Tag Archives: Mortgage brokers

“Let’s remember how we got here” – Looser and Looser CMHC Limits

Let’s remember how we got here:

• Prior to 1999 you needed 10% for a mortgage and that mortgage had a maximum amortization of 25 years. CMHC also had limits on how much you could buy with their insurance.

• Just after 1999 CMHC lowered the down payment to 5% with price limits on how much they would insure depending on the area. Amortizations were still 25 years. There would be no price limit on what they would insure if 10% or more was put down.

• By Sept. 2003 CMHC allowed 5% down on 25 yr amortizations but they removed all price ceiling limitations. Now any mortgage would be insured regardless of the value of home purchased.

• In March 2004 CMHC began allowing Flex-Down products which permitted the 5% down to be borrowed and 1.5% closing costs to be borrowed (essentially zero down, but 95% insured.

• In March 2006 you had 0% down, 30 yr amortizations. This became 0% down, 35 yr amortizations later in the year. Interest only payments were allowed for 10 years.

• In November 2006 CMHC began allowing 0% down, 40 yr amortizations along with interest only payments for 10 years.

• Canadian banks ramped this up by allowing up to 7% cash back offers if you would take on a mortgage with them. You could basically get paid if you bought a house.

• Not only were the rules surrounding the granting of money loosened, but CMHC’s cap for granting mortgages grew from $100 Billion in 2006 to almost $600 Billion today.

– this fine summary from ‘golden_boy’ at VCI 11 Jun 2013 7:40am

“Things have changed, we are not doing that type of mortgage. We are not interested at all.”

“I am currently interested in a piece of property in the burbs; a unique property which is why I would be willing to move on purchasing now at today’s prices. This is land, no house. I am eminently mortgagable… credit scores at almost 900, dual income, large amount of assets. Approached M-Cap, BMO, Enbridge, People Trust, CIBC, TD, and a couple of others for financing. Still waiting for 1 or 2 answers to come in.. but.. 5 institutions say “things have changed, we are not doing that type of mortgage, we are not interested at all” (without even inquiry into our situation). 3 institutions say “we would only consider a higher interest builders mortgage”. And by higher they really mean higher… Wow. Remains to be seen if financing can be had.”
Burbs Boy at VCI 24 May 2013 4:51pm

“I personally know of a friend who was offered the moon from the bank to buy a home in October. This month the same bank is reconsidering the mortgage. Nothing has changed for my friend’s finances.”

“Sadly, I’ve been hearing lots of stories of financing falling through. Banks have done a 360 degree turnaround. They are still lending, but on their terms. Not so attractive terms. I personally know of a friend who was offered the moon from the bank to buy a home in October. This month the same bank is reconsidering the mortgage. Nothing has changed for my friend’s finances.”
enlightened at VREAA 16 Dec 2013 3:36am

Less Expensive Is Better – “So they’ll buy a less expensive home. Good. I consider that desirable.”


“It will mean that some people will not buy into the market. It will also mean that some people will buy less into the market… so they’ll buy a less expensive home, or less expensive condominium. … Good! I consider that desirable.”
– Jim Flaherty, Canadian Minister of Finance, April 2012 news conference regarding mortgage condition tightening, as recapped on Global TV News, 18 Dec 2012 [hat-tip Greenhorn for the archived video clip]

Not less of a home, note, but a less expensive home.
This is, indeed, desirable.
– vreaa

“I was approved for about 420k in the spring I only made a little more than 50k last year. I looked at a few condos in Vancouver and decided to keep renting.”

“I was approved for about 420k in the spring I only made a little more than 50k last year. I looked at a few condos in Vancouver and decided to keep renting.
I sold my house on Vancouver island for about 40% over assessment also about 20k more than I thought it was worth. I don’t know if a human came to appraise it.
My experience of the past year from looking at condos to selling a home and getting pre-approved I see so many holes in our system.”

Funky Monkey at VREAA 23 Dec 2012 9:27am

“Five years ago my girlfriend and I were pre-approved for over 400k on a mortgage, without showing or proving any income.”

“Five years ago my girlfriend and I were approved for over 400k on a loan. You know, the kind that get pre-done before you shop. Well, that was without showing or proving any income. This was by word of mouth at a mortgage broker’s office. I said I have the papers to back my claims, she said doesn’t matter, we trust your word.
Why would phoney valuations made by a computer surprise anyone in today’s environment?
We never pulled the trigger on a place… good thing too!”

kc at VREAA 23 Dec 2012 9:12am

G&M On Emili – “Everyone is getting nervous now. There is more and more potential of a downturn in the marketplace.”

“Where banks once sent human appraisers to assess a home’s value and determine whether to provide a mortgage for it, the banking industry – encouraged by the federal government’s own Canadian Mortgage and Housing Corporation (CMHC) – had largely converted to a faster and cheaper system of automated underwriting, using computerized models to determine how much money to safely lend. The models weren’t perfect, but they were close enough. And what did it matter? House prices always seemed to be going up in Canada anyway.”

CMHC’s automated underwriting program – called Emili – had been stamping its approval on millions of mortgages as safe. But in Emili-approved cases where the banks were forced to foreclose, the homes turned out to be worth much less than believed.
As the housing market in Canada begins to cool and the federal government talks of a soft landing for home prices, rather than a hard crash, attention is turning to the factors that fed record borrowing and contributed to overheated sales and price increases – and the risks that now lie within the financial system. Rock-bottom interest rates propelled Canadian real estate to undreamt-of heights, and Ottawa’s decision to loosen mortgage rules added to the froth, as marginal buyers flooded into the market.
That much is amply documented. But an investigation by The Globe and Mail has uncovered a hidden risk in Canada’s housing markets: The rise of automated lending approvals, which has created a rapid-fire system that has financial regulators worried about the foundations that underpin Canada’s housing market. There are worries that the true worth of Canadians’ homes could be lower than what computerized methods spit out. There are also worries that unscrupulous human appraisers can manipulate home values.
Those distortions matter less in a strong economy and a rising market, in which price appreciation covers up any errors. But the days of steady gains in real estate are gone: Almost all major metropolitan markets have plateaued, and in some, such as Vancouver, housing prices are falling at a worrying pace.
“Everyone is getting nervous now,” says Phil West, a veteran of the appraisal industry who is critical of Emili. “There is more and more potential of a downturn in the marketplace.”

An on-site visit to a suburban Vancouver home with Mr. Sieb illustrates the concern. As he begins walking through the house, the appraiser grows skeptical about the information the bank has been given about this home.
The listing says this house – a bungalow listed for $479,000 – was built in 1980 and is newly renovated. He notes some fresh carpet and a recently installed light switch, but the kitchen and other rooms show troubling signs of age. “This isn’t a renovation,” he says flatly. “You wouldn’t call it that unless you were stretching what you see for the purpose of getting the value up.”
Mr. Sieb checks the dates stamped on the plumbing. “This place was built in the 70s,” he says, shaking his head.
This, he explains, is the sort of thing that the computers miss.
Last month, Mr. Sieb appraised a home that turned out to be several hundred feet smaller than what the paperwork on the house claimed.
“In my career,” says Mr. Sieb, who has been appraising for 30 years and now runs Inter-City Appraisals of Coquitlam, B.C., “maybe five times have I had the exact same measurements as the realtor.”

– from ‘Shaky foundations: How Ottawa’s computers get Canadian home prices wrong’, Grant Robertson and Tara Perkins, Globe & Mail, 22 Dec 2012[hat-tip Ralph Cramdown]

An article that is worth the entire read.
We particularly like the way the description of the current state of the market is not sugar-coated, the thorough discussion of the clearly fudge-able Emili system, and, in particular, the observation that these kinds of rethinks of aspects of market ‘regulation’ are only questioned when a market begins to fail. As the authors say: “Those distortions matter less in a strong economy and a rising market, in which price appreciation covers up any errors.”
– vreaa

UPDATE: Further regarding the Emili discussion:
“Over portfolios with hundreds of thousands of properties, there will always be overvaluation and undervaluation, and the overwhelming majority of those cases fall within safe parameters. What the public needs to know is the tail risk of auto-valued applications, versus appraiser-evaluated apps. Unfortunately, we don’t have enough data to gauge that yet.
Inevitably, people will read the Globe’s story and think that CMHC is using some back-of-the-napkin formula to judge property risk. That’s so far from the truth. Emili is not some 100-line computer program written by a college intern. It is multi-million dollar mission critical technology benefiting from the best available data and over two decades of R&D.
CMHC knows the risk of it botching property valuations en masse. It has the public, press and regulators breathing down its neck around the clock. It knows the risks in automated valuations better than virtually anyone in the country because it’s processed millions of mortgage files since 1996. And it tirelessly optimizes its systems to statistically factor in and adjust for those risks. To imply that CMHC cannot account for “recent movements in home prices” is simply laughable.”

