Golden Handshake and a Kiss Goodbye

Top Banking regulator stepping.. OSFI’s Julie Dickson leaving in 2014

May 31, 2013 — Steve Garganis

Julie Dickson, the head of OSFI (Office of the Superintendent of Financial Institutions) will not be back when her term expires in July 2014.  She’s decided to not to stick around after making more lending rule changes in 2012, than I have ever seen, during my entire 23 year career working in financial services.   OSFI is a regulatory bodythat provides regulation and supervision to 152 Banks, Trust companies and other Lenders.   In short, they are auditors.  Here’s a link to the major changes made just last year including putting CMHC under OSFI control.. more on that later..

Some say her claim to fame is that she was in charge during the worst banking and mortgage crises in history.  And that Canada came out of this global financial collapse way better than any other country.   It’s true, we did come out of this very well compared with the rest of the world…   But what does Ms. Dickson and OSFI have to do with it?  For me, this had more to do with luck, govt intervention and Canadians being our normal conservative selves.   We were a little slower to adapt to U.S. style lending policies… Ask any financial expert and they will tell you we were just a few years behind the U.S. with regards to their wild mortgage lending guidelines…

Did you know that our Federal govt approved and promoted $0 money down mortgages, with interest only payments?? and not just for owner occupied properties but for rental properties, too?  Think about that… $0 money down with interest only payments on a rental property!!!  Wow!  Or how about the 35 and 40 year mortgage amortizations?  95% loan to value refinances?   We also had 107% mortgage financing in Canada… (not supported by govt of Cda but it was here)…   Remember, all these programs started to get introduced in 2006.. just 2 years before the October 2008 U.S. sub-prime mortgage crisis.

And now Ms. Dickson and Mr. Flaherty (federal minister of finance) have turned back the clock to 1993 with a knee jerk like reaction with their Bill B-20… This Bill affects anyone that borrows money.. yes.. ALL of US… Many of the newer lending rules are just like they were 20 years ago… Only it isn’t 1993 anymore… and times have changed..  Our needs have changed… We don’t have 8.00% and 9.00% mortgage rates… We need a govt for 2013, not 1993. more here

RBC Survey Spreads (OSFI) Sunshine ... NOT!

A Disappointing Survey from RBC, in More Ways than One

The number of people planning to buy a home has plunged.

Only 15% of thosepolled by RBC said they are likely to buy a home in the next two years. That’s down from 27% in 2012.

It’s the largest drop in prospective home buyers ever in the 20-year history of RBC’s home ownership survey.

Some may find this gloomy news, but housing is cyclical and corrections must be expected. We were actually more disappointed by another issue in RBC’s survey (more on that below).

First off, there is the obvious question, which has some obvious answers:

Why are more people backing out of the real estate market?

The reasons include:

1. Stricter Mortgage Rules
   Ottawa imposed a slew of mortgage rules last year, and the amortization reduction (from 30 to 25 years on high-ratio mortgages) had the biggest impact. Almost 4 in 10 prospective Canadian homebuyers said that the amortization change limits or delays their ability to purchase a home, according to RBC.
2. High Prices
   Overall, payment affordability is reasonable on a national basis (and far below its peak of unaffordability in the 1990s). But the average home price of $368,895 is still well above many people’s means. For some, even the modest 5% minimum down payment doesn’t make home ownership any easier. RBC says that 38% cited the minimum down payment requirement as limiting or delaying their ability to purchase a home. Among first-time buyers, 46% cited unaffordability as a top reason for not buying.
3. Fear of Overpaying
   Some people will naturally refuse to buy when they’re concerned that home prices may tumble. When media outlets like Macleans proclaim, “The housing bubble has burst, and few will emerge unscathed,” it absolutely affects market psychology.
4. Job Insecurity
   In the survey, 28% said concerns about job security were one of the reasons they haven’t bought yet. That’s up from 20% in last year’s poll.

Real estate analysts and policy makers in Ottawa are anxiously watching to see if spring demand will turn housing around. Ifinventories keep building, and low rates don’t keep sales on pace, it could make for a bearish summer market, nationally speaking.

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Now let’s shift gears a bit. Here’s something that seems to speak to the motives behind this survey.

In one of the poll questions, RBC asks people who they turn to for mortgage advice. Here are the top sources of mortgage advice, as reported by RBC:

1. A banker: 76%
2. Family: 27%
3. Real estate agent: 23%
4. Friends: 20%
5. Real estate websites: 11%
6. Mobile applications: 11%
7. Private sale websites: 8%
8. Social media sites: 7%

Notice any glaring omissions?

That’s right. RBC and Ipsos Reid left mortgage brokers completely out of the survey.

That’s despite the fact that 61% of Canadians polled byCAAMP consulted mortgage brokers when getting a new mortgage.

It may not surprise people that a bank doesn’t want to promote brokers—it’s competition. But from a research credibility standpoint, we were surprised.

RBC bills itself as “the country's number one source of financial advice on homeownership.” Shouldn’t that title require some degree of research professionalism and objectivity?

Why would a company with RBC’s good reputation omit (intentionally or not) data that provides a fair representation of the marketplace? This makes us wonder what else they left out.

