Thursday, November 22, 2012

Dunning: Mortgage Rules (Round 4) Were Overkill

“...The changes to mortgage insurance criteria are unnecessarily jeopardizing the health of Canada’s housing markets and the broader economy.”

That’s the conclusion from economist Will Dunning in CAAMP’s just-released State of the Residential Mortgage Market report. (Link)

Dunning says his research suggests the Finance Department has created “a policy-induced housing market downturn” that could reinforce existing weakness.

He calculates that the most recent (July 2012) rule changes will knock 11% of potential high-ratio homebuyers out of the market—that is, until they can come up with more net income or a bigger down payment.

He lays out the following arguments:

Jobs underpin the market…

“Job creation is the key driver of housing demand” writes Dunning.

“The ‘housing wealth’ effect (the increased confidence, and willingness to spend and invest, that results from rising house prices) is the single most important driver of job creation”

What’s more, in the prior five years, 18% of job creation in Canada has originated from housing and mortgage activity.

If mortgage rule tightening drives down home prices, job creation will suffer and it could trigger a negative “feedback” loop between the housing market and the economy.

Price risk…

Dunning writes: “Experience around the world has shown that once house prices start to fall, the outcome is unpredictable, and can turn into a downward spiral that wreaks substantial economic damage.”

He adds: “It can happen that the loss of jobs affects housing demand, leading to further price drops and a vicious downward spiral.”

There is growing evidence to suggest that the combined mortgage rule changes of the past four years may now be “significant enough to substantially reduce housing activity.”

What’s happened so far…

The government has handed down four sets of insured mortgage restrictions since July 2008. Dunning summarizes them in the list below:

(Source: Will Dunning)

He says the cumulative effect of these four sets of changes “have resulted in a massive contraction in credit availability.”

From August to October, home sales were 7.8% lower than the prior year.

Some analysts downplay the effects of past mortgage rule changes, pointing to the subsequent sales rebounds that took place.

Dunning notes that those rebounds coincided with falling mortgage rates. “It appears that the movements of mortgage rates were more important than the changes in the mortgage insurance criteria,” he says.

The effects…

“16.9% of high-ratio mortgages that were funded in 2010 could not have been funded under the revised criteria.”

“…The final set of changes that was announced in June 2012 and took effect in July will have had the most significant consequences, accounting for about 65% of the impact (11.0% out of 16.9%).”

Time for young buyers to save up…

“…Simulations indicate that on average (based on 2010 real mortgage data), the additional down payment required is about $25,000, 7% of the purchase price." That's what it takes to offset the mortgage rule effect.

"If we assume that these households can devote 10% of their pre-tax incomes to enlarging their down payments, on average it will take 3.5 years to re-qualify – and this assumes that house prices and interest rates do not increase.

(10% may be optimistic. Doug Porter recently estimated that the median family saves only 4%, or $2,800 a year.)

What happens next…

55% of buyers need high-ratio mortgages, according to Maritz. “If 16.9% of potential high ratio buyers are removed from the market, this would reduce total home sales by about 9%,” Dunning states.

“…It will become more difficult for people who want to move-up in the market to sell their current home. In consequence, over time, we should expect to see reduced activity in upper segments of the market.”

“…Declines in activity will be partly (and gradually) mitigated, as some of the affected potential buyers save additional down payments and can return to the housing market.”

“…It now appears that the 2010 changes had a lasting negative effect (on home sales).”

“…the negative effects on housing activity will be quite prolonged…the damage is not yet fully developed.”

Was it necessary?

“The average resale house price in Canada had been essentially flat since early 2011,” Dunning says. On top of that we faced (and still face) material risks from the U.S., Europe and from domestic budget tightening.

“There was no need to further cool the housing market,” he concludes.


Stricter mortgage rules will be a drag on demand until the market has time to adjust. Let's just hope the new rules aren't coupled with an economic slowdown or a natural cyclical home price correction. In that case, the latest rule changes could prove to be very bad timing.

Of course, low rates could always save the day once again—or delay an inevitable correction if you want to look at it that way. We could also see buyers get off the sidelines and purchase on dips—i.e., buy if home prices drop 10% or so. Both of those factors could pad a fall, at least somewhat.

Tuesday, November 20, 2012

New guidelines coming for mortgage insurers


The Globe and Mail

Published Monday, Nov. 19 2012, 6:30 AM EST

Canada’s financial regulator will release new guidelines for mortgage insurers early next year, including the government’s Canada Mortgage and Housing Corp. – but they won’t drag down the housing market as much as the guidelines for banks have, says the country’s banking watchdog.