– from ’emili Criticisms Resurface’, Rob McLister, canadianmortgagetrends.com, 22 Dec 2012
[hat-tip Ralph Cramdown, added at the suggestion of jesse/YVR]

Okay, fair point. One has to do a careful analysis of the entire risk across the whole CMHC portfolio, agreed; it’s not enough to point to a few anecdotes of errors in valuation assessment and conclude that the entire system is at high risk. The anecdotes could be representative example of a systemic bias towards overvaluation, but they could also simply be outliers.
At the same time, when Rob McLister expresses high confidence in CMHCs risk modelling, refers to the “multi-million dollar mission critical technology”, and states that this criticism of CMHC is “laughable”, we are not immediately reassured. After all, he is
the same guy who called the idea of 40% price drops “farcical”. Any market observer who lacks the imagination to see the possibility of such an outcome is at risk of being blinkered in their analysis.
When we hear market participants calling the idea of certain outcomes “laughable” and “farcical”, we’d strongly suggest one give serious thought to the possibility of those outcomes coming to pass. Why? Because their high confidence reflects the strong probability that a very substantial percentage of market participants are not prepared for that outcome, and that is the very mechanism by which such outcomes come to pass! This is closely related to the analysis of sentiment, and is Contrarianism 101.
When market participants are 100% convinced that stock ‘x’ can only go up, where does it go?
At 125, the thought of Nortel trading at 50 was “farcical”, and “multi-million dollar mission critical technology” showed that such a drop was impossible.
– vreaa

Nine Out Of Ten Analysts Agree: House Prices To Drop, But Not By Too Much

“Canadian housing prices will fall 10% over the next several years and homebuilding will slow sharply in 2013, but the country’s recent property boom is not expected to end in a U.S.-style collapse, according to a Reuters poll.
The survey of 20 forecasters published on Friday showed the majority believe the Canadian government has done enough to rein in runaway prices, preventing the type of crash that has devastated the U.S. market for years.
“This isn’t a sharp correction, this isn’t a U.S.-style correction, it’s just simply an unwinding of the excess valuation that was created by artificially low interest rates for a long period of time,” said Craig Alexander, chief economist at Toronto-Dominion Bank.
“I would emphasize that while a 10% correction sounds scary, in actual fact, this would be a healthy outcome.”

“Vancouver prices were forecast to fall 2.7% in 2012 and 3.8% in 2013, with an eventual decline of 12.5%.”
– from ‘Canada home prices seen falling, but not crashing’, Andrea Hopkins, Reuters via Financial Post, 9 Nov 2012

“Canada’s house prices are expected to drop and stay down for a decade, says a new report from Scotiabank that also warns of an “adverse shock” to the economy when the decline comes.
The bank’s latest housing outlook predicts a 10-per-cent price decline across Canada in the next two to three years, driven by larger declines in the Toronto and Vancouver markets, “where supply risks and affordability pressures have the potential to trigger larger price adjustments.”
The report notes that previous housing market downturns — in the 1970s and 1990s — took eight or nine years to bounce back to price levels seen before the decline.
“Historically, long cycles of rising home prices have been followed by extended periods of persistent softness, allowing affordability to be gradually restored and generating renewed pent-up demand,” the report stated.
The bank also warned that “balance sheets heavily skewed to real estate leave Canadians vulnerable to an adverse shock, including a sharp rise in unemployment and/or a sharp drop in home prices.”

– from ‘Canada House Prices To Drop, Stay Down For A Decade, Causing Unemployment, Scotia Says’, Daniel Tencer, The Huffington Post Canada, 8 Nov 2012.

Analysts in the industry are largely commentators, rather than instruments with any convincing positive predictive capacity. Their predictions are noteworthy to the extent that up until very recently there was a broadly held belief that housing prices would not fall at all. So, for the media to be announcing even the idea of coming drops is significant. But, from a quantitive perspective, their consensus about price drops being relatively benign reflects characteristic hope over substance.
Based on the size and all-consuming pervasiveness of the speculative mania, and on price levels determined by fundamentals such as rental incomes, we foresee larger than 10% drops for the nation and far, far larger drops for Vancouver (50%-66% real, peak to trough). Aren’t we already at about 10%-12%-off for most RE sub-types in Vancouver?
And another point: it took 25 years for real prices from the 1980-81 peak to be regained in Vancouver, not 10.
– vreaa

PostCardsFromTheBlastRadius #16 – “Where Dreams Are Real!… and TheHype is ‘Realtor’™”

He’s Baaaack! For the uninitiated, Nemesis is responsible for the indispensable prior 15 episodes of ‘Postcards From The Blast Radius’. And, here it is… Number Sixteen!
The perimeter moves closer; the images, both visual and lyrical, become bleaker.
We don’t pretend to understand the full meaning of every word, but we suspect the chaps at ‘The Little Review’ would have said the same about Joyce. Once in a while, it’s good to give your brain a workout. Keeps you agile.
Thanks to Nem; and, to readers: good fortune.  Be sure to click on the panoramas for large images. – vreaa


It’s hard to tell whether this is an interrogat​ive enticement​… or, grammatica​lly speaking – an imperative​. Either way, it’s a none too subtle NeonSignPost to the collective dynamic of our times…

Yes, DearReaders… there’s something peculiarly disconcerting about a political economy that can be characterized – in a single snap, no less – by a 15Tonne cargo of HighFructose CornSyrupConfections™ manoeuvring past Realtors™, CreditUnitions™, CharteredBanks™ and DevelopmentPermitApplicationDepositories™. …but for the solitary exception of an ATM™ supplicant*, an urban landscape virtually devoid of RealPeople™.

The KeenEyed among you will note that our *Supplicant has paused – ever so briefly – on the ThreshHold ‘O Cash… to genuflect, cherish and fondle the latest HighlyCoveted copy ‘O OkanaganHomes&Land™… Gotta be this month’s HotCover… which, as it happens, is Tantalizingly™ adorned by  TagTeamReatresses™ …it’s just ‘business’… Right? PageHits. Eyeballs. ClickThroughs. Conversions… I’m guessing it’s just another Work’aDayPracticality for the Ingénues ‘o Realty™.

Moving on… Here be’eth The Wade&Main PanaromicP​anopoly ‘O ‘Prosperit​y’… AnchorFina​ncial institutio​ns on each of four corners. Egads!, a veritable CinemaScope® MexicanSta​ndOff ‘o Credit… and as previously illustrate​d – by no means an exceptiona​l or isolated example of PecuniaryR​edu​ndancy on the HillBillyR​iviera’s infamous ‘strip’ ‘o ReFi’s.

[NoteToEd: Albeit, not otherwise here depicted..​. and but “mere steps” away… there be not 1… there be not 1&1/2… but 2! Yes!!! 2CashStore​s! ‘Facing off’ like Unemployed​&Desperate NHL HockeyFran​chisees in a MadJuxtapo​sit​ion of the KittyKorne​rKind. Rather like StarBucks on RobsonStra​sse used to be… before the BenightedB​ubbleTea ‘invasion’​.​]

Alas… but a mere StoreFront or two distant from the PanoramicP​anopoly ‘O Prosperity​… an altogether different story emerges. That’s a MortgageBr​okerage on the left – or rather, what is presumed to be a MortgageBr​okerage, as their illuminated signage has recently disappeare​d and the current, lonely occupants are looking more than a little forlorn of late. I wonder, is their Signage next door – awaiting redemption…

Well, at least they’ve still got a trailer… Hidden behind their premises, a CourtesyCargoHauler cum SpecialEvent​sVenue WheelClamp​ed for safety (or by Mr. “Quick n’ Easy”?) in a far flung corner of the adjoining, spooky, Develop​ersGraveYa​rd…

[**NewsFlash** NoteToDearReaders: The Great MortgageBrokerage SignageMystery is solved! – and very much a case of, “from the Sublime to the Ridiculous”… or should that be from the Ridiculous to the SubPrimeLender™… the same people who were flogging Mortgages to those eminently likable – if Gullible&C​redulous – HillBillie​s… have since reinvented themselves as a DominionLe​ndingCentr​e™! With a FancyNewBl​ueAwning! E​rgo, now that their former clients are in NegativeEq​uity and somewhat ‘strapped’​… it’s a simple matter of, “Heck, Bubba… sure we kin sport you a FewExtraTo​onies. Just sign right here.”]

Never mind all that, though… for even if AdultNovel​ties & RisqueNegl​igees are but a distant memory or a ForbiddenP​leasure.. and assuming – Shock&Horror! – that one actually has a SpareToonieOrTwo of one’s own to ‘invest’… There are… OtherTemptations!
How about… A Scratch n’ Win GIC!… I shit you not – and just imagine which demographi​c that was designed to entice.

Yep​, exclusivel​y for you, Granny – from the VeryNicePe​ople @ Prospera.

[NoteToEd: I am reliably informed that SratchCard AnyThings are to TheElderly as AlcoPops are to any RighteousT​eenRebelli​onPartay..​.]

Scratch&Wi​n GIC not pan out?… Well, “DurnIt”..​. there’s always the CashFactor​y followed by a little Bling and maybe a PermanentH​omage or two to BillyBobRa​y of GrindRod fame and that MagicalEvening on the Chrysler Valiant’s BenchSeat…

In spite of what you might reasonably think, DearReaders… This is Ret​ailSyne​rgy personified… in the HillBillyR​iviera… A QuiteCommo​n juxtaposit​ion, actually. Really.

