rules such as refinances or mortgages with an amortization longer than 25-years. No insurance premium required.

Insured mortgages are the safest type of mortgage loan for the banks and the most cost-effective way of lending mortgage money, so clients seeking or in need of an insured mortgage will get the best rate offering on the market.
Insured as well as Insurable mortgages can be bundled and sold as Mortgage Backed Securities (MBS) meaning banks can get that money back quickly so they can lend more out. While Insured mortgages get the best rates, Insurable mortgages are typically a close second.

If a mortgage is Uninsurable that means the banks have to lend their own money and have to commit to that loan for the full term at least. This makes it a more expensive loan for the bank, so they pass the cost on to the consumer as a premium on the rate – typically 10-20 basis-points.

While there are rumours that the Government may start to allow refinances and 30-year amortizations to be insured again, no formal announcements are expected in the next few months.
In the meantime, consumers looking to tap into the equity they’ve built (consolidation, investment, home renovations) or wanting to keep their payments as low as they can (30-year amortization) are paying the price.
If either a refinance or a longer amortization is something you are considering, it’s wise to have a free analysis of your mortgage done so you can make an informed decision. If you have any questions, contact a Dominion Lending Centres broker near you.

–KRISTIN WOOLARD

ANOTHER STRONG EMPLOYMENT REPORT SIGNALS REBOUND IN CANADIAN ECONOMY

It appears that the Bank of Canada’s optimism that the Canadian economy’s growth will pick up in the third and fourth quarters of this year is well founded. Not only was the employment report very robust for two consecutive months, but the jobless rate has fallen to its lowest level since at least 1976.

Also, Canada’s trade deficit, reported today, hit a six-month low in April, as exports continue to rebound from a recent slump. Consumer spending and business investment are also making a big comeback. Household spending has accelerated, despite concerns over bloated debt loads, assisted by easing rates on loans, substantial jobs gains, stabilizing housing markets and improving financial markets.

The Bank of Canada forecasts that growth will accelerate to an annualized 1.3% in the second quarter–following the meagre 0.4% expansion in Q1–and pick up further in the second half of this year, before accelerating back to above 2% growth by 2020. This comeback begs the question–why were markets expecting a rate cut by the bank in December? That expectation may well change after this morning’s Statistics Canada releases. Of course, one caveat remains, which is the uncertainty surrounding a trade war with China and Mexico. If the trade situation were to worsen, Canada’s economy would undoubtedly be sideswiped.

Canadian employment rose by 27,700 in May, bring the number of jobs created over the past year to a whopping 453,100. The jobless rate plunged to 5.4%, from 5.7% in April, the lowest in data going back to 1976. Economists had been forecasting employment to rise by only 5,000 last month after Canada recorded a record gain of 106,500 in April. The loonie jumped on the news.

The composition of the job gain was particularly heartening, as the rise was all in full-time employment. On the other hand, jobs by those who are self-employed increased by 61,500–the gig economy is alive and well.

The most substantial job gains were in Ontario and BC.

Wage growth continued to be strong in May as pay gains for permanent workers sere steady at 2.6%.

In direct contrast, the US jobs report, also released today, was weaker than expected. US payrolls and wage gains cooled as Trump’s trade war weighed on the economy. US employers added the fewest workers in three months, and wage gains eased, suggesting broader economic weakness and boosting expectations for a Federal Reserve interest-rate cut as President Donald Trump’s trade policies weigh on growth.

–DR. SHERRY COOPER

HOME BUYER TAX CREDIT

When you purchase a home as a first time home buyer, you have a third benefit on top of the First Time Home Buyers’ Program and the Home Buyers Program- the Home Buyer Tax Credit.

The Home Buyer Tax Credit allows you to claim $5,000 for the purchase of a qualifying home in the year if the following are true:

• you or your spouse or common-law partner purchased a qualifying home that is owner-occupied.
• you did not live in another home owned by you or your spouse or common-law partner in the year you bought the home you are claiming or in any of the previous four years.