The Office of the Superintendent of Financial Institutions will outline what standards it expects the country’s three mortgage insurers to follow when they underwrite a policy on a home. Ottawa has just recently given OSFI the job of overseeing CMHC, a federal Crown corporation that is the largest player in the industry; it was already regulating two private-sector rivals, Genworth MI Canada and Canada Guaranty.

The mortgage guidelines that OSFI released for banks this summer are believed to have played a role in the decline in national home sales for the second half of this year. The new rules pushed lenders to be more cautious in areas such as background and credit checks on borrowers, document verification, and appraisals. The biggest impact is believed to have come from one particular rule that capped the amount that any individual can borrow on a home equity line of credit at 65 per cent of the home’s value.

“I would not expect the same impact” from the rules that OSFI intends to create for mortgage insurers in the new year, Julie Dickson, the regulator’s superintendent, said in an interview.

The final guidelines for banks came out in June. That was shortly before Finance Minister Jim Flaherty tightened up mortgage insurance rules, including cutting the maximum length of insured mortgages to 25 years, in an effort to stem the growth of consumer debt levels and house prices.

While Mr. Flaherty is focused on the risks to the broader economy, Ms. Dickson is responsible for ensuring that the country’s banks, insurers and mortgage insurers remain financially sound. Unlike Mr. Flaherty’s changes, the guidelines that she will release are more likely to focus on the things that mortgage insurers must do behind the scenes to assure that they are not taking on too much risk when they insure homeowners’ mortgages.

“We are in a market where there is a lot of growth in household debt, some froth, and I think whenever you see that you have to act early and try to ensure that people aren’t forgetting sound practices,” Ms. Dickson said.

“Having buttoned-down mortgage underwriting policies does slow things down a bit, so that if mortgages are presented that are outside the policy, [the financial institution] is going to have to take more time to consider it; that does have an impact.”

OSFI is taking action in this area after the Financial Stability Board, an international body made up of regulators and banking experts around the world, suggested that all countries review their rules for banks and mortgage insurers.

The board is chaired by Bank of Canada governor Mark Carney. It suggested, among other things, that mortgage insurers be regulated. Mr. Flaherty moved to put CMHC, which dominates the mortgage insurance business in Canada, under OSFI’s authority earlier this year.

Friday, November 09, 2012

The hidden costs of home ownership

By Gail Johnson Read Here

Kelly Gardiner In his three decades as a real-estate agent in North Vancouver, B.C., Kelly Gardiner has seen a lot of different reactions from people buying a house for the first time. Usually, they're excited, nervous and overwhelmed. But there's another feeling that sometimes pops up -- utter shock -- not from the purchase itself, but because of all the associated costs people never even thought of.

"For people who haven't moved that often, a lot of expenses can come as a surprise (money mistakes)," Gardiner says. "Or they're so focused on just signing the papers that they never stop to think about everything that's involved in owning a home and moving into one."

So, if owning property is a new endeavour, here are some of the hidden costs to budget for before you close the deal:

Legal fees

Fees and disbursements usually cost around $1,000. You can hire a lawyer or a notary, but it's best to deal with someone who specializes in real-estate transactions.

Property transfer tax

This land-registration tax must be paid when you register changes to a certificate of title at the land title office. It varies from province to province. In B.C., for example, the tax is 1 per cent on the first $200,000 and 2 per cent on the balance.

Provincial sales tax

Again, this amount varies across the country, but is charged on new condos, townhouses and homes. For example, new homes or properties that have undergone a substantial renovation, are subject to 13 per cent HST in Ontario. For a home with a purchase price of $310,000, you'll be required to pay $40,300 in HST. Ouch! But, depending on the purchase price of your home, buyers may be eligible for a new home rebate, which will help to alleviate some, or all, of the HST sticker shock.

Home inspection

You can spend anywhere from approximately $200 to close to $1,000 for a qualified inspector to see what's lurking behind the cosmetic upgrades. Find an inspector with a solid reputation and have them spell out exactly what services they'll provide. (ie: some inspectors offer a checklist; others take photos and provide a detailed report). It's best not to skimp on this one.

Land survey

Most mortgage lenders will require a survey of the property done by an accredited land surveyor to determine whether the home sits within its specified legal boundaries and complies with local bylaws. This usually costs about $500 but can be much more in complicated cases.