[NoteToJohnsson’sRodAKAchubster: Uncle Ben’s CashFactor​y is, obviously, rather more impressive – still, you’ve got to admire local initiative​. Hopefully, this particular CheekyCoun​terfeiter’​s financiers will not regret the proprietor​’s bold artistic license. As for your Rod, Johnsson… I neglected to add… yes, there is actually a place called GrindRod in the HillBillyR​iviera. It’s quite charming and just North ‘o Enderby. Cue: LillyTomlin as child going: “SoThere, SFX: PROLONGED RASPBERRY’]

AllRight, DearReaders… and at the very real risk of straying into Verboten/Tasteless Territory… I think it only righteous and just… that we include, even if only a peremptory glimpse… a brief peek at some of the Strip’O ReFi’s other inhabitants… Ok?

My personal favourite – and, for reasons which will momentarily become self-evident, is CheersTheChurch™. No, your FearlessForeignCorrespondent has not attended a service. That said, he has performed extensive DigitalDueDiligance… Accordingly, I think it not just Proper&Fit but PositivelySerendipitous that TheCreator has seen fit… to install a store front Pentecosta​l FrontierO​utpost on such a NotoriousB​oulevardO​fSin…

[No​teToEd: Come on… it makes perfect sense on a street dominated by TattooParl​ours™, CharteredB​anks™, BokeragesO​fThePawns™​, PayDay™Emp​oriums and OnanistOut​fitters™ to EvenThings​Up a little bit… by including a religious assembly with substantiv​e expertise in DemonicPo​ssession, SpeakingIn​Tongues, BeastlyMar​ks and, naturally.​.. the inimitable CrefloDoll​ar’s ‘Prosperit​yGospel’™. Wouldn’t you agree?… And no, there is absolutely NoTruth to the rumours that ‘Nem’ has a ComCastUni​versal Developmen​tDeal in progress for a new RealitySer​ies entitled, “JEEZOTS™ – Jesus Endorsed Enterprise​s Zealousy Opposed To Satan”]

Well, irreveranc​e aside…. and “irregardl​ess”, I feel compelled to provide you with yet another instance of ‘RetailSyn​ergy’… HillBillyR​iveraStyle.

Which, as you can clearly see… is indeed, Alive&Well​!

Or as BillyBobRa​y ‘o GrindRod is wont to opine, “LandLord locked ya out, Bubba? No worries… you kin jest put a lien on yer Chevy and git the LockDude to let ya back in!….”

Of course, when a Developer is LockedOut by GlobalMacr​oEconomic MarketCond​itions…i​t’s slightly trickier.

Accordingl​y, when a Developer’​sDream ChecksOut to that big PermitAppl​icationKio​sk in the Sky… it is not – and this is entirely contrary to popular belief – memorializ​ed with funerary statuary atop a grassy knoll… but rather… by a ParkingLot​.

So, DearReader​s – welcome to th​e contempora​ry ElephantsG​raveyard for ProjectsGo​neBoom and DreamsGone​Bust…

Sti​ll, at one quarter a go – I’m sure they’ll eventually recoup the SquareFoot​age premia imagined in their Numerous, Glossy, LogoEmboss​ed, UV SpectraCoa​ted Prospectii​…

Emphasi​s on eventually​. As measured in Geological​Time.

It’s a shame, really… ParkingLot​sR’Us are the only growth industry in the HIllBillyR​iviera these days… Well, apart from ‘PayDay’ Emporiums, TattooParl​ours & Brokerages​OfThePawns​…

Sad&Needle​ss to say, though – even on their ‘busiest’ days… The capacity utilizatio​n of these CarrierLan​dingDeck sized BlackTops remains, more or less, as illustrate​d…

Even allowing for [and you’ve got to look VeryVery carefully indeed to see it] the MortgageBr​okerage’s Forlorn & WheelClamp​ed SpecialEve​ntsVenue – a permanent fixture on this particular lot of late.

Of course, DearReader​s – not everyone needs a ParkingLot​sR’Us… some people – I know, it’s hard to believe! – actually depend upon TransitusP​ublicus…​

Pity them as they disembark.​.. given that each HBR BusStop reveals such a shockingly similar and gloomy tableau…​

But never mind all that!… Shall we pull the DingALinge​r, DearReader​s​… put down our copies of TheBuzzer and SallyForth​…???

OhM​y!… oh my oh my oh my… Do you hear that!? Shade’s ‘O Disney AudioAnimatronica circa ’62

It’s… It’s… WindowTalk™. Doctor DooLittle was fond of talking to the animals… but for the UnderHouse​d Bored&Rest​less DooLittles of the HillBillyR​iviera there’s nothing more satisfying than some, “Try Our WindowTalk™”. Well, to be completely truthful… it’s a Window that talks to you.

Accordingly, many an innocent PropertyVirgin [or AmbitiousWorkingGirl!] compelled by circumstance to utilize that BusStop… has been enticed, much like Alice passing through TheLookingGlass, into a life ‘o DebtSlavery repackaged as Glamour.

What a bleak ‘present’ we have wrought for ourselves.​.. Imagine, if you will, the Marilyn Monroe of “BusStop” [1956] hopping off her JohnnyGrey​hound and landing… amidst the RodeoRealt​ors™ & UnctuousUr​surers of the HillBillyR​iviera’s MidTown Car​nival ‘O Cornucopia…

…her tattered cardboard suitcase fiercely clutched against her bosom… her skirts billowing in the ChillAutumnBree​zes… a NeonCarousel of orange/sca​rlet frost-hewn leaves swirling about her feet… as she ponders a ‘FreshStar​t’.

Marilyn looks to the right… A PayDay Loan collateral​ized by her “SevenYear ​Itch” legacy wardrobe?..​.

She glances to the left… A NewCareer™ KickStarte​d by Cleavage???!!​!.​..

Yes!!!! Rea​lTress it is, then!…

No more diners and HonkyTonks for our Marilyn! It’s PentHouses & WaterFront​s only from here on in… [Cue: CondosAr​eAGirlsBes​tFriend… SMASHCUT: CandleInTh​eWind]

[No​teToEd: And Marilyn thought she was on to the BigTimes..​. alas, she’s just another PrettyGirl in a Window now… albeit, slightly less provocativ​ely displayed than is normativel​y the case in Amsterda​m. Same business, though. Whatever they tell you.Bus​Stop…]

No PropertyBordellos for Elaine TheArtist, though!… &Bravo!, Elaine. Bravo! [NoSarc Intended/I​mplied]

For​get about JadedMaril​yn’s BusStop.. We’re talking You​thEbullien​t’s CentenaryT​ribute to HappyTimes​… Or at least to HappierTim​es and BetterPros​pectsAhead​…

The WorthyDrea​ms of Efferevesc​entAdolesc​ent CivicPride​…

Just one little glitch though as, ironically​, Elaine’s canvas… once the adjoining wall of some lively local enterprise​…is, sadly, today…

…just another vacant lot… years on the market… years. DearReaders will note the Realtor’s™ signage including the poignant invitation​, “Owner Will Consider All Options” [one of which, if the property continues to languish will doubtless involve the EmergencyS​ervices and a Mortuary followed by a PostMortem and a CoronersRe​port].​..

[NoteToEd: Frame left is the now defunct JobCentre™​, also sitting vacant, ForLease!, and UnLoved but for the EverPopula​r InstaLoan​$™ franchise, the building’s solitary, visible remaining tenant… Woe is us.]

This is TooTooDepr​essing by far… perhaps we should stroll down a SideStreet​. GottaBe something Lively there, eh!??? Eh???

RapidPawn & FairRealty​?… Hmmm… I propose RapidRealt​y & FairPawn..​. either way, PoorOld RapidPawn is heading for that merciless Cashier’sC​age InT​heClouds..​. In their own words …

“If you are unable to pick up this month and roll you can pick up next month. We are sorry for any inconvenience. [Redacted] has done her very best to keep the store going for us and for you but the economy is such that it just isn’t working out.

Again we really hate to close, we have met some great people over the 17 years and will really miss you all.”

Ok.. That’s enough. Perhaps… Perhaps it’s time we sought Refuge&San​ctuary… A SpiritualR​espite from Mammon’sWe​rks. ShallWeThe​n?!….

Alas, not unlike the RapidPawns of the HillBillyR​iviera [legion though they be], All Good Things Must Come To An End… and as ends go, a HarvestFestival ChurchSocial and the LifeDevotional – “Spending It All On God” – ain’t so bad, at all. [NoteToEd: A fascinatin​g moral ‘ElevatorP​itch’, wouldn’t you agree?]

Albeit, whether persuading his congregant​s to part with either their financial or their spiritual capital on behalf of altruisic pursuits, I suspect that, somehow – in the current milieu – the GoodRevere​nd Turnbull’s work is more than cut out for him… Still, you’ve got to admire an optimist.

Speaking of EternalOpt​imists™ and TheAfterLi​fe… I often wonder what Visions ‘O Grandeur Lost dance, like ElusiveChr​istmasSuga​rPlums, through the tormented, sleep tossed nights ‘o the Realtors™, Developers​™, Speculator​s™ and other Ambitious SmoothOperators who so frequently seem to dominate these fora…

That would be the CityHall’s of this world… where those who would rather not, “Spend It All on God”… can experience anew that special circle of Hades even Dante would not dare to depict… where access to the MagicApproval of the ubiquitous Developmen​tPermitKio​sks is frequently smoothed by ProximalLobbying ‘o ThoseBushyTailed councillor​s… And Mayors, too – come to think of it!

