Happy Thursday!  Are you finally recovered from this weekend’s Turkey feast?  )   I recently met with a young couple who are in what I view as the second stage home ownership.  It’s that magical point where first time home buyers get over the nerves and are emotionally ready to take control of their mortgage and work together to manage their mortgage debt.  I find this usually occurs around their third year of home ownership.   

One strategy that I strongly believe in is called Inflation Hedge strategy – a mortgage plan developed to reduce total interest payments over the term of a mortgage while also protecting home owners from payment shock due to the effects of rising interest rates. Canadians are experiencing historically low interest rates – you know that. But, did you know that when mortgage rates return to pre-recession rates of around 5.99%, payments on a $400,000 loan, currently amortized over 30 years at 3.79% could experience a monthly increase of nearly $450 at renewal time? That’s an over overnight change that many home owners will have trouble adjusting too. 

With the Inflation Hedge Strategy I carefully manage my clients mortgage debt annually to account for increasing rates.  Each year, we slowly increase their payments, while leaving their current mortgage intact.  Those additional payment amounts go directly to principle, reducing their total interest costs, and faster achievement of mortgage freedom while eliminating payment shock at renewal time.

This is a service I provide to my client’s at no cost.  Of course I’m also often asked if I would help home owners who already have a mortgage with a bank and don’t want to move their mortgage.  The answer is yes. Moving your mortgage may not always be the best financial decision, depending on the size of your penalty. I certainly understand and respect that, and want to help home owners proactively manage their debts none the less.  That’s why I provide a free “adopt my mortgage” program.  This program enables you to stay with your current mortgage provider during your current term while receiving on-going free mortgage debt coaching.  I’m here to help.

Remember, managing your debt is just as important as managing your assets/investments.  The goal is overall financial health.   )  Please let me know if you have any questions.  I’m always happy to chat and share more information with you and those that matter to you.

Saanich Police Financial Crimes has not released the name of the lender yet, but knowledge of this scenario is something that could help.  A total of three investigations are ongoing in relation to the one private lender who is targeting ‘high risk’ borrowers possibly not able to obtain funds from traditional sources. The lender approaches couples or individuals promising to loan them money himself or by way of other investors.

The key to this scam is an ‘advanced fee’ request on the part of the borrower. A cheque is requested either directly written to the private lender or another ‘investor’. In the end the funding does not go through for a variety of reasons that have been given to victims.  Requesting ‘advanced fees’ on the part of a borrower contravenes Canadian law. 

Investigators are concerned that there are many more victims of similar frauds. Regardless of where you may live, if you have been a victim of this scam or know someone who has, please contact the Saanich Police Financial Crimes section at 250-475-4321.

Hope you’re having a lovely summer!  The sun is out, mortgage rates are down, and the PNE is open – welcome to the greatest place to live in the world.  )

For this month’s Mortgage Industry News Flash, I thought I would help clear up some confusion regarding the difference between Bridge Financing and Blanket Financing. So lets dive in. 

First, Bridge Financing. Bridge financing is applicable when the closing date on the new home purchase is before the closing date of the sale of their existing home.  Here are some key details:
    • Need to have a firm agreement of purchase and sale for the existing property
    • Bridge loan to be repaid when the sale of the existing home is finalized
    • The Average maximum term length on a bridge loan is typically 30 days (there is some flexibility with this)
    • Total combined loan to value should not exceed 90%.
    • All other normal lending guidelines (e.g. normal debt service ratio requirements, bureau score etc.) must be met
 
Next, often confused for Bridge Financing, yet very different, are what’s called Blanket Mortgages. A Blanket mortgage is one mortgage which covers two pieces of real estate. Sometimes also called interalia mortgages. There are instances where a buyer might want to use more than one property as security for a mortgage to reduce overall risk. They are also frequently used for clients that want leverage equity to avoid CMHC premiums or when someone is looking to buy a 2nd home or rental property.  Below are some key requirements and terms:
 
    • The loan-to-value ratio of the combined mortgages can’t exceed 80%
    • One of the properties is owner-occupied as their principal residence
    • The term of the mortgage is one year or greater
    • The mortgage is a first charge on the principal residence, and 2nd property is on a secondary property, where the property is not 
    recreational, unless it is a year-round property, fully accessible by roads and serviced by the municipality
    • Both properties are fully appraised
    • All other normal lending guidelines (e.g. normal debt service ratio requirements, bureau score etc.) must be met.

Please let me know if you have any questions, I’m always here to help.

It was also the lowest 5-year yield since last November, and 90 basis points below the recent peak on April 8. (Bond yields lead fixed mortgage rates.)

Deeply discounted fixed rates are now 156 basis points above the 5-year bond. Roughly 125 bps is more typical for aggressive lenders. What’s more, the 5-year posted bond yield spread is now the widest its been since October.* At 336 bps, it’s also well above the 10-year average of 282 bps.

Why should you care?  Because this all indicates lower fixed rates in the near term. So far, most lenders have been content to merely trim rates behind the scenes. Banks have refrained from moving their advertised pricing (partly to keep spreads wide as long as they can).That can’t last forever. Banks will likely have to adjust advertised mortgage rates soon, barring a sharp rebound in yields this week.