Closing adjustments

This cost includes any adjustments between you and the seller for things like property taxes and utilities that were paid in advance. Your lawyer or notary can calculate these charges.

Mortgage insurance

If your mortgage is more than 75 per cent of the home's selling price, it's considered high-ratio and you must buy insurance from the Canada Mortgage and Housing Corporation. The amount is calculated based on the ratio of mortgage to home value.

Property taxes

If you've never owned your own place before, you've never had the joy of paying this monthly expense. This is on top of monthly strata fees if you're in a condo.


At its most basic, there's the cost of hiring a company to haul all of your worldly possessions to your new digs; then there's the potential expense of having someone pack all of your things for you too. Costs vary widely and depend on how far you're going.

Ask in advance whether the movers charge for travel time to get to you in the first place.

If you have to be out of your old place before you can move into your new place, you'll have storage costs as well.


These may or may not come with the home, so you may find yourself shopping for a washer and dryer or even a fridge, oven and dishwasher.

Window coverings

Again, these aren't necessarily automatically included. Be clear about this in your offer so you're not left doing an emergency run for blinds or curtains.

Connection fees

Telephone, cable, Internet and alarm-system companies will ding you a connection fee. Then there are charges to set up heat, water, gas and electricity. However, some of these charges may be negotiable if you're staying with the same service provider. It never hurts to ask what the company can do to retain you as a loyal customer.


As a proud new homeowner, you may need to invest in items like a lawn mower, sprinklers, garden tools, hoses, shovels, a ladder, a freezer, basic tools and the like. It all adds up. Best to start saving now.

Thursday, November 08, 2012

Comments on CIBC's "no US-style crash for Canadian housing" report: Part 2

Click here

Comments on CIBC's "no US-style crash for Canadian housing" report Part 1

I feel compelled to give my thoughts on a highly-publicized CIBC report out last week titled, “Should we worry about a US-style housing meltdown?”, written by Ben Tal. The full report can be read here.

Thursday, May 12, 2011

Tuesday, March 02, 2010

Government of Canada Takes Action to Strengthen Housing Financing

Government of Canada Takes Action to Strengthen Housing Financing:

The Honourable Jim Flaherty, Minister of Finance, today announced a number of measured steps to support the long-term stability of Canada's housing market and continue to encourage home ownership for Canadians.
'Canada's housing market is healthy, stable and supported by our country's solid economic fundamentals,' said Minister Flaherty. 'However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing.'
The Government will therefore adjust the rules for government-backed insured mortgages as follows:
Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation."

Thursday, April 23, 2009

Canada's recession resilience (article below)

There will be lots of information coming out today. Bank of Canada governor Mark Carney will be explaining (maybe vaguely) the reasons for the BoC rate drop and expectations we should have for the future, quantitative easing (printing money), and how this will all affect the Canadian economy. Here is an article from the Financial Post that expands on this. Keep an eye on this as it will affect bond rates/yields which could affect mortgage rates.