Albeit, in some ‘burgs, like this one – a Mayor’s ‘ShelfLife​’ can frequently be measured in terms of AlternativePolitical​Opportunit​y…

For, as rumour has it, the HBR’s – to the eternal chagrin of his many municipal ‘sponsors’​ – is enthusiast​ically a ‘Courtin’Ch​risty’… With all his ardour.

So much so, his bags are practicall​y already packed for that MythicVoya​ge on the MagicCanoe to FantasyIsl​and’s…. Legislatur​eLost.

Well, never mind all that… if a SmallTownPolitico can survive the TribalInia​tionRites of his ProvincialBrethren and, subsequent​ly, the PerilousPoliticalPa​ssage to FabledFantasyIsl​and… there be other SugarPlums awaiting his patrons – the idle contractor​’s, architects and tradespeop​le of TheValleys.​.. PrisonsR’U​s, anyone?…

[NoteToEd: One things for sure, MendicantMayors of the HBR certainly won’t have any trouble pawning their Chains ‘o Office or organizing a PayDayLoan to smooth their transition to the BigTent… Heck, if they’re really lucky, they might even qualify for a complimentary Christy’Too or Two!]


[Images Ⓒ​2012 ‘Nemesis’ – All Rights Reserved]

Mortgage Prisoners – “Something like that will never happen in Canada”

“How it happens
Here is a fictional but typical example:
A shop owner moved home in 2006, after being offered a mortgage without needing third-party corroboration of their income.
The interest tracked base rate at 1% over bank base rate for five years, after which the rate would revert to the lender’s standard variable rate (SVR).
The lender was happy to lend the money on an “interest-only” basis, where the repayment of the loan would come from future profits in the business, or from an inheritance, or from the sale of the property itself.
With the Bank rate at 5%, the interest stood at 6%, so the householder had to pay £2,000 a month.
In 2007, the Bank rate increased to 5.75%, so repayments increased by a further £250 a month.

Changed circumstances
It is now 2012, the High Street is suffering, and the shop owner’s current income is only £50,000. The property might be worth only £570,000.
From April 2008 until March 2009, his mortgage costs dropped from £2,000 pm to £500 a month as the Bank rate fell to a record low.
All appeared well until the end of the five-year Bank rate tracking product in November 2011.
Now, payments have gone from 1.5% (£500 a month) to the current SVR of 4.25% (£1,416 pm).
Traditionally over the last 25 years or so the answer to this issue of increasing costs would be have been to remortgage to another lender.
However in the current environment things are different, with lenders being much more conservative.
The shop owner would find it difficult to find a new loan on an interest-only basis.
The loan is now at 70% of the value of the home, so almost every lender would require him to take a repayment loan.”

– from ‘Mortgage prisoners’ are locked in to home loans, Simon Tyler, BBC, 25 Apr 2012

Hat-tip Erebus at VREAA 25 Oct 2012 for this link, and who added:
“My co-worker’s response to this: “Something like that will never happen in Canada” “.

Note that in the above example, problems have arisen even with property prices rising.
Yes, there are some differences between UK and Canadian mortgages, but the broad principles of those in debt coming under increasing pressure, as the virtuous cycle turns vicious, are the same.
– vreaa

“I’m a Realtor, an elected official. I had lunch with a banker yesterday. The changes in mortgage qualifications appear benign but will actually have big effects in Vancouver.”

“I’m a Realtor, an elected official, and had lunch with a banker yesterday.

The changes in qualification and to line of credit ratios appear benign but will actually have a big effect in debt driven consumer markets such as Vancouver lower mainland.

Equity mortgages are basically dead. You must have income to support the mortgage and show where the income is originating via your tax form. Offshore investors slapping down 50% no questions asked are finished unless they show their declared income … not something they like to do.

Downsizing boomers, we are now in the first wave, who planned on cashing in the home, putting some money aside for income and taking out a little mortgage for new townhouse or condo are in trouble. Their retirement income will not qualify for a mortgage. I had three listings cancel last month, when these changes were announced, by boomers planning to downsize.

Small business is screwed because they now have to show their tax declared income, not their claimed income as was the practice here in BC.

Small builders, likewise. They can no longer get debt financing to start a new project based upon the equity in an existing build. They have to show income.

The rest of Canada may not understand that in BC, credit unions were giving out $350,000 mortgages for a pulse during the peak in 2006. Zero down, intent to pay based upon a claimed income.

The drug money now must show income. A big whack down is no longer sufficient.

Now throw in LOC ratio down from 80% to 65% and the BC practice of using your house equity as an auto teller is suddenly stifled.

Subtle changes but big impacts over the next year. My banker friends, as opposed to independent mortgage brokers, say a 10-15% correction is immediately conceivable.

A working family is looking at reduced prices and access to debt if they have jobs and income. The rules are returning to historical regulation. No income, no access to debt.”

L Rob, commenting on ‘Doors shutting on first-time buyers’, Globe and Mail, 6 Sep 2012 11:32am and 1:49pm [hat-tip jesse]

Screws are tightening, and the effects won’t be smooth and steady.
At certain thresholds, things that were happening gradually can suddenly happen quickly.
– vreaa

CMHC – Profits fall; Claim losses “jump”.

“Canada Mortgage and Housing Corp. saw profits at its mortgage insurance business fall sharply in the second quarter largely due to a jump in losses from claims. The rise in claims losses suggests that an increasing number of borrowers whose mortgages were insured by CMHC have been unable to make their payments and have lost their homes. Mortgage insurance pays the bank back when a borrower defaults.
In its second-quarter results, released Wednesday, CMHC said that its losses on mortgage insurance claims rose to $168-million for the three months ended in June, up from $144-million in the same period of 2011 and $154-million in the first quarter of this year.
That’s part of the reason why profits from CMHC’s core mortgage insurance business fell to $255-million, down from $341-million. The earnings were also hurt by paper losses on a mutual fund investment that suffered when international stock markets fell.
Part of the reason for the growing claims losses of late has been the dramatic increase in the amount of insurance that the Crown corporation has in force.”

– from ‘Jump in claims pinches CMHC’s insurance business’, The Globe and Mail, 29 Aug 2012 [hat-tip allen]

Industry Responses To Mortgage Rules

The new mortgage rules become active tomorrow. For the record, here are a few recent responses to the changes:

“We should caution the minister to avoid precipitous actions that would undermine the stability of housing markets. We have stressed the important role our industry continues to play in Canada’s economic performance. There is a clear linkage between stable markets and Canadians’ financial well-being, for both homeowners and home purchasers. …
Having made these changes to mortgage rules, the minister has an obligation to monitor their impact very closely, in all housing markets across Canada. These regulatory actions paint all markets with the same brush, whether they are currently strong, balanced or weak.
We need assurances that the minister of finance will reconsider the new mortgage rules if the evidence shows the result in market instability.”

– from ‘Do the feds really ‘get’ new mortgage rule?’, Stu Niebergall, executive director of the Regina and Region Home Builders’ Association, Regina Leader Post, 23 Jun 2012

“History may look upon this pronouncement and call it Flaherty’s Folly. In the interim, many buyers will see it as more blood drained from their rosy dream of owning a Vancouver home.”
– Larry Yatkowsky, Vancouver Realtor, yattermatters.com, 23 Jun 2012

“These changes, together with new OSFI underwriting guidelines… may precipitate the housing market downturn the government so desperately wants to avoid.”
– Statement, Canadian Association of Accredited Mortgage Professionals (CAAMP), 21 Jun 2012

“A change in the amortization period down by five years is going to affect most people’s buying power by $10,000, $20,000 or $30,000. In today’s housing market, that can be the difference between a really nice place and an average place. Most first-time homebuyers are trying to get into something they really like by pushing their limits.”
– Jeff Trounsell, Vancouver mortgage broker, Vancouver Sun, 22 Jun 2012

“Will this be enough to dampen the market? Maybe, but by own analysis not very much. I expect Flaherty’s move will prevent some on-the-edge buyers from making the leap too soon — but will do little or nothing to address affordability.”
Don Cayo, Vancouver Sun, 21 Jun 2012

For a measured analysis, read Robert McLister at Canadian Mortgage Trends, 23 Jun 2012:
“Despite the short-term pain and critical comments, it is clear that housing volatility will be reduced by these moves, over the long term. And that’s a positive…if you look far enough out.
The questions are, how long is long-term, how unpleasant are the side effects, and could those side effects have be minimized by a more incremental implementation?
Whatever the case, credit is due to the DoF, OSFI and Bank of Canada… they want to do the right thing.”

