Mortgage Rates & Mortgage Broker News in Canada

“Risk-Off” in the Canadian Mortgage Market

There’s a growing air of uncertainty in the mortgage industry, one we haven’t sensed since the tail end of the credit crunch.

Regulators, media and politicians are waving the caution flag on housing and mortgages, and the foundation of our market (CMHC) is suggesting they’re running out of insurance room.

This has much of the industry in a risk minimization (“risk-off”) mode. In turn, mortgages that are not insurable, income-qualified and owner-occupied are now attracting more scrutiny.

Here’s what we’re hearing…

Mortgage Career of the Week

Company: A Canadian Financial Services Company
Position Title: Mortgage Underwriter
Years of Experience Required: 5 years experience in the residential mortgage industry, particularly broker origination
Licences or Registrations Required: No
Location of Position: Toronto, Ontario
Applicants may contact:  resume@baystreethr.com

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Click on the position title above for more information.

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CMHC Insurance Limits: A Wake-up Call for Lenders

Many have now seen this National Post article.

The gist of it: CMHC is approaching its $600 billion government-imposed limit on issuing mortgage default insurance. That’s happening largely because of lenders’ enormous appetite for something called portfolio insurance (a.k.a., “bulk insurance”).

No one fully grasps the repercussions yet, but our sense is that the news is not great (at least in the short-to-medium term) for mortgage consumers, smaller lenders and brokers.

On the other hand, it may be healthy long-term for the housing market. Here’s why…

BMO: Home Prices May Deflate But Likely Won’t Pop

Canada’s housing market is more like a balloon than a bubble, writes BMO Capital Markets in this report.

It should “deflate slowly” in the absence of a “pin.”

That “pin” (catalyst) could be one of the following, says BMO (our comments in italics):

• An approximately 400 bps increase in mortgage rates (BMO’s Sal Guatieri told CBC today: “We tend to rule out that shock.” But his report notes “Even a moderate two-percentage-point increase to more normal levels would put some strain on affordability and slow the market.”)
• Major job losses
  (BMO is talking on the order of 400,000+. It adds: “Unless Europe’s credit crisis worsens materially, a recession is not in the cards given current low interest rates.”)

The Sting of Bank Penalties

Lenders like to keep you in their web as long as possible. If you’ve got a closed mortgage and try to escape, they sink their penalty fangs deep in your wallet.

To the surprise of many, there are dramatic differences in how those penalties are calculated, even at the same bank.

CIBC, for example, sells mortgages under multiple brands, with “CIBC” and “FirstLine” being the most popular.

Recently, we did an interest rate differential (IRD) penalty calculation for a FirstLine customer who wanted to refinance. This client was fortunate to have closed his mortgage at FirstLine instead of directly with CIBC.

Comparing New Amortization & Down Payment Rules

Government mortgage restrictions instituted from 2008-2011 have not achieved their goal, suggests Desjardins’ Senior Economist Benoit Durocher.

He wrote this on Thursday:

“…The third series of [government mortgage rules] was announced nearly a year ago now, and we must conclude that the tightening introduced to date has not
slowed the market enough.

Under these conditions, it is likely, and perhaps even desirable, that the federal government will shortly announce a fourth series of measures to further limit mortgage credit.”

It almost sounds like Durocher has some inside info.

Mortgage Career of the Week

 
Company: Pillar financial Services Inc.
Position Title: Business Development Officer
Years of Experience Required: 5-10
Licences or Registrations Required: Registered Mortgage Broker
Location of Positions: Ottawa, Ontario
Applicants may contact:  barb.neill@robinsonsgroup.com

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Click on the position title above for more information.

Advertise your mortgage job opening today! Click here to post. Or browse CMT's Mortgage Jobs Database.

1-Year Terms Looking Better With Latest Fed Forecast

On Wednesday, the Federal Reserve dished out good news to mortgagors holding short-terms or variable rates.

The U.S. central bank threw a curveball at financial markets by projecting “extraordinarily low levels” for American interest rates through “at least” 2014. That’s a full year and a half later than its prior forecast.

With an 83% correlation* between Canadian and U.S. policy rates, this news will certainly impact Canada’s mortgage market.

Pennying the Mortgage Competition

In the stock market, “pennying” (a.k.a. penny jumping) happens all the time.

Pennying is when a seller offers shares one cent below a competing seller in order to undercut them (and vice versa when buying).

The equivalent in the mortgage business is pricing under a rival lender or broker by one basis point. (A basis point = 1/100th of a percentage point.)

Lenders and brokers penny each other because they know that the lowest rate often generates the most inquiries. An example from this week is First Ontario’s new 4-year promo priced at 2.98%, one basis point below the big banks’ 2.99%.

This pricing relies on the same psychology that motivates people to drive two kilometres to save two cents a litre on gas. The difference is: Gas is a pure commodity. Not so with mortgage services.

Why CHIP Rates Remain High

Most interest rates have dropped to historic lows in recent years…but not all of them.

One that hasn’t is the rate on CHIP reverse mortgages.

On October 12, 2009, CHIP parent HomEquity Bank announced its receipt of bank status. Bank status helped it significantly cut rates down to 5.90% for a 5-year term in October 2009 (that compared to almost 9% a year earlier).

Today, CHIP’s 5-year rate is 5.95%, which at first glance seems unreasonable considering that interest rate benchmarks like the 5-year government yield have nosedived 1.46 percentage points since October 2009.

But, as is often the case, there’s more to the story.