Terence Corcoran: Quantitative schemes at the Bank of Canada
Posted: April 22, 2009, 9:17 PM by Ron Nurwisah
Terence Corcoran, central banks
On Thursday we will learn what the Bank of Canada will do next to stimulate the economy, how it will apply the now famous “quantitative easing” phase of its ongoing effort.The bank is already giving away money, setting an overnight rate of 0.25% — “virtually zero,” as former governor John Crow says in his commentary. At the chartered banks, astute mortgage borrowers can almost lock in less than 2% for the next year, assuming borrowers are willing to take a flyer on current Governor Mark Carney’s statement that it will not be changing rates again for the next year.With mortgages going for next to nothing, you might expect house sales to be climbing. But they are not, at least not yet — an indication that there is more to getting an economy moving than monetary policy and interest-rate manipulation. Nor has there been much to show from the deficit spending extravaganzas announced by Ottawa and the provinces. And so now the Bank of Canada is apparently set to announce the next phase in its attempt to kick start borrowing and lending. The bank has already bought up more than $30-billion in various securities from private institutions over the last six months in an attempt to ease credit pressures in some markets. But it has done so carefully without creating excess monetary stimulus that would risk future inflation. This next phase will be different, “unconventional,” according to a Bank of Canada description.Until now, no Canadian central banker has ever used the words “quantitative easing.” Only in the last few weeks has the Bank of Canada issued quick definitions of the phrase. What is quantitative easing? It’s the bank’s “purchase of financial assets through creation of central bank reserves.” The result is twofold. First, the new reserves are also known as “printing money.” The reserves provide the chartered banks with new ability to increase their lending to business and households. Second, by buying financial securities, the Bank of Canada would be increasing the supply of money to a particular market, thereby driving down the interest rates on those securities. If the bank were to buy 10-year corporate bonds, for example, then 10-year bond rates should decline.So that’s the theory. Quantitative easing is supposed to do two things: increase the money supply via chartered bank expansion of lending and reduce longer-term interest rates in areas of the market the Bank of Canada usually has no influence over. The other technique, called “credit easing,” also involves buying private market securities, but in a way that does not necessarily increase the money supply and the risk of inflation.In its monetary report on Wednesday, the Bank is expected to more precisely identify how, when and even if it will start engaging in the business of buying up financial securities so as to drive down longer-term interest rates and increase the money supply beyond the rates of increase already taking place.The risks in this next phase are numerous. As John Crow reports, eventually the big run up in the Bank’s assets has to stop and the process will have to be reversed. The financial securities will have to be sold back into the market. Running around with mop, pail and squeegee to scoop up the excess monetary stimulus will require a degree of central bank fortitude that does not always come easy. The political pressure on central bankers to become what Mr. Crow calls “team players” in keeping growth up at the risk of higher inflation could weaken their resolve. In an odd note on this subject, the Bank of Canada’s recent Q & A says that “if a profound disagreement were to occur between the Bank and the government, the Minister of Finance could issue a written directive to the Governor ... This would most likely result in the Governor’s resignation.”That’s never happened, adds the bank, perhaps hopefully.Another uncertainty is that the quantitative and credit easings may not work. The credit markets and the economies of the world are stalled due to lack of confidence and a market belief that the investment climate is still too risky. The cause of the risk is not interest rates or lack of ready cash or liquidity. There is no absolute proof of this, but investors are likely holding back due to growing concern over government involvement in the economy, especially from the United States, the most crucial drag on the Canadian economy. The Obama administration is setting itself up as controlling manager and chief lever-puller of the banking and financial system, the auto industry and the energy markets. No amount of quantitative easing or stimulus activity in Canada can overcome that drag.
Canada's recession resilience
The Globe and Mail Report on Business RICHARD BLACKWELL
April 23, 2009
The International Monetary Fund's report yesterday said the world is in the deepest recession in 70 years. That's pretty depressing. Did they have any good news?
The IMF's world economic outlook was a discouraging read, but there was a little positive news about Canada.
For one thing, the report noted that Canada has had just three recessions since 1960, far fewer than most other countries. (New Zealand has had 12, Switzerland and Italy have each had nine.)
The report also said that many countries have been in economic decline for a long time, while ours is relative recent. Ireland's economy has been shrinking for almost two years, for example, and Denmark has been in recession for five quarters. Canada only fell into recession in the last quarter of 2008.
Still, the IMF notes that worldwide recessions prompted by financial crises are more severe and the recovery is slower than other downturns.
We hear a lot about the shift from full-time employment to part-time, but are there other measures of the quality of jobs available?
CIBC World Markets does an interesting analysis of the job market that looks at the "quality" of jobs. When full-time employment shrinks and the number of part-time jobs grows - as it has recently - the quality of the job market decreases. Similarly, when self-employment increases as regular jobs disappear, quality declines.
Still, while both those considerations have contributed to a decline in job quality, there is another factor that has offset the effects, CIBC says. Because so many job cuts have been among low-paying jobs (often held by younger workers), and high-paying positions have been relatively immune, the overall quality of employment has not changed much, the economists say.
That's not much comfort to those who are unemployed, but it is one other way of looking at the job picture in a macro light.
I understand that hourly workers at GM, Chrysler and Ford do not pay directly into their company pension plans. Does this mean they can also contribute to their own RRSPs, and effectively have two pensions?
The hourly auto workers are subject to the same rules as everyone else, which means they have a "pension adjustment" to their RRSP contribution limits, related to the value of the contributions the company makes to their defined-benefit plans.
This means that any worker's annual RRSP contribution room will be reduced considerably, depending on how much the employer puts into the pension. The adjustment depends on the total going into the plan - it doesn't matter who makes contributions.
Many workers with defined-benefit plans have some room for RRSP contributions, but it is often very limited.