RBC Research – Meetings Discussing the Canadian Housing and Mortgage Market

Thanks to Zerodown for forwarding ‘Canadian Housing & Mortgage Industry, Highlights from Meetings Discussing the Canadian Housing and Mortgage Market’, a research document from RBC Capital Markets, authored by Geoffrey Kwan and Sean Adamick [RBC, 29 Jun 2012]. Excerpts:

“We had meetings this week with senior management teams from across the Canadian housing and mortgage market, including banks (Scotiabank), non-bank lenders (Home Capital Group, First National Financial, Equitable Group), mortgage insurers (Genworth Canada, Canada Guaranty), condo developers (Tridel), real estate investment firms (Tricon Capital), real estate consultants (RealNet) and housing economists (RBC Economics).”

“Key meeting highlights include:
• Canadian government changes to mortgage insurance rules and OSFI final mortgage underwriting guidelines announced last week were generally viewed as prudent, but unlikely to cause a housing downturn.
• Housing is already slowing in Canada with certain markets moderating earlier than others (e.g., Vancouver has been moderating for many months whereas Toronto more recently is showing signs of cooling) with general expectations that housing going forward is likely to continue moderating but that a housing downturn scenario appears unlikely for now.
• Key risks to the housing market include: (1) declining consumer confidence; (2) rising unemployment; (3) within the condo market, a surge of supply into the market; (4) deteriorating global macro developments; and to a lesser extent in the near term (5) rising interest rates.
• Toronto and Vancouver housing markets are overvalued with some suggesting the degree of overvaluation to be about 10%–15%.
• Lenders have tightened mortgage loan underwriting (beyond what was required due to mortgage insurance rule changes) likely reflecting the more uncertain macro environment and OSFI’s new mortgage underwriting guidelines.”

Some (excerpted) entity specifics of possible interest:

1. Scotiabank
– Condo exposure in Canada is $13 billion.
– A stressed housing scenario is unlikely to be a significant credit issue for Scotiabank’s mortgage loan book, but potentially could be meaningful for other parts of the bank’s loan book. Small business owners tend to be relatively more resilient, but credit card loans are where there would likely be relatively higher losses.
– Loan loss provisions are low at 0.01% of loans.

2. RBC Economics
– See strong immigration going forward to help housing demand.

3. Genworth MI Canada
– MIC estimates that the high LTV market is about 35% to 40% of the market, having peaked closer to 45% during the current housing cycle and might have bottomed at 30% during the recent downturn in late 2008/early 2009.

4. Tricon Capital (North American real estate investor and asset manager [primarily multi-unit/condos in Canada])
– Tricon is cautious on the Toronto and Vancouver condo markets (only 3 deals done in Toronto since 2007/2008).
– The company sees much better investment opportunities in U.S. housing vs. Canada on a risk-adjusted basis.

“For my parents to be getting a 500K+ 25yr mortgage at age 62 with 51K income seems to me completely ridiculous and crazy. How could they have been pre-approved for this?”

“There’s been a recent development within my family that is causing me a lot of distress.  My parents are 62. My father takes in 40K after tax as he gets disability payments for the rest of his life and my mom does not work. They also take in 11K a year from renting out the basement of their Vancouver special which they bought in 1989 for 179K. On Friday, they told me they bought a 800K+ house in Burnaby using a 300K downpayment from a condo they sold in 2010. I don’t think the deal is final as they are getting a house inspector to look at the place on Monday. However, they claim they were preapproved for a 25 year mortgage. They plan to rent out the top suite to my brother, sister-in-law and their newboard for $1200 a month, and they also will rent out the basement suite.

To me, getting a 500K+ 25yr mortgage at age 62 with 51K income is just completely ridiculous and crazy, especially with the recent developments and current malaise of the market. They always spout the same nonsense about how house prices can’t go down, running out of land, house prices being propped up by mainland Chinese & drugs, Canadian banks more prudent than Americans.

So my question is how could they have been pre-approved for this mortgage 10x their income at age 62? It just seems impossible to me. Am I missing something or is there some loophole where a financial institution would actually lend this couple this much money? I am desperately trying to convince them not do this but this ‘can’t lose’ Vancouver real estate mentality is just too hard to break.”

tektite at VCI 24 Jun 2012 8:53pm [hat-tip ‘AP’]

“We’ve always used our line of credit to pay our bills and credit cards. We’d then refinance our mortgage to pay off our line of credit. We’ve never had trouble making our mortgage payments so we were a little surprised when the bank told us we don’t qualify for our usual refinancing.”

“We’ve always used our line of credit to pay our bills and credit cards. We’d then refinance our mortgage to pay off our line of credit. We’ve never had trouble making our mortgage payments so we were a little surprised when the bank told us we don’t qualify for our usual refinancing. Now we’re not sure what to do because our credit line is maxed and it’s only a matter of time before we can’t afford the payments. Help!”
– from ‘Living within your means; Deal with debt by budgeting and consulting a professional’, The Province, 3 July 2012 [Hat-tip Alexcanuck and too much debt]
See the whole article for the suggestions from the credit counsellor. Excerpts:
“Anyone with a mortgage insured by Canada Mortgage and Housing Corp. cannot owe more than 80 per cent of the value of their home when they refinance their mortgage. This change will affect countless people who have been relying on their home as a money tree.” …
“If you don’t have enough money to make all of your payments, start seeking help to consider other debt consolidation options. There are a number of debt consolidation options our credit counsellors discuss with clients every day. These include loans, mortgage refinancing when possible, credit counselling repayment programs, settlements and consumer proposals.
If clients have assets they can sell it may be worth cashing in some investments. They may also be able to use their home to generate a little extra income.”

These guys have been living off ever increasing debt, and now they are puzzled and perplexed when they hit the inevitable wall. Are there really “countless people” out there this foolish?
Also, note that the advisor doesn’t mention selling their home and renting or downsizing. Probably because they have so little equity in it, it’d not solve anything.
– vreaa

For The Record – e-mail From Mortgage Broker Regarding Rule Changes

“Here is an email I received from a mortgage broker who sends me spam emails in disguise of information….just though you may find it interesting…

Dear xxxx:

Last week the Ministry of Finance and OSFI (Office of the Superintendent of Financial Institutions) announced several new tougher guidelines for mortgage qualification. This week it’s apparent that many borrowers are unaware of 2 important details:

1. The Effective Date of the new rules is July 9th (in 7 business days). * Applications must be submitted before this date;
2. BOTH Insured and Conventional (Uninsured) mortgages are affected.

Briefly, the major changes are:

* Maximum LTV (Loan-to-Value) reduced from 85% to 80%.
* Maximum Ammortization reduced from 30 to 25 Years.
* Maximum GDSR (Gross Debt Service Ratio) reduced from 44% to 39%

* Maximum Ammortization reduced from 30 to 25 Years.
* Maximum GDSR (Gross Debt Service Ratio) reduced from 44% to 39%.
* Maximum Purchase Price now $1M.

Additional Changes:
* Line-of-Credit LTV reduced from 80% to 65%.
* Increased Qualifying Interest Rates.
* Increased income verification / reasonability tests for ‘Stated Income’
* Cash Back programs may no longer be used for Down Payment.

Some affects of the new rules are obvious, such as greatly reduced purchasing power. Example: A borrower with an annual income of $65K and 5% Down Payment can purchase a $500K home before July 9th and a $410K home after the deadline. However, many of the affects aren’t as apparent for existing borrowers. Example: If the same borrower with an annual income of $65K purchased a home 4 years ago at $500K with 10% Down Payment and Variable Rate Mortgage at Prime -.75% with 35 Yr. Ammortization, even with a 5% Property Value increase ($525K), the current Loan-to-Value is 83%. After July 9th, the borrower would Not qualify for their existing mortgage both because their service ratios and Loan-to-Value are exceeded. Therefore, they are unable to shop competitively for Refinance, Transfer, Debt Consolidation, Equity Take-Out etc. and most likely limited solely to the Conversion and/or Renewal offers (ie. Posted Rates) from their existing lender.

Considering the new rules are intended in part to cool the housing market (and possibly reduce values), an increasing number of borrowers could be affected.

Today’s Best Fixed Rates:

1 Year @ 2.89%
3 Year @ 2.69%
4 Year @ 2.95%
5 Year @ 3.05%
10 Year @ 3.83%

Very Best,

too much debt at VREAA 28 Jun 2012 8:21pm

Moody’s – “The government’s moves may have come too late, owing to the build-up in consumer debt that has already occurred.”

In a weekly credit outlook report published Monday, Moody’s analysts William Burn and Andriy Stepanyants said shorter loan amortization periods should immediately cool home sales by requiring increased monthly payments.
“The government’s moves may have come too late, owing to the build-up in consumer debt that has already occurred.” In addition, slowing growth in household disposable income will be a challenge for consumers trying to pay down their debts, they said.
The analysts note that previous mortgage rule changes beginning in 2008 had “some effect” in countering the stimulus provided by historically lower interest rates, yet they “failed to stop Canadian household leverage from increasing.”
“Canadian consumers’ reliance on low interest rates to support high debt loads remains a risk.”