If these two points are true, you can make the $5,000 claim on line 369 of the tax return for the year you made the home purchase in. This $5,000 claim can help save up to $750 in potential taxes owing to the government.

For more information, click the following link or reach out to a Dominion Lending Centres mortgage professional near you.

–RYAN OAKE

WHICH MORTGAGE LENDER IS BEST FOR YOU?

The following is a summary of the choices available for clients when looking at the four different types of lending groups.

So what exactly is a lender? By simple definition, a mortgage lender provides financing for a real estate purchase hence the word lend.

Which lender is best for you will all depend on who you are as a borrower, what your current situation is and what your situation will look like in the future.

Big Banks

Currently, mortgage brokers have access to TD Canada Trust and Scotiabank. Big banks are especially appealing to first-time home buyers as it offers a sense of comfort knowing your mortgage is being dealt with a nationally recognized financial institution.

TD offers very fast review of documents with the ability for collateral charges, multiple branch locations and competitive privileges such as pre-payment abilities.

Scotiabank is also an advantageous option for homeowners as they have one of the most comprehensive and easy-to-use home equity lines of credit, referred to as their Scotia-Step.

Being able to access a Home Equity Line Of Credit (HELOC) and roll it into your mortgage offers simplicity and efficient methods of borrowing for homeowners. The drawback with both banks is that they are chartered banks. When a client decides to use them for fixed rate mortgages, specifically the 5-year terms, they can potentially be on the hook for penalties north of $10,000 due to breaking their mortgage early. Career changes, moving from different neighbourhoods or cities, upgrading or downgrading home sizes, marital issues – these are all reasons why someone may need to break their mortgage early. Being in a long term fixed rate mortgage with a chartered bank can be unpleasant.

Credit Unions

One of the biggest benefits of credit unions such as Westminster Savings or Coast Capital is that they are not federally regulated, they are provincially regulated. They are not required to adopt federal mortgage rule changes unless they want to. This can be an extreme benefit to those considering rental properties, those with unique income/employment situations or complex transactions that chartered banks do not or cannot work with.

Some of the negative attributes are, however, a reputation for slow review times of documents and mortgage applications, as well as portability. If you work for a company or in an industry that is known for relocation and re-assignment across provinces, you will pay a penalty to a credit union every time. This is something that is likely not to happen when working with charted banks or monoline lenders as they will have more flexibility in allowing you to port your mortgage to a new property in other provinces.

Monoline Lenders

Monoline Lenders are supported by mortgage brokers, and in turn, mortgage brokers are supported by monoline lenders. You cannot access mortgage products that a monoline lender offers without using a broker as they typically do not have physical branches or locations. They are funded by private investors dealing only in mortgage transactions, allowing their products to be more customized based on the investors’ risk tolerance. The benefits? – Extremely low-interest rates, very competitive privileges with pre-payment and portability, fast turnaround-times, and the best part, significantly lower penalties for breaking a mortgage.

With a big bank, a $10,000 penalty for breaking mortgage early may only cost you $3,000 with a monoline lender. This is highly advantageous to someone who wants the security of a long term fixed rate but isn’t 100% certain they will be carrying out their mortgage at that property for the full five years. The disadvantage is the almost blind trust a client must have. These monoline lenders do not have much brand recognition with the public, limited direct access with clients and usually do not have any physical locations to visit. This makes it hard for some people to feel comfortable using them as their mortgage provider.

Private Lenders

The benefit of a private lender is that anyone who has inconsistent income, unique properties, poor credit history or any type of severe risk in their application can get an approval. When a chartered bank says no, a credit union says no and a monoline lender says no, a private lender can say yes. The disadvantage? – your interest rate is going to be significantly higher and the privileges such as prepayment and portability are going to be significantly less. As well, with most lenders, they will pay the mortgage brokers commission themselves. In this case, you the borrower will be paying a fee to the broker.