Wednesday, July 23, 2008

CMHC Drops 100% Financing and 40 Year Amortizations- By Oct 15th, 2008

• 100% financing (5% will now be the minimum down payment on an insured mortgage)
• 40 year amortizations (35 years will be the new maximum on insured mortgages)

The government will also require the following with all new mortgages it insures:
• A new 620 minimum credit score requirement
• New loan documentation standards

The new rules will take effect October 15, 2008. This affects CMHC insured mortgages as well as mortgages insured by Genworth, AIG, etc. Insured mortgages are generally those with less than 20% down.

Certain conventional mortgages are also insured, however, in a statement from the Department of Finance said, "Today’s announcement marks a responsible and measured approach by the Government to ensure Canada’s housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada.
"These new rules pertain only to new, government-backed insured mortgages. This will not affect existing mortgages."

Monday, February 18, 2008

Canadian housing starts rebound: CMHC

Housing starts were up for January to a seasonally adjusted annual rate of 222,700 units, compared to 184,700 units in December, according to Canada Mortgage and Housing Corporation figures released Friday.

A seasonally adjusted annual rate measures monthly figures adjusted to remove normal seasonal variation and multiplied by 12 to reflect annual levels.
"Historically low mortgage rates, solid employment and income growth as well as a high level of consumer confidence continue to underpin the high level of housing starts," chief economist Bob Dugan said in a news release.

"Housing starts in January returned to a level more consistent with our expectation that housing starts will total 211,700 units in 2008, remaining above the 200,000 mark for the seventh consecutive year." Continue Article

Wednesday, June 20, 2007

Housing boom roars on

Housing boom roars on

Thursday, September 07, 2006

Mortgage rates going downward

TORONTO — Most of the country’s big banks are cutting long-term mortgage rates by up to a tenth of a point, thanks to the lower cost of borrowing in the bond market.
Royal Bank of Canada, the biggest bank, announced Tuesday it is reducing the posted rate on three-year to 10-year loans by a tenth of a point. The reductions are effective Wednesday.
The rate on a three-year closed term loan falls to 6.5 per cent, to 6.75 per cent on a five-year loan and to 7.25 per cent on a seven-year loan.
The Bank of Montreal also made changes to its residential mortgage rates, lowering the three-year to 18-year rates a tenth of a point.
Effective Wednesday, the two-year rate falls by a fifth of a point, down to 6.40 per cent.

TD Canada Trust brought its three-year to six-year closed mortgage rates down by a tenth of a point — to 6.55 per cent and 6.85 per cent — while National Bank of Canada reduced its three-year to 10-year rates by 0.10 per cent.

Desjardins Group also reduced its three-year to 10-year rate by a tenth of a point for branches in Quebec and Ontario, bringing its three-year rate to 6.50 per cent, its seven-year rate to 7.25 per cent and the 10-year rate to 7.50 per cent.

The cuts reflect the lower cost of borrowing in the bond market, where banks finance their mortgage loans.

Friday, August 04, 2006

MPs pay mortgages with meal allowances

The secret board of MPs that manages internal House of Commons affairs is allowing MPs who own a house or condo in Ottawa as their second home to pay down their mortgages with a $75 per diem intended for meals, the Citizen has learned.

The per diem is in addition to a $25 daily accommodation allowance MPs receive year-round if they own a second house or condominium in the capital, and using it to buy a home is allowed despite a rule forbidding mortgage payments from a separate $24,000 expense allowance.

Combined, the per diem and the accommodation allowance could add up to $17,225 a year for house costs and mortgage payments if an MP spends only four days a week in Ottawa while Parliament is sitting.

The $25 daily accommodation allowance is available without receipts throughout the year as long as the MP does not rent out the residence.

The move outraged John Williamson, head of the Canadian Taxpayers Federation, who noted parliamentarians last week defended a $4,000 hike to the general expense allowance for all MPs by saying it was transparent compared to earlier expense payments.

"MPs insist their expenses are completely transparent and now we're discovering a meal per diem can be used to pay off a housing mortgage? This is the height of arrogance, this is beyond the pale," said a clearly upset Mr. Williamson.

A surprised Conservative MP Garth Turner said he was unaware of any option for using per diems to help pay down mortgages and added he lost money on a house he purchased during his first term as an MP from 1988 to 1993.