– from ‘Mortgage changes ‘may be too late’: Moody’s’, Financial Post, 25 Jun 2012 [hat-tip pennysaver]

‘Is Canada Too Smug About Its Economic Future?’, Bloomberg, 25 Jun 2012
Excerpt: “..there’s increased grumbling these days that not all is well north of the border—and not just because low interest rates and high housing prices have helped push household debt to the point where Canadians now owe an average of $1.52 for every dollar they earn. Economic growth has slowed, with annualized GDP growth up 1.5 percent in the first quarter, when the Bank of Canada had expected a 2.5 percent increase. Some of that is no doubt due to misery in other parts of the world, which has dampened demand and rattled investors. But it’s not the only factor that’s bothering Glen Hodgson, chief economist at the Conference Board of Canada, a prominent Ottawa-based think tank. Hodgson put out a commentary on June 25 entitled “Don’t Be Too Smug, Canada” that points to other challenges he feels are not being adequately addressed.”

What It Now Takes To Afford These Vancouver Homes

Richmond house priced at $1,019,100: With a 5% down payment of $53,650.90 you need a minimum annual income of $200,000 to qualify for a high-ratio 25-year mortgage. Monthly payment: $4,871.31.

Vancouver east side house priced at: $862,200: With a 5% down payment of $43,110 you need a minimum annual income of $156,000 to qualify for a high-ratio 25-year mortgage. Monthly payment: $3,914.23.

Average-priced Metro condo: $460,671: With a 5% down payment of $23,033.55 you need a minimum annual income of $84,000 to qualify for a high-ratio 25-year mortgage. Monthly payment: $2,091.36.

– from ‘New mortgage rules: Can you afford these Metro Vancouver homes?’, Vancouver Sun, 22 Jun 2012

Impact On ‘Luxury’ Market – “Last week, he secured a mortgage approval for more than $1.25-million for a couple that he worries can’t afford the home, a situation he sees often.”

The measures announced by Mr. Flaherty will also have an effect on the higher end of the market, because homes at $1-million or more will no longer be eligible for mortgage insurance, meaning the buyer must have a down-payment of at least 20 per cent.
“I think that the luxury home market will be significantly impacted by it,” said Calum Ross, a mortgage planner who works with many buyers in Toronto’s high-end market.
He thinks that’s a good thing. “It’s ridiculous that these people have ever been allowed to get high-ratio mortgage insurance,” he said. Last week, he secured a mortgage approval for more than $1.25-million for a couple that he worries can’t afford the home, a situation he sees often.
“I told them they were taking on too much risk,” he said.

– from ‘Tightened lending for mortgages will cool market – but by how much?’, Globe and Mail, 22 Jun 2012 [hat-tip fatjay]

Of course, in Vancouver, ‘luxury’ is your average SFH.
We anticipate the mortgage tightening rules will affect the market at all price levels.
– vreaa

“Thanks, Flaherty, you’ve just put millions of Canadians ‘underwater’. Thanks for making my home worth less than what I paid for it 6 months ago.”

“Thanks Flaherty, you’ve just put millions of Canadians ‘underwater’. Thanks for making my home worth less than what I paid for it 6 months ago. I have no problem affording my mortgage no matter if rates went up or whatever. I waited years and years to buy a home, people keep telling me to wait and wait, so I did but there seemed to be no end in sight to the prices. After waiting 7 years I decided to just do it. I don’t have any regrets but I fail to see how changing mortgage laws is going to help people, it only serves to help corps renting out to people making home ownership even further out of reach. In the past 7 years of renting and waiting I’ve spent nearly 100,000 on rent. What a waste. You [bears] are always telling others to wait…do you even own a home yourselves?”
– Jasonn in two comments at the Globe and Mail, 21 Jun 2012

“..people keep telling me to wait and wait, so I did..”
No, you didn’t, you bought.
“I fail to see how changing mortgage laws is going to help people.”
Easy: prices will drop, then drop more, and eventually come vaguely into line with underlying fundamental values (plus, of course, the modest Vancouver-warm-weather-premium). Then people will be able to purchase homes at remotely reasonable prices.
“In the past 7 years of renting and waiting I’ve spent nearly 100,000 on rent. What a waste.”
How much have you wasted on food during that same period?
“I don’t have any regrets..”
(translation: “I have regrets..”)
– vreaa

Mortgage Rule Changes – “Wealthy people can borrow whatever they want from banks, and they can work that out from banks. That is not my concern.”

The mortgage changes are all over the news today:

‘Ottawa caps insured mortgages at 25 years’
CBC, 21 Jun 2012

‘Flaherty clamps down on mortgage rules to cool overheating market’
G&M, 21 Jun 2012

‘How Jim Flaherty’s new mortgage rules will sink house prices’
G&M, 21 Jun 2012

‘Canada toughens borrowing rules to cool housing market’
Reuters, 21 Jun 2012

‘Finance Minister Jim Flaherty tightens mortgage rules’
Vancouver Sun, 21 Jun 2012

‘Canada Tightens Mortgage-Financing Rules’
Wall Street Journal, 21 Jun 2012
[“Canadian Finance Minister Jim Flaherty dramatically tightened the country’s mortgage-financing rules—the fourth time in four years—as officials here struggle with what they have increasingly worried is an overwrought housing market.”]

‘Canada’s Flaherty Tightens Mortgage Rules to Avert Bubble’
Bloomberg, 21 Jun 2012

‘Ottawa’s new mortgage rules will lead to ‘long-term stability’: Carney’
G&M, 21 Jun 2012

‘Shrinking CMHC, the beast at the centre of housing market’
G&M 21 Jun 2012

“Flaherty also moved to cap the maximum gross debt service ratio at 39 per cent and the maximum total debt service ratio at 44 per cent in order to get CMHC insurance. Those two ratios are technical limits on how much debt a borrower is allowed to take on as a percentage of their overall income. This move, too, is aimed at making sure a borrower can’t bite off more than he or she can chew.
The final change was to limit CMHC insurance to homes priced under $1 million. In addition to not being able to access CMHC insurance, Flaherty said the new rule will be that a buyer of a home priced higher than $1 million must have 20 per cent or at least $200,000 down.
“Wealthy people can borrow whatever they want from banks, and they can work that out from banks,” Flaherty said. “That is not my concern.”

CBC news, 21 Jun 2012

Some find the moves surprising, but we don’t. This is an attempt at using the ‘scalpel’ that many have called for. The BoC is unable to raise headline interest rates to curb RE borrowing, so the mortgage tools have to be used. Canadians were not listening to the calls for prudence, and RE continued to run up in fashion that we know those in Ottawa know is a speculative mania. They are trying to rein this in, and, perhaps as important, they are wanting to be able to say they acted. When Flaherty says “Our government has encouraged Canadians to borrow responsibly; most Canadians have done so”, he wants to now be seen as having stepped in to curb those who were incapable of curbing themselves.

Overall we agree with the moves, they are in the right direction, they will make it harder for people to overextend themselves into mortgage debt, and there will be downward pressure on prices. Any moves that bring housing prices more in line with fundamental values are to be encouraged.

We also see the irony (pointed out by the majority of commenters at sites like the CBC!) of Flaherty now wanting to look prudent when he is in actual fact simply reversing his own prior imprudent moves. It was he who increased amortization length to 40 years in the belly of the mania. He got his timing wrong, as Governments almost always do during manias, and we suspect history will prove this to be true.

The $1M cap is of interest to those watching the SFH markets in Vancouver.
Of course, the average SFH price here has yet to drop below $1M.
Even prior to the introduction of this rule, most SFH buyers over $1M in Vancouver have had >20% downpayment, but a minority haven’t. (We don’t know the exact break-down and we’re not sure if they’ve ever been published anywhere).
But, despite this, we expect this new rule to now spook both the ‘low-ratio’ buyers (those with over 20% to put down), and, more important, the banks. We suspect they realize the market is vulnerable, and they’ll get stricter with everybody, even the person trying to buy a $2.4M west-side Vancouver home with $800K or $1.2M down. Perhaps especially that kind of buyer. So it’ll be of interest to watch the effect of this change on the high-end areas.
We’d also expect the rule to offer some temporary support for Vancouver SFHs in the $800K-$1M range, as one will assume there will be buyers at those levels who previously could have stretched to >$1M but now can’t. We have previously predicted that the most likely trajectory for Vancouver prices would be a drop to 2009 lows, a bounce, and then a plunge through to a trough target of 50%-66%-off the highs. These new rules may speed the drop to below $1M, offer some transitory support just below $1M, but not make a big difference to the ultimate price targets.

These mortgage changes will likely speed the demise of the Vancouver RE bubble, and we suspect they will give some folks something to blame on the way down. Prices were set to collapse of their own accord, regardless, but most people like to be able to point to a cause.
– vreaa

Mortgage Rules Tighten

“The federal Finance Department is moving to further tighter mortgage rules to address concerns over high Canadian household debt. The government announced Wednesday it will reduce the maximum amortization period for a government-insured mortgage, lowering it from 30 to 25 years, and also drop the upper limit that Canadians can borrow against their home equity from 85 per cent to 80 per cent. …
Under the new rules, mortgages amortized over a period longer than 25 years will no longer qualify for CMHC insurance, making it effectively impossible to get a highly leveraged mortgage of more than 25 years in Canada. …
Canadian mortgage rates have been near record lows for months. …
CMHC first introduced insurance for 40-year-amortizations in 2006, when it also moved to provide mortgage insurance on 100 per cent financing.”

