Feds Meddling in Mortgage Market

Melanie & Rob McLister

Flaherty Talks Another Bank into Higher Rates

Canadian Mortgage Trends

On Friday, Manulife Bank posted its lowest rate ever on a 5-year fixed mortgage, 2.89%. It lasted for four days.

When our big brothers at the Department of Finance (DoF) caught wind of it, they dialed up Manulife and swayed the bank into raising its rate back to 3.09%.

“We don’t want a race to the bottom on mortgage rates by our financial institutions…,” said Finance Minister Jim Flaherty, as quoted by Bloomberg. “I had one of my staff call (Manulife) and indicate my displeasure.”

Manulife responded today by saying:

"After consulting with the Department of Finance, Manulife Bank has withdrawn the (2.89%) promotional campaign and reverted to our previous posted rate."

So now we have Manulife, the 10th largest bank by assets, being told by bureaucrats how to price its mortgages. Two weeks ago, BMO got the same call.

Where does this end? The DoF seems set on breaking the knees of home prices, one way or another. With it so intent on regulating real estate transactions, will the next round of headlines read: "Ottawa Legislates Price Ceilings on the Sale of New Homes?" (Yes, this is an exaggeration...I think.)

Financial Products, Relationship Pricing ... and Your Mortgage

Interesting article here that asks if you (as the consumer) are getting the best bang for your buck by purchasing "bundled" financial products just so you can get a "best" rate on your mortgage? ... Relationship Pricing

We recently surveyed the mortgage rates of every prime lender in Canada. There are more than 400 of them.

Over 60 choose not to advertise their rates online and various others display only posted rates. Most of these lenders subscribe to a practice called “relationship pricing”—where you get mortgage discounts by taking other products from that lender (savings accounts, credit cards, credit lines, car loans, etc.).

It’s a process that requires you to haggle and often buy mediocre financial products just to get a fair mortgage rate.


When it comes to pricing disclosure, people hate opacity. It wastes their time. Modern mortgage consumers are web-driven information assimilators who demand transparency and instant understanding.
They also:

• have heightened sensitivity to cross-selling techniques
• are loathe to be manipulated, and
• crave simplicity (Attention deficit isn’t just for kids. It applies to everyone on the web.)

 To that end, it’s surprising that so many lenders believe they can be successful by confusing mortgage shoppers. Do they really think people get turned on by relationship pricing models that require a spreadsheet to determine a mortgage rate?

Lenders with these approaches obviously don’t want to make it about the rate. They want to provide you an “integrated financial experience" and cross-sell your pants off. But few new customers have patience for that.

Most banks and credit unions that overuse the word “relationship” advertise something like: “The more business you do, the better your rates will be!” So the onus is on the customer to give to the lender up front.

It should be the other way around.

In reality, customers owe lenders very little, besides honesty. So if a lender wants your investments, insurance, non-mortgage loans and savings, it needs to earn that business by conveying compelling value that stands on its own merits. You shouldn’t have to agree to 3-4 non-mortgage products to get a great rate that you can get in minutes by calling a more transparent lender.


Read More Here ... (Canadian Mortage Trends)

New Mortgage Rules Already Slowing Markets

Mortgage Broker News
Market slowdown worries brokers, associations

Brokers are now getting an early sign of what’s to come, as the country’s hottest markets – including Toronto – see June home sales cool, even before the latest mortgage rules kick in.
The Greater Toronto real estate board is reporting 9,422 home sales through the MLS system last month, down by 5.4 per cent compared to June 2011.
The year-over-year decline was even steeper in the City of Toronto proper, where sales fell 13 per cent
from those a year earlier.
The number of sales across the country in Vancouver suffered a worse fate, dropped more than 17 per cent from May and 27.6 per cent from June 2011, the Real Estate Board of Greater Vancouver said Wednesday.
In neither market did prices fall, another concern for brokers facing what the inevitable decline in new home purchases and a drop in originations.
The phenomenon is only expected to heighten industry concerns about the government`s decision to tighten mortgage rules with a 25-year amortization cap and an 80 per cent ceiling on refis.
The former is of particular concern to broker  in Toronto and Vancouver where economists predict a significant percentage of first-time homebuyers will be shut out of the market.
After consideration of the sudden changes imposed onto the Canadian consumer, AMBA is concerned the government has once again restricted consumer choice,” writes the association in a release Thursday.
“With this type of government intervention, the housing market will have an involuntary slowdown, while other more expensive debt grows.
“AMBA strongly feels more government consideration should have been taken into account regarding personal debt such as credit cards, lines of credit and vehicle loans.”
At least one of the big banks is asking for the same soul-searching, suggesting the government may want to look at reverting back to the current rules if the market slow to a crawl.
That kind of standstill may most affect brokers, Realtors and others dependent on the country’s housing market, say economist. They also argue that the government has little intention of reversing course.