He argued the per diem and accommodation allowance could help an MP turn a profit by selling a house or condominium in a seller's housing market
"I didn't claim a nickel when I owned that house," Mr. Turner said. "If it looks like it subsidizes real estate purchases through a back door, it's wrong. Average Canadians have to pay their mortgages out of their after-tax dollars."


Condo living is not for everybody

MONEY 401 Those who want to be left alone to follow their own desires should look elsewhere,

Condo living requires flexibility, co-operation and compromise... words you don't see often in developers' ads.

It's not the right place for you if you want to be left alone to follow your own desires.

Moving into a condominium development means obeying its rules, even if you disagree with them.

You may have to leave your cat or dog behind.

You may be restricted from putting decorations on your front door.

You may be prohibited from renting out your unit for short periods.

These rules make sense in terms of avoiding conflicts among people trying to live closely and peacefully together.

Short-term rentals, for example, can be disruptive to long-term owners.

'If tenancies of under six months are permissible, you risk buying into a building that is really just a disguised hotel,' says Keith Bricknell, a condo owner in downtown Toronto.

'You will never really get to know or trust your neighbours, because some of them will be changing, as often as daily.

'Unfortunately, that has implications for things like security and the care that residents take in avoiding damage to the common elements.'

This is an extra dimension you rarely hear about when you move into a condo. You learn about it through experience.

You will be governed by a condo corporation, which can pass bylaws of all kinds. It has the power to raise your monthly fees and levy a special assessment for upgrades.


Good advice before buying summer home

By Douglas Hunter (Cottage Life Books, $35)

Never having owned a summer home, but having enjoyed many visits to cottages owned by friends and relatives, I didn't realize all the possible pitfalls. This book explains them.

Heavy emphasis is placed on the income tax aspects for both buyers and sellers.

If the book has a flaw, it is that author Douglas Hunter is Canadian and he constantly over-emphasizes the Canadian taxation and ownership laws. However, most of the book applies to buyers and sellers of virtually all vacation cottages.

Approximately half of the book is devoted to locating a suitable area for acquiring a cottage. After the search narrows, Hunter explains details of what to look for because buying such a property is much different than purchasing an urban house or condominium.

Unique methods of financing the purchase of a vacation cottage are explained, but without great detail. Hunter suggests contacting local mortgage lenders. He explains the tax consequences of deducting mortgage interest on a second home.

Unexpected in this book are the very complete discussions of sharing cottage ownership with friends or relatives and possible pitfalls to anticipate and resolve."

Mortgaged Dreams

Owning your own home is the great Canadian dream, and a wide range of mortgages means almost everyone can choose the debt that suits them best

Attitudes to debt have changed over the generations as real estate prices have skyrocketed in Greater Vancouver and the rest of B.C. While survivors of the Great Depression worked to be mortgage-free, many younger people have been anything but reluctant to borrow money to finance the home they have always dreamed about.

Lindsey McDonald bought her first real estate in Cloverdale two years ago when she was 22. The ambitious student sees her mortgage as an opportunity to build wealth and expects to sign up for more and bigger loans in the years to come.

In contrast, John and Joan Ross bought their first home in 1959 and 'survived and sufficed' to become the mortgage-free owners of a bigger home on Vancouver's west side by the end of the 1970s. As children of the Great Depression, the two seniors have avoided significant debt ever since.

In the middle are baby boomers such as Bill and Marlene McLean who bought their first property in the early '70s, worked like the dickens to pay off the mortgage within eight years, and have repeatedly refinanced their home to renovate or build 40 houses for sale. With retirement on the horizon, most of their contemporaries can only wish they had been so bold.

Attitudes to debt have changed over the generations as real estate prices have skyrocketed. At the same time, mortgages have evolved to do much more than simply sustain the great Canadian dream of home ownership.


CMHC mortgage moves may be on shaky ground

Canada Mortgage and Housing Corp. recently announced moves that critics say will drive many home buyers to the poor house, as it were, and could leave Canadian taxpayers on the hook.

CMHC is offering mortgage insurance for interest-only loans and on amortizations up to 35 years, while also scrapping the typical $165 application fee on high-ratio loan products for people with less than 25-per-cent down payment.

With an interest-only loan, a borrower can pay interest only for the first 10 years, then pay both interest and principal. Payments are initially low, but since the entire loan must still be paid off within the original amortization period, payments balloon as the principal starts being paid down, and again if interest rates rise.
The first issue is whether a government agency like CMHC should be competing with private companies like Genworth Financial in the business of offering mortgage insurance on interest-only loans.