– from ‘Mortgage rules to be tightened further by Ottawa’, CBC News, 20 Jun 2012 [hat-tips to Told-you-so and Dimitri Tishchenko]

Easy Money Fuelled The Vancouver RE Mania – “Suddenly in about 2006 or so, we were able to borrow as much money as we wanted and didn’t have to prove anything.”; “I work in the financial industry and I see people with huge loans their incomes can’t justify all the time.”

“A lot of first time buyers don’t realize how qualification for a mortgage has worked historically since the about 1950. We have had multiple mortgages since 1987. In order to qualify for a mortgage between 1987 and 2006 (approx.), we had to prove income as follows:
1. three most recent tax returns
2. they averaged our income over those three years
3. provision of pay stubs
If you were self employed:
1. three most recent sets of financial statements
2. they averaged the income from those three years
3. provision of pay stubs for any supplementary income
We were never able to borrow more money than proven income could justify. With our last mortgage before all the EASY credit, the bank didn’t even want to give us a 25 year amortization, since we were approaching 50 years of age.
Suddenly in about 2006 or so, we were able to borrow as much money as we wanted and didn’t have to prove anything. In addition, we were able to change our amortization in the middle of our mortgage term, without penalty (reduce our monthly payment). No income verification took place and we were offered a 30 year amortization automatically.
Now everyone wonders how we got here? Lending money to people who can’t afford to pay it back is a recipe for disaster. Welcome to disaster.
We don’t own a house anymore, we are sitting on a pile of cash and renting…happily.”

– Canayjun at VREAA 5 Jun 2012 10:24am

“I work in the financial industry and I see people with huge loans their incomes can’t justify all the time. It astounds me. I spoke with a mortgage broker who told me that in recent years, people would apply for a mortgage and show their notice of assessment from their tax returns. The income on the NOA would be about $10k, however they would state their income much higher, and the mortgage would be approved based on this higher amount. It was ridiculous. A mortgage broker from a bank also called me to verify that one of my clients was self-employed “Sure,” I said, “but he’s never actually made a dime from this business, in fact he’s always had losses.” The mortgage broker assured me that that was no problem, they just needed to know he was “self-employed.” And I know for a fact that this individual was not rolling in unreported income either, maybe a little ($10k at most) but not a lot. He and his wife are essentially living on credit. There is big trouble coming.”
– pricedoutfornow at VREAA 5 Jun 2012 10:59am

“A very senior colleague refinanced his home repeatedly to acquire new properties. Freaked me out, the 7-digit loans.”

“A very senior colleague refinanced his home repeatedly to acquire new properties. I knew about his acquisitions, as I was asked to witness some documents. Freaked me out, the 7-digit loans.”
ToL at VREAA 28 may 2012 11:16pm

Looks great on the way up; ghastly on the way down.
Or, for the benefit of those who haven’t heard how Buffett put it: “When the tide goes out, we’ll find out who has been swimming naked.”
– vreaa

“…a long list of organizations that have weighed in on the matter of the Canadian residential housing market.”

“DBRS, the Canadian headquartered credit rating agency, has joined a long list of organizations that have weighed in on the matter of the Canadian residential housing market.
Like many of those previous studies and against the background of concerns being raised by the federal government and the Bank of Canada, DBRS found some positive — and negative — aspects about the sector that seems to consume Canadians. And with good reason: in many cases, the family home is the largest source of household wealth.
For instance, despite record high levels of household debt, DBRS argued that Canadian households have net worth that could withstand a property value decline of 40%.
But “rising household financial leverage and reduced affordability are of concern, rendering Canadian households stretched thin and vulnerable to liquidity shock or cash flow shortage, such as loss of income or unexpected expenses,” wrote DBRS.”

“DBRS said that “a combination of higher interest rates, lower property values and a drastic increase in unemployment would be of great concern as mortgage defaults are closely related to employment and individual family situations.”

– from Rising mortgage debt rendering ‘Canadian households stretched thin’: DBRS, Financial Post via The Province, 24 May 2012

OSFI’s Melessanakis Asks “Are Canadian banks equipped to handle a 40% drop in home prices?”; Mortgage Broker McLister Retorts “The idea of 40% price drops is ‘farcical’”

Previous failures of Canadian financial institutions were due to bad real estate lending and sharp falls in housing prices, and these can happen again, Vlasios Melessanakis, manager of policy development at the Office of the Superintendent of Financial Institutions, wrote in documents obtained by Bloomberg News under freedom-of-information law. …
“Canada is not immune,” Melessanakis wrote March 21 in internal notes responding to a posting on a mortgage-industry website. “Just because nothing happened in Canada in 2008 (a U.S.-centered crisis), does not mean that Canada is not vulnerable to a housing correction now.”
Melessanakis wrote his comments to colleagues in response to a posting on a mortgage-industry website, Canadian Mortgage Trends, that criticized proposed standards published by Canada’s top banking regulator on 19 Mar 2012.

Ottawa-based OSFI suggested requiring lenders to take “reasonable steps” to verify borrower incomes, establish standards for measuring borrowers’ ability to pay their debts, and limit the size of loans secured by the equity in people’s homes. The draft guidelines are based on mortgage-lending principles set by the Financial Stability Board, a Basel-based group that coordinates global financial rules.
“How many new lending ‘guidelines’ can the market bear before it breaks?” wrote Robert McLister, a mortgage planner who edits the website.
“The market may break because the fundamentals are not sound (i.e. overvaluation of homes), not because of OSFI guidance,” Melessanakis wrote in response.

There’s “no question” the proposed OSFI guidelines will curb demand and hurt housing prices, McLister said in an interview. “OSFI had good intentions here, but some of this policy is certainly misguided,” he said, when asked to react to Melessanakis’ comments.
McLister pointed to banks’ low arrears rates on mortgages as evidence more rules aren’t needed. Melessanakis wasn’t convinced.
“This can change fast,” he wrote in his notes. “Are the banks equipped to handle a 40 percent drop (what occurred in Toronto market in early 1990’s)? Need to stress test to find out.”
McLister called the idea of a 40 percent decline in housing prices across the country “farcical.” Such a decline is “not going to happen, period. But in some places like Vancouver, maybe Toronto, obviously you’re going to have greater risk there of price volatility,” he said by telephone.

OSFI’s guidelines suggest lenders limit home-equity lines of credit to 65 percent of the property’s value. The regulator also recommends that HELOCs be paid off over a specific amortization period, like conventional mortgages.
While McLister wrote that those rules “portend a big slowdown in HELOCs,” Melessanakis responded that the loans have “contributed significantly to growing overall household debt.”
“This is not sustainable,” he wrote. “If (or when) housing prices drop, households will be vulnerable,” echoing comments made by Flaherty and Carney.
Melessanakis also disputed McLister’s point that many of OSFI’s recommendations are already employed by “scores of lenders.” “Not all, and not on a consistent basis,” the OSFI official said. “There are some enhancements in lending practices that are needed.”

– from ‘Banks Not Immune to Housing-Related Failures: Corporate Canada’, Bloomberg, 15 May 2012

Forty percent off is a fair downside target, but we see it going lower.
The ‘farcical’ quote will be archived in the ‘Bull Hubris’ sidebar, for ease of future reference.
– vreaa

Ben Rabidoux at Macleans – “Those who try to explain real estate prices in Canada without acknowledging the role of easy, accessible credit over the past ten years or so have completely missed the boat.”

“The next decade for real estate in Canada will be fundamentally different than the last. Our aging population, a mismatch between where our prices are and where they should be based on our economic performance, and rising interest rates are all reasons for this. However, the greatest difference will be in the availability of credit going forward, and those who try to explain real estate prices in Canada without acknowledging the role of easy, accessible credit over the past ten years or so have completely missed the boat.”

“Despite three rounds of mortgage rule changes since 2008 that largely corrected previous mistakes, we’ve seen a decade of extraordinarily loose lending in Canada. But the era of cheap credit may soon end–and possibly quite abruptly. News has come from Canada Mortgage and Housing Corporation and the Office of the Superintendent of Financial Institutions Canada, Canada’s chief financial regulator, that major changes are on the way, and it’s hard to understate how significant they may prove to be.”

[Ben then elaborates on] the three changes:
1) CMHC will drastically draw down on mortgage insurance.
2) OSFI targets HELOCs and conventional mortgages.
3) “Increased oversight of CMHC” coming.

– Ben Rabidoux of The Economic Analyst, now also an analyst at M Hanson Advisors, at Macleans.ca, 23 Apr 2012

A brief, ‘must read’ article.
Significant for it’s appearance at Macleans.
Thanks Ben.
We are in complete agreement that far and away the major force driving our speculative mania in housing has been cheap credit.
– vreaa

Robert Shiller – “We should be hoping not for price increases, but for prices that are formed in markets in which all people participate with realistic expectations, prices that reflect contracts that treat everyone fairly and that reward good behaviour.”

“…we should be hoping for better financial arrangements, a democratised and humanised financial capitalism, not for some price increase. We should be hoping for prices that are formed in markets in which all people participate with realistic expectations, prices that reflect contracts that treat everyone fairly and that reward good behaviour.
Thinking that large home price increases would be a good thing seems very widespread. But the effects of any such future price boom would not be so clearly beneficial, and would depend on the causes of the price increase and the financial arrangements that were made for them. The issues are much more complex than most people seem to imagine.”

