31 Mar

Canadian Mortgage Meltdown? NO!

General

Posted by: Rabinder Dhillon

The Bank of Canada warned in late 2009 up to 10% of Canadian homeowners may be in danger of losing their homes when interest rates started to rise from historic lows.
 
Is Canada heading down the same path as our neighbours to the south? Are we looking at a mortgage meltdown somewhere down the road? The answer from mortgage lenders and brokers is short and unequivocal: No.
 
A very small percentage of borrowers may be in danger, they say. But these are likely people who borrowed at rock-bottom rates in the 18 months leading up to the start of the global recession in 2008.
 
“Two years ago, lenders were much more liberal when it came to qualifying people for mortgages,” says Paul Grewal, President of Street Capital Financial Corp. “Then if you had a solid credit score and appeared to have the income to make the payments, any lender would take you on.”
 
Click here to read more in the Vancouver Sun

24 Mar

Mark Carney believes inflation is running hot

General

Posted by: Rabinder Dhillon

Bank of Canada Governor Mark Carney acknowledged today that inflation is running hotter than he had predicted, and emphasized the central bank’s commitment to containing price increases, a combination of fact and nuance that increases the odds of an interest rate increase within the next few months.
 
The measure of inflation the central bank uses as a guide to where overall prices are headed touched 2.1% in February, a pace the Bank of Canada was not expecting until at least the second half of 2011.
 
“Core inflation has been slightly firmer than projected,” Carney said in the text of his speech to the Ottawa Economics Association.
 
Some economists have dismissed the stronger core rate as the result of temporary factors, such as a surge in hotel costs related to the Vancouver Olympics. Carney agreed that some of the increase is the result of “transitory factors”, but also said that a “higher level of economic activity” is also playing a role, suggesting policymakers are taking the jump in the core rate seriously.
 
Click here to read more in the Globe and Mail.

10 Mar

Federal Budget & the Mortgage Market

General

Posted by: Rabinder Dhillon

The release of last week’s federal budget offers the following implications for the mortgage market:
 
Pre-Payment Penalties
. The government will “bring forward regulations” to standardize the calculation and disclosure of mortgage pre-payment penalties. (This applies to federally-regulated lenders.) This measure will likely be applauded by consumer groups. Interest rate differential (IRD) penalties have garnered a lot of bad press in the past year.
 
Credit Unions. The government will introduce “legislative framework to enable credit unions to incorporate and continue federally.” This, too, could be a boon for mortgage shoppers. If credit unions are allowed to expand beyond their provincial borders, it will add further rate competition, more new products and cross-border mortgage portability.
 
Covered Bonds. The government will “help federally-regulated financial institutions diversify their funding sources by introducing legislation setting out a framework for covered bonds. Covered bonds are debt instruments that are secured by high quality assets, such as residential mortgages. The legislation will increase legal certainty for investors in these debt instruments, thereby making it easier for Canadian financial institutions to access this low-cost source of funding.”
 
Insured Mortgage Purchase Program (IMPP). “The Insured Mortgage Purchase Program will continue to make purchases of qualifying insured mortgages until the end of March 2010. This program has been successful in moderating the impact of the global financial crisis on credit conditions in Canada by providing funds to financial institutions that were then able to continue lending to businesses and consumers. To date, over $60 billion of term funding has been provided to banks and other lenders at a positive spread to the Government’s funding costs. Recently, lenders have not participated as aggressively in the program, as access to funding through capital markets has improved and investor demand for issuance from financing institutions, particularly Canadian banks, has resurfaced.”