If CMHC has to pay out a rash of defaults, the money will come out of Canadian taxpayers' pockets. The argument has also been made that mortgage insurance protects the money lender, not the homeowner.

A recent report by CIBC World Markets noted that outstanding residential mortgages rose by 10.9 per cent during the year ending this past April, adding that "the current wave of growth in mortgage outstanding is of a higher risk," and that the moves by CMHC imply that "we will see increased default risk in the mortgage market."

The second issue is the wisdom of making mortgages easier to get by Canadians who are already in a massive hole of debt, with a savings rate that has fallen from 16 per cent in 1985 to negative 0.5 per cent in 2005, meaning they are now spending more money than their current disposable income.


Condo market bubble?

A correction in the red-hot Toronto area condominium market 'cannot be far away,' says a leading housing economist.

Buying for investment purposes in the Toronto market has been 'far in excess of market needs' and buyers face 'very high risks,' said economist Will Dunning in his most strongly worded analysis yet of the Toronto market, released yesterday.

Nearly a decade into a robust housing cycle, high-rise sales remain extremely strong, with second quarter sales at an annual rate of 20,800, a record high, said Dunning."

While other housing economists have expressed concern over what they see as a potentially frothy condo market, Dunning, a former Canada Mortgage and Housing Corp. economist, has been among the most conservative.

Price appreciation for condos continues at a good clip — 5.9 per cent year over year — and the average condo rent has increased 2.1 per cent.
But this won't last long, according to the gloomy forecast.

"An onslaught of condo completions is just beginning and I expect that rents will start to fall late in the year with the possibility of price weakness to follow," said Dunning.


Title fraud can happen to anyone, cost can be enormous

(Jul 28, 2006)
It happened to Susan Lawrence. While going through proceedings to sell her home earlier this year, the area woman learned that she had become the victim of fraud, joining a growing number of Canadians who have been victimized by real estate title fraud.

"I went to the bank to discuss my mortgage because of the pending sale," says Lawrence, who has lived in her home for almost 30 years. "I found out my mortgage had been discharged and a new fraudulent mortgage assigned to my house at another bank without my knowledge. I couldn't believe it. I had heard of mortgage and real estate fraud, but never thought it could happen to me."

The scam occurred as follows: someone unknown to her forged her signature, discharged her existing mortgage, took out a new mortgage for almost $300,000, pocketed the money, then defaulted on the mortgage and disappeared.

Ms. Lawrence believes her nightmare started when a For Sale sign went up on her front lawn, giving fraudsters an opportunity to consult the MLS listing for the property and gather information they needed. Then they simply posed as her to fraudulently sell her house, discharge her small mortgage and take out a new one.

After several sleepless nights and endless hours spent with her lawyer, her bank finally withdrew a possession lawsuit, which meant she did not have to move out of her home. Good news under normal circumstances, except that now she is faced with having to restore her title, even though the new mortgage on her home was obtained fraudulently by a third party.

Susan Leslie, vice president of claims and underwriting at First Canadian Title, estimates the average case of real estate fraud to be $300,000, compared to estimates of $1,200 by the RCMP for cases involving credit card fraud. Meanwhile, industry insiders estimate that real estate fraud costs Canadians between $300 million and $1.5 billion a year.

"The onus is on homeowners to prove the crime and it can be very costly - financially and emotionally - to clear your name," said Leslie. "Unlike traditional forms of insurance, for a one-time premium, title insurance is an effective and inexpensive way to ensure title to your property is protected. Title insurance covers legal expenses related to restoring title and is available to existing home owners even if they have owned their property a long time."

Ms. Lawrence's troubles are the latest in a string of real estate title fraud cases across Canada. The Law Society of British Columbia, after four years of investigations, recently approved $32.5 million in payments to cover a multi-million-dollar real estate fraud case involving Vancouver lawyer Martin Wirick. The high-profile case involved transactions between 1998 and 2002 and affected hundreds of victims in the scheme. Other cases across the province include:
* A Mississauga man tried to sell his parent's home last year and discovered that someone had fraudulently sold the home for $400,000. The case was resolved after $11,000 in legal fees, but the fraudster is still at large.

* A Brantford woman received a call from a mortgage collector saying she was three months behind on her mortgage payments for a home she didn't know she owned. Later that night she also discovered that two other properties had been mortgaged in her name, leaving her on the hook for more than $400,000.

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Wednesday, June 21, 2006

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