*  The posted bond yield spread is the difference between posted 5-year fixed mortgage rates and 5-year government bond yields. The 5-year yield is a rough approximation for the base cost of funding for 5-year fixed mortgages. On top of that, lenders incur a host of other costs related to underwriting, overhead, marketing, compensation, administration, securitization, hedging, etc.
          Source: Rob McLister of Canadian Mortgage Trends

Canadian Imperial Bank of Commerce and TorontoDominion Bank, which reported lower-than-expected second-quarter results Thursday, both acknowledged that intense competition in their core business has resulted in lower net interest margins -the difference between what it costs them to borrow funds and what they charge customers

Speaking on an analyst conference call, Tim Hockey, head of TD’s Canadian banking operation, said he expects the market “to continue to be quite competitive” and that will “keep up the pressure on margins.”
TD posted second-quarter profit of $1.3-billion, or $1.46 a share, up 13% on the back of higher loan volumes and lower credit provisions. The main driver was the domestic retail operation which posted income of $847-million, up 11% from the same period last year on higher loan volumes.
Meanwhile, the U.S. business had a profit of US$315million, about flat with the previous quarter but 31% higher than the same period in 2010.
The main reason for the stronger results was a drop in provisions for bad loans as Canada’s second-largest bank set aside $343-million of provisions for credit losses in the three months ended April 30, compared to $414-million in the previous quarter and $365-million in the same period last year.
CIBC’s results reflected a similar theme as the country’s fifth-largest bank reported a profit of $678-million, or $1.60 a share, up 3% on falling credit loss provisions.
The retail lending business had net income of $553-million, up $66-million as the bank benefited from higher loan volumes.
CIBC set aside $194-million in provisions for bad loans in the second quarter, compared to $316-million last year.
Since the end of the financial crisis in 2009 the banks have been steadily lowering credit provisions to the point that they are now close to the level they were at before the turmoil began. Analysts said the problem is that players are left with less room to lower provisions in the future, taking away what has been an important earnings driver.
At the same time banks are competing harder than ever for business and that’s forcing them to accept lower rates on loans and other products in order to hold onto their place in the market.
TD’s net interest margin in the second quarter was 2.78%, down 14 basis points from last year. By comparison, the net interest margin at CIBC Retail Markets fell to 2.79%, the lowest since the second quarter of 2009.
In the aftermath of the crisis the economy recovered and consumers started spending again, and the impact on real estate -and bank’s mortgage portfolios -was dramatic. But in the face of growing uncertainty about the economy and the realization on the part of consumers that they need to pay down debt consumers are borrowing less and at the same time businesses have yet to take up the slack. That’s putting pressure on lenders, forcing them to cut prices to hold onto marketshare.
At first, conventional wisdom was that the price competition would be transitory and that the industry would return to more normal conditions but players have come to “the realization that this is going to be a more competitive market for banks than it has been historically,” said Brad Smith, an analyst at Stonecap Securities.
Shares in CIBC fell $3.30, to $81.15. TD slipped $1.27, closing at $84.02.
Analysts said pressure on lenders is set get even tighter as consumers respond to tougher mortgage rules by buying fewer homes and cranking back on credit card debt.
Bank of Montreal kicked off earnings season on Wednesday, posting income of $800million, ahead of analysts estimates. National Bank of Canada, which came out Thursday, also exceeded expectations.
The pressure on lenders is exacerbated by declining activity in capital markets. A key driver in the aftermath of the crisis, the banks’ capital markets operations have run into trouble in recent quarters amid a slump in trading opportunities and renewed sovereign debt concerns.

Written by:John Greenwood, Financial Post •

If you’re a newcomer to Canada, self-employed, work on commission or have a poor credit history, you may think your chances of qualifying for a mortgage or refinancing are slim to none. Think again. It is often possible to find a way – the trick is seeing yourself through the eyes of a mortgage lender.

The 5 C’s of borrowing

Mortgage lenders look for certain characteristics in potential borrowers. Generally, they’re attracted by five key criteria:

• Capacity — whether your income is sufficient to repay the mortgage once all your other debts are factored in.

• Capital — whether the size of your down payment indicates a serious commitment to the property on your part, and sufficient minimization of risk on the part of the lender.

• Collateral — whether the property is of sufficient value and marketability to cover the amount borrowed.

• Character — your reputation and reliability, usually based on factors such as your education, employment history and residence.

• Credit — your history of meeting credit obligations, which is based on credit-bureau records for the past six years.

If your qualifications are less than stellar in any of these areas, a traditional lender may not accept you. But that doesn’t necessarily mean you can’t get a mortgage. Like we said before, it is possible! You just need to find the right match.

Bringing your best qualities to light

Many lenders may be perfectly willing to accept you as long as they view you as a reasonable credit risk overall. For example, if you are new to Canada, lenders may consider you based on the steady nature of your employment or the size of your down payment.

Likewise, if you are newly self-employed and can’t prove a regular income, the lender may instead look at your debt load, credit history and business plan. If these are all very positive, the fact that you don’t have an earnings history may not be so important.