Class Action against CIBC re: Vague Prepayment Penalties is Proceeding

Lawyer for CIBC class action dispels rumours
By Vernon Clement Jones

The lawyer spearheading that class action suit against CIBC over prepayment penalties is putting the kibosh on speculation he’s cancelled the action.
“Whoever suggested the actions have been dropped was sadly misinformed!” Kieran Bridge, a Vancouver lawyer with the Construction Law Group, told MortgageBrokerNews.ca. “The actions, in B.C., Ontario and Quebec, are certainly proceeding."
He helped launch those twin class-action suits against CIBC over “vague prepayment terms” late last year. In the intervening months hundreds of the bank’s mortgage clients – including FirstLine borrowers – have reached out in an effort to join in.

“There have been hundreds of inquiries about these cases to our office and that of our co-counsel in Ontario,” said Bridge, pointing to borrowers who paid out CIBC mortgage from April 2005 onward.
Firstline clients are among those concerned they’ve been adversely affected by the lender’s prepayment policy.

While a Case Management Judge has been assigned, Bridge is still waiting on a key building block to be put in place in order to win to certification.
“We have been compiling our certification materials, and I will be meeting with one of the witnesses tomorrow,” he told MortgageBrokerNews.ca. “The certification hearing date has not yet been set; the assigned judge in B.C. has been in a lengthy trial.”
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. 
Bridge is looking toward the fall for movement in the case.

Beware of your Bank’s ‘special’ renewal offer…. it could cost you dearly.

Beware of your Bank’s ‘special’ renewal offer…. it could cost you dearly.
From: Canada Mortgage News
June 9, 2012

Steve Garganis    

Spring is the home buying season.   Summer is the mortgage renewal season.    It’s been that way for as long as I can remember.   Most of us want to move in the summer months when it’s warmer and when kids are out of school.

Once again we’re seeing the BANKs calling borrowers ahead of their actual renewal date.    And once again, they’re counting on you believing they have your best interest at heart.   And once again, I’m here to warn you against signing those offers without having a discussion with your Mortgage Broker.   In most cases, if not all, those offers aren’t that ‘special’.

Here’s just one example of that trust costing this Scotiabank client $3,000.

Just this week, Scotiabank offered one of my clients a renewal at  3.49% for a 5 year fixed rate…Does sound familiar to anyone?  It sounded great to him.   But for some reason, the client didn’t return my advance calls, my emails or letters about their upcoming renewal.   And I can understand, sometimes life just gets in the way.   Besides, it’s Scotiabank…surely, they’ll have this repeat client’s best interest in mind?   Surely, they will offer him the absolute best rate?

Guess again…  By signing that renewal, and not calling me to verify how competitive the interest rate really was, the client will end up paying around $3,000 more in interest charges over the next 5 years… on a $200,000 mortgage balance.   Today’s best 5 yr fixed rates are hovering around 3.19%.   The real cost could actually end up being more than $3,000 if the client needs to refinance or pay the mortgage off before the 5 years is up.   That’s because Scotiabank, like the rest of the BIG SIX BANKs, uses a prepayment penalty calculation that has the client paying for the original discount given at the time of mortgage funding.    This method of calculating penalties is NOT used by all Lenders but it IS used by all of the BIG SIX BANKs.

But we need to also be aware of other Lenders that are offering those too good to be true deals… If you see lower rates, beware.. there’s probably a catch.   It could be a NO FRILLS mortgage or some sort of hidden exit fee or penalty.

Don’t take any chances….  Call your Mortgage Broker.  One phone call could have saved this client $3,000.   If you don’t have a broker, feel free to call me.  We’re here to help.

Steve Garganis

1 866 812 0516