If an organization is going to purport to make newsworthy contributions to the national housing dialog, it better realize that people are watching its every word. One-sided survey results are nothing more than marketing masquerading as news. This example taints RBC’s mortgage-related surveys going forward, for no good reason.

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Rob McLister, CMT

Posted in Mortgage Industry Reports
Canadian Mortgage Trends

Mr. Flaherty: Thanks For The Crappy Market!

CMHC’s Insurance Volume Dives 37%. 
The Repercussions

Canadian Mortgage Trends
The new mortgage insurance rules were intended to affect “less than 5% of new home purchasers.” That was Finance Minister Jim Flaherty's estimate from last June.

So far, he’s been pretty close to the mark. In the three months ending September 30, CMHC’s insured-purchase volumes are down 6%. (That drop isn’t due entirely to the rule changes, however.)

What Flaherty did not publicly predict was the extent to which high-ratio refinances, conventional securitized mortgages and smaller lenders would be impacted by Ottawa’s changes.

To start with, CMHC-insured high-ratio refinances (those with less than 20% equity) have plunged 22% Y/Y. CMHC attributes this to government policies that “effectively eliminated the high-ratio refinance market.”

On top of that, CMHC says its “portfolio (insurance…a.k.a. bulk insurance) volumes were approximately 98% lower” in Q3. That’s a direct result of it limiting “access to its portfolio product.”

That’s had noticeable effects on small lenders. According to one executive we spoke with, lenders like his can buy only 20-30% of the CMHC bulk insurance it could purchase just one year ago. And the big banks are also restricted, having been capped at $1 billion annually. Compare that to the $17 billion worth that Scotiabank bought last December alone. (More on why this matters) ...

Ottawa's Meddling Hasn't Fixed Unsecured Debt Problem

Debt sidelining homeowner dreams
A new report detailing a rise in unsecured credit is providing fodder for brokers concerned Ottawa has erred in focusing on mortgages.
Canadian debt loads grew at their fastest pace in two years during the summer, writes credit reporting agency TransUnion in its third quarter analysis, released Wednesday.
More specifically, the report finds that the average consumer non-mortgage debt jumped 4.6 per cent in Q3 2012, compared to the same period last year.
It did the same compared to this year’s second quarter, rising 2.1 per cent in the summer.
“It’s almost been two years and it’s the largest year-over-year increase we’ve had and I think it’s the largest quarterly increase we’ve had during that time period as well,” said TransUnion VP of Analytics Thomas Higgins.
The growth roughly coincides with Ottawa’s crackdown on mortgage growth with new tighter rules introduced in July. Stricter lending guidelines for federal institutions were also brought to the market, creating a double whammy effect responsible, say critics, for the rapid de-acceleration home sales.
Read more here (Mortgage Broker News).

What The Federal Government Giveth, OSFI Will Surely Taketh Away!

As seen on mortgagebrokernews.ca

 Proposed federal legislation would hand brokers new national lending partners, keener to use them for expansion into virgin territory.

The Clock is Ticking on HELOCs

The HELOC Clock Starts Ticking

If you want a HELOC or readvanceable mortgage equalling 66%-80% of your = home value, be ready to act soon.
We're hearing that some banks may start cutting back on their HELOC = lending limits by the end of this month.
These moves relate to OSFI=92s new B-20 = underwriting guidelines, which require federally regulated lenders = to limit new HELOCs to 65% loan-to-value (LTV), from 80% today.
Banks must comply with this new guideline by the end of their fiscal = years. That makes the official implementation deadline October 31, 2012 = in most cases. But don't count on lenders waiting until then.

OSFI says that existing HELOC holders will be grandfathered. So if = you need a 66%-80% LTV HELOC from a bank, get approved while the = getting=92s good.
Other key points:

• Borrowers who modify their HELOC after the rule changes take effect = will potentially be subject to the new 65% LTV limit. So make sure you = have your HELOC set up exactly the way you want it.
• Borrowers who obtain = readvanceable mortgages under the new guidelines can still get them at = 80% LTV, but 15% of that will need to be amortizing (i.e., various = lenders will still offer you a 65% LTV secured line of credit plus a 15% = LTV mortgage, for 80% total)
• If, under the new regime, you have a readvanceable mortgage with two = parts:

  1)  a secured line of credit portion, and
  2)  an additional amortizing mortgage portion
=85then the mortgage portion will not be readvanceable if the line of credit = portion is greater than or equal to 65% of your home value. (Note: = Different lenders may have different policies when it comes to = readvancing under the new B-20 rules. We'll report on this further as = more information becomes available.)

• So far, no major lenders have announced HELOC LTV changes in = relation to the OSFI guidelines.

For responsible well-qualified borrowers, HELOCs have a variety of = productive uses, including:

• Investment borrowing (using strategies such as the Smith Manoeuvre)
• Borrowing for education
• Rental property investment
• Value-adding home improvements
• One-time debt consolidation
• An alternative to higher-rate loans
• A down payment source for a second property
• An emergency backup fund

HELOCs can also be used for personal consumption (like the proverbial = =93TVs, vacations and sailboats=94). Hence, for people who can=92t = control their spending, a HELOC can be one of the worst financial = decisions they can make. Those folks should ignore this HELOC = deadline.

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Rob McLister, CMT