And if your financial reputation is marred by a poor credit history, but you’ve have taken discernable steps to improve your rating and your debts are under control, your current income and down payment may be enough compensation.

Finding your perfect mortgage match

Each mortgage lender has its own particular requirements. Professional advice can go a long way in helping you find the right one. The right lender will be a good match for your situation, so that the mortgage you get meets your needs.

To help protect you and those you know, I want to share information on some crimes on the rise like mortgage fraud and real estate title fraud.  Below are 4 examples of common frauds and red flags to be aware of below.

1] Basic Mortgage Fraud
The most common type of mortgage fraud involves a criminal obtaining a property, then increasing its value through a series of sales and re-sales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.

Following are some red flags for mortgage fraud:
• Someone offers you money to use your name and credit information to obtain a mortgage
• You are encouraged to include false information on a mortgage application
• You are asked to leave signature lines or other important areas of your mortgage application blank
• The seller or investment advisor discourages you from seeing or inspecting the property you will be purchasing
• The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution

2] Straw Buyer Scheme
Because of the recession, more people are desperate and eager to find a way to hang onto their homes. A couple was recently arrested in Canada after duping 100 families looking for help to avoid foreclosure in the US.

Another term for mortgage fraud is the straw, or dummy homebuyer scheme. For instance, a renter does not have a good credit rating or is self-employed and cannot get a mortgage, or doesn’t have a sufficient down payment, so he or she cannot purchase a home. He/she or an associate approaches someone else with solid credit. This person is offered a sum of money (can be as much as $10,000) to go through the motions of buying a property on the other person’s behalf, acting as a straw buyer. The person with good credit lends their name and credit rating to the person who cannot be approved for a mortgage for his or her purchase of a home.

Other types of criminal activity often dovetail with mortgage fraud or title fraud. For example, people who run grow ops or meth labs may use these forms of fraud to purchase their properties.

3] The Fallout for Lenders
Fortunately (for you, at least), mortgage fraud typically hurts the lender the most.

Canadian precedents have been set in which banks are held responsible for mortgage fraud. The BC Court of Appeals recently ruled that the lender not the rightful property owner  is the one out of luck in a fraudulent mortgage scheme and that lenders must ensure their mortgages are valid by taking steps to ensure that the registered owner obtained title to the property legally. The same conclusion was made by the Ontario Courts a couple of years ago.

Banks, as you can imagine, aren’t too thrilled about this trend. Royal Bank of Canada recently sued a former bank employee over an alleged mortgage fraud scheme.

4] Title Fraud

Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you are the one hurt by title fraud, rather than the lender, as is the case with mortgage fraud.

Unlike with mortgage fraud, during title fraud, you haven’t been approached or offered anything  this is a form of identity theft.

Here’s what happens with title fraud: A criminal using false identification to pose as you registers forged documents transferring your property to his/her name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster makes off with the new home loan money without making mortgage payments. The bank thinks you are the one defaulting and your economic downfall begins.

Following are ways you can protect yourself from title fraud:
• Always view the property you are purchasing in person
• Check listings in the community where the property is located compare features, size and location to establish if the asking price seems reasonable
• Make sure your representative is a licensed real estate agent
• Beware of a real estate agent or mortgage broker who has a financial interest in the transaction
• Ask for a copy of the land title or go to a registry office and request a historical title search
• In the offer to purchase, include the option to have the property appraised by a designated or accredited appraiser
• Insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used as a grow house or meth lab
• Ask to see receipts for recent renovations
• When you make a deposit, ensure your money is protected by being held in trust
• Consider the purchase of title insurance

It’s important to remember that if something doesn’t seem right, it usually isn’t always follow your instincts.  Please don’t hesitate to contact me if you have any mortgage questions.  Whether buying, renewing, or refinancing, I’m here to help.

2) Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month.

3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders may view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you.

Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards.

The best bet is to pay your balances down or off before your statement periods close.

4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. You should use these cards periodically and then pay them off.

5) Don’t let mistakes build up. You should always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

If, however, you have repeatedly missed payments on your credit cards, you may not be in a situation where refinancing or quickly boosting your credit score will be possible. Depending on the severity of your situation – and the reasons behind the delinquencies, including job loss, divorce, illness, and so on – I can help you address the concerns through a variety of means and even refer you to other professionals to help get your credit situation in check.  

To which my reply is always: “Although I do have access to the lowest rates, to really get you the “best” mortgage, we should also look at the “extras” when we select the best mortgage for you”.  Those extras include:

• prepayment penalties and privileges relative to your cash flow patterns and goals
• Cash back options and clawbacks
• Combination product to assist in your over all financial plan 
• Professional mortgage planning
• Low lender fees (when applicable)
• Portability and assumability
• Missed payment flexibility

Sometimes clients are attracted by even just a 0.10% savings in mortgage rates.  But when you do the math, the relative importance of the above “extras” become clear.  0.1% savings on the typical 5-year $250,000 mortgage equates to:

• A difference in monthly payment of only $14
• A savings of just $346 over five years on your mortgage balance

Just one of the extras above could offset this 10 times over.  Just something to think about that next time you’re mortgage shopping.