Vancouver Mortgages With Irony

Guest Post by : – Rob Regan-Pollock

Mortgage Update

There is a lot of mortgage related news to share with you from last week. As most of you already know, the Bank of Canada reduced its overnight rate by 0.25% to its lowest rate in history 0.25%. This cut surprised some analysts who thought the bank would stand pat and adopt other measures. At 0.25%, this is the lowest rate our central bank can go to, without disrupting money markets. A 0% interest rate will cause structural problems as 0% interest will not cover administration costs. The most surprising part of the Bank’s announcement was not the 0.25% cut itself, but the duration the Bank of Canada plans to keep its overnight rate at 0.25%. The bank was candid in saying it will keep its overnight rate at this level until mid 2010. We have never seen a central bank openly state such an expected duration before. This is truly historic! The good news is chartered banks responded quickly and dropped their prime rates to 2.25%. The majority of Variable and Adjustable rate clients will see an adjustment to their interest rate May 1st.

Monetary Policy

Following Tuesday’s announcement the Bank of Canada released its Monetary Policy Report on Thursday. In this report the Bank mentioned in detail its revised economic forecast in light of “strong global head winds” and slower than expected implementation of stimulus programs and toxic asset relief programs. The bottom line is Canada’s economy which is mostly reliant on US and global markets is shrinking with resource, industrial, and manufacturing sectors bearing the brunt of slackening global demand. The bank spoke strongly about the need for swift and collaborative efforts in keeping with other G20 countries. The central bank went on to further announce that quantitative easing and credit easing were to begin immediately. Quantitative and Credit Easing are fancy terms for direct central bank involvement in our country’s money supply, and direct financial support of credit markets. The central bank advised in its report that rebuilding of the Canadian and global economy will hinge on repairs to global financial and credit markets. Canada is jumping in to assist with specific details to follow shortly. The bottom line for anyone planning to borrow is that variable and fixed interest rates are likely to remain at record lows for the foreseeable future. The amazing change in affordability and drop in real estate values is gaining media attention as noted on this week’s cover of Canadian Business.

Buying Opportunity

With Real Estate declines on average less than stock market declines, and rents holding relatively firm, first time buyers, investors and move up buyers are capitalizing on this opportunity. As professional planners we are being cautious with clients to ensure they do not get themselves over leveraged as rates will eventually return to norms. However, even with a conservative approach, there are some fantastic buys available and our local R/Estate sources are advising us that inventory levels are declining. Prices are stabilizing, and in some cases multiple offers over list price are occurring.

Changes

Finally, and most importantly we need to advise you on how our lenders and mortgage insurers are doing. The majority of lenders reduced their staff last fall and expected less volume as a result of the economic slowdown. The result is the recent wave of buying and refinance activity has our lenders operating above capacity, and in some cases lenders are several days behind. Most lenders are requesting we file complete documentation 10 days before completion, and are requesting a minimum of 3-4 business days for subject removals. We thought it important to pass this along as logistics of a file are often as important as the terms of the mortgage!

Policies Altered

Genworth last week, released new policy changeswhich will tighten availability of credit for potential borrowers. These new guidelines will override lender policies for insured financing. The 5 areas are:

1. Refinances now require a significantly higher credit score. Above average to excellent credit is now required for any “high ratio” refinance greater than 80%
2. High Rise Condo purchases also require above average to excellent credit scores for any insured financing above 80%.
3. Regardless of credit score the maximum debt service ratios have been rolled back to 35% for housing and 42% for all other debts. The ability to waive Gross Debt Service Ratio and only consider Total Debt Servicing for strong borrowers with excellent credit has been eliminated.
4. High Ratio rental loans are no longer available.
5. Mortgages for Self-Employed now require a minimum down payment of 10%. Only borrowers with excellent credit will be considered.

Happening Now

Genworth’s changes are now in effect. We have been advised that CMHC is currently reviewing their programs. For now, we can still qualify borrowers under CMHC’s old guidelines for the above mentioned programs, but we are seeing tightening from CMHC as well. We strongly recommend anyone planning to borrow mortgage funds be in touch with us to ensure they qualify.

Spot of Irony

It’s ironic that while the central bank is easing and providing stimulus to the economy, conversely, the chartered banks and insurers are minimizing their risks as they tighten credit guidelines!

Mortgage Questions?

Rob Regan-Pollack can be reached at rob@teamrrp.com