This information is extremely powerful to you as a homebuyer and even as a current homeowner. As always, please contact a Dominion Lending Centres Mortgage Professional if you wish to discuss any of these options further!

–CHRIS CABEL

HOME BUYERS’ PLAN

The Home Buyers’ Plan is a Canada wide program that allows individuals to withdraw a certain amount from their Registered Retirement Savings Plans (RRSPs) for the purposes of qualifying for a home or if you are planning to help a related person who may have a disability.

Currently, the maximum amount an individual can withdraw from their RRSPs under the Home Buyers’ Plan is $25,000. The Liberal party of Canada has promised to increase this to $35,000 in late 2019. Now, this does not mean that the most a person can withdraw from their RRSPs is $25,000. It just means the most you can withdraw tax free is $25,000 for the purchase or construction of a home.

There are 2 main conditions you will need to meet if you plan on using the Home Buyers Plan for the purchase of your own home:

1.) First-Time Home Buyer

You are considered a first-time home buyer if, in the four-year period, you did not occupy a home that you or your current spouse or common-law partner owned.

The four-year period begins on January 1st of the fourth year before the year you withdraw funds.

Example- if you withdraw funds March 19, 2019, the four-year period begins on January 1, 2015 and ends on February 28, 2019.

2.) Are You Buying or Building a Qualifying Home

You are if you buy or build it, or are considered as buying or building it, before October 1st of the year after the year of the withdraw. Also, that you buy or build it, alone or with one or more individuals.

The RRSPs you withdraw will also need to be repaid. Repayment starts the second year after the year you withdrew funds for the Home Buyers Plan. You will have 15 years to completely repay the entire amount you withdrew and the amount is calculated by the Canadian Revenue Agency and posted to your CRA Account.

To find out more information on how to withdraw funds as well as determine whether or not you qualify, you can visit their site here.

–RYAN OAKE

BROKERS MAKE A DIFFERENCE

While many people will go to their bank to obtain a mortgage or line of credit, they often feel betrayed by their favourite bank if their application is rejected. One big advantage that we have over banks is that we can send underwriter notes along with the application. Our questions and speaking at length with the borrower give us insight that the underwriter will never get from the facts and figures on the application.
A while ago, I had an application at a lender for a young man who wanted to buy his first home.

He worked in the construction trades and his income history was up and down over the past 3 years. He needed overtime to support his application and the two year average wasn’t there.

I went back with 3 years of Notices of Assessments, his recent pay stubs and pleaded the case for my client. The underwriter finally asked for an exception based on my confidence in the client. She trusted my judgement and the mortgage was approved.
This leads me to the idea that underwriter notes are very important and can mean the difference between an approval and a decline. If you have a chance, ask your underwriter how they like their notes; in point form or in paragraphs. Do they prefer emails or phone calls?

When a successful mortgage broker writes notes they start by stating what product they are asking for and giving their contact information. I put my contact info at the top of the notes and at the bottom so they don’t have to go searching for it if they have a question or need clarification. I then state what my client is trying to do; purchase their first home, refinance, a renewal or if it’s’ a switch, that they want to benefit from lower interest rates.
I then list the areas I want to highlight: Income, credit, property, down payment and start with their weakest link first and explain their situation. I had a client who had her down payment in a joint account with her father in Japan. I started with that knowing that a paper trail would be important. If the credit score is low, is it due to a past illness, divorce or job loss? I tell the underwriter right away. As a result, underwriters trust me and have given my clients a second look or asked for an exception. Finally, I finish up by summarizing the strong points in the file and thanking them for their consideration of my file.

I never yell or give my underwriters a blast if they decline a file. I will, however, ask why the file was declined so that I can better prepare my client for the disappointment and plan on how we can remedy the situation. Just as a FYI, a manager at a major bank told me that at one bank he worked for after hitting the send key he received a simple message back – either APPROVED or DECLINED with no explanation. Now who do you think mortgage clients should deal with? A bank or a broker?

–DAVID COOKE