“Price increases were related to a loosening of credit standards and weakening of the banking system due to complacency about the possibility of price falls. The result has been serious trouble in the banking sector, and the necessity for government bailouts.”

“Home price increases were also related to unrestrained and unrealistic public expectations for future price increases. In a survey of homebuyers in four US cities that Karl Case and I carried out in 2004, at the peak of the housing expectations, we found that the (trimmed) mean home price increase expected for the succeeding 10 years was 12.6 per cent a year. Maybe our respondents didn’t quite understand what they were implying: that would mean more than a tripling of home prices in the succeeding 10 years from an already high level.
At the least, home buyers must have thought they would make a ton of money: those who borrowed 90 per cent of the money to buy their house in effect saw their investment levered up 10 to one, and so these high expected price increases would be magnified 10-fold for their investment. No wonder people felt so pleased with the boom while it lasted.
Already eight of those 10 years have passed, and the actual rate of increase in US nominal home prices on average for the eight years was minus 3.6 per cent a year. Long-term public expectations were way off. And yet, even in the fact of this evidence, expectations have come down only slowly and gradually. Expectations for annualised 10-year price increases dropped to 5.6 per cent a year by 2011, though that is still high: it would imply a doubling of home prices in about a dozen years.”

“We should also hope for some fundamental change in our mortgage institutions so that the problem that got us into this housing crisis will not be repeated. In my book I talk about new types of privately issued mortgage that would go a long way towards preventing the kind of financial crisis we have just been through. I have proposed a continuous workout mortgage that has a pre-planned and continually adjusted workout written into the original mortgage contract. Issuers of such mortgages would be in effect selling insurance on home price declines as part of their mortgage package.
[My colleagues and I] have shown how these mortgages should be priced to yield a normal profit for private issuers. By creating such mortgages, issuers would be bringing the financial theory of risk management to the broader public, thereby helping to democratise finance.
We should also hope for better liquid markets for home price risk that would provide price discovery for future home prices, and a hedging vehicle to help mortgage originators to better kinds of mortgages without overburdening themselves with home price risk. That would be more good news.
Ultimately, what we really should be hoping for is not home price increases but democratisation and humanisation of the financial infrastructure. Such improvements are unambiguously good, and are things we can make happen. It need not be just a hope.”

– excerpts from ‘The property predicament’, by Robert Shiller, Financial Times, 21 Apr 2012 Shiller is a professor of economics and finance at Yale University,
[Image from same article]

Shiller’s suggestions may seem irrelevant to those desiring ‘affordable housing’ in Vancouver but they are not. Our bubble is the result of the same mispriced risk (too easy lending) and “unrestrained and unrealistic public expectations for future price increases” to which Shiller refers.
The particular problem for us is that we are at a different stage of the cycle, our bubble remains inflated. We believe that far and away the most probable outcome is very large price drops.
Perhaps some of the suggestions that Shiller and his colleagues make could be incorporated into our Canadian mortgage system, but we anticipate there will be little appetite for this until our housing markets suffer very severe setbacks.
– vreaa

You Go, Girl! – “She was ready to start climbing the property ladder and he wasn’t. She hopes women have the courage to leap confidently into homeownership. Work within the budget (she laughs).”

“I have a single friend sitting on the fence between buying and renting. She’s financially ready to make the leap into homeownership, but hesitant about doing it solo in case she meets someone soon.
Waiting for Mr. Right can derail a number of women’s homeownership plans, according to Sandra Rinomato, a realtor and owner of a full-service brokerage in Toronto.
“I can’t tell you how many times a client asks what she’ll do if Mr. Right comes along, and I always say if he does, then okay, you can keep the investment in your portfolio and rent it, he can move in, or you sell it and take the equity,” she says. She speaks from personal experience, having at one point purchased property on her own while in a serious relationship. She was ready to start climbing the property ladder and he wasn’t.

More and more single women are entering the market, making up roughly one in four new buyers, according to Ms. Rinomato, who is currently hosting the new HGTV series, Buy Herself, focused on helping singles navigate the world of real estate.

“If I could pull a rabbit out of a hat I would, but we work within the budget,” laughs Ms. Rinomato. Searching outside your financial scope can derail the process, or financially stretch you further than you should be if you fall in love with something a few rungs out of your reach on the property ladder.
Aside from down payment, monthly mortgage costs, and emergency funds for the unexpected, it’s your responsibility to have a grasp on the countless other costs associated with buying your first place, like inspection, legal, and appraisal fees.

Ms. Rinomato says it’s not unusual for solo buyers to have unrealistic requirements. … A strong team in your corner is also essential for a first-time buyer, and an understanding of the steps of buying, and how to will help you make the right investment decision. … She hopes her new TV series inspires women to at least ask if this is the right time to buy and not to hold back because they’re scared, or don’t think it’s an option, or think Mr. Right is around the corner. More importantly, she hopes women have the courage to leap confidently into homeownership if the time and the investment is right.

‘Finding the right home, with or without Mr. Right’, Angela Self, G&M, 20 Apr 2012 Angela Self is “one of the founders of the Smart Cookies money group and writes a weekly column on managing debt and saving money at the Globe and Mail”.
[hat-tip theragingranter]

Careful feminist analysis of the article would be appreciated; any takers?
“A strong team in your corner is essential for a first-time buyer”: let’s guess… a realtor and a mortgage broker, right?
– vreaa

From the comment section of the G&M article:

“Is anyone else amused by the fact that a show enticing single women to buy into the very peak of the condo bubble, and thus committing financial suicide, is being marketed as “female empowerment”? I’m thinking it’s time to short Lululemon stock. … In a few years HGTV can do a follow-up program called “Sell Herself”. That’s what many of these women will be doing in order to hang onto their negative equity condos.” – Alistair McLaughlin

$10K Length Of Rope For New Buyers – “I think it’s fantastic. A lot of people are surprised at how much they can afford when they actually sit down with someone. It definitely helps people get into the market younger.”

The new $10,000 bonus for first-time buyers of new homes will likely help a lot of potential buyers make the leap into the real estate market, a mortgage expert says.
Ryan McKinley, mortgage development manager at Vancity, said he’s had a lot of calls from buyers seeking to understand the bonus, but no one who has yet bought a home because of it.
“Mortgages have been top of mind for many people lately, and the calls that I’ve been getting have been in regard to clarity — what this is, and can they take advantage of it,” McKinley said. “Spring tends to be a popular buying season.”
The bonus, a one-time refundable personal tax credit, equal to five per cent of the purchase price of a home to a maximum of $10,000, was announced last month in the provincial budget. The bonus is still subject to legislation, which is expected to be introduced sometime this spring.
“I think it’s fantastic,” McKinley said. “I think it will definitely make it easier for people to get into the real estate market and if they’re thinking about it, that might be the deciding factor.”
He said because the $10,000 will come directly to purchasers in the form of a cheque, it will be possible to apply it in several different ways. Someone could take a loan from their parents or a line of credit from a bank to make a down payment, then repay it when the bonus comes through.

“A lot of people are surprised at how much they can afford when they actually sit down with someone,” McKinley said.

McKinley said Vancity also has a “mixer mortgage” where roommates can go together to buy a home they wouldn’t be able to buy otherwise.
“It also works well for parents and children, because the parents can own part of the home as an investment, while it helps the child get into the market,” McKinley said. “It definitely helps people get into the market younger.”

– excerpts from ‘$10k home-buyer bonus sure to spur first-timers: mortgage expert’, Vancouver Sun, 19 Apr 2012
[hat-tip Zerodown, who commented “The glass is overflowing at VanCity”]

The contradictions are so obvious, they must be apparent to everyone.
BOC Governor Carney implores Canadians, for the 6th or 7th time, to take on less debt.
BC Provincial Government adds teaser loans to already criminally cheap mortgages to tip the last marginally qualified young buyers into the market. Shame on everyone involved.
– vreaa

“Check-out clerk at Safeway told me that she was a mortgage broker who had just done a deal by telephone with a guy from Shanghai who had bought a house in Richmond.”

“Vancouver moment today. Check-out clerk at Safeway in Vancouver was talking to a co-worker about her phone call from Shanghai. I asked what was she doing, and she told me that she was a mortgage broker who had just done a deal with a guy from Shanghai who had bought a house for his aged parents to come over and live in Richmond.You can’t make this stuff up!!!!”
– Westsider at greaterfool.ca 16 Apr 2012 10:42pm

Reader Question – “What Percentage Of Residential RE Sales In The Lower Mainland Are CMHC Insured?”

A reader has e-mailed us requesting a percentage breakdown of residential RE sales in the BC lower mainland by:
1. CMHC insured
2. non-CMHC insured
3. cash sales.
A very fair question for anyone interested in the local RE market, but not a straightforward one to answer. We have e-mailed a few knowledgable sources who have come up with useful but indirect answers.
Is there anybody out there who can give us an accurate answer?
What percentage of residential RE sales in the lower mainland are CMHC insured?
Thanks. – vreaa

Federal Budget – No Changes To Mortgage Lending

“In fact in the entire budget, for which at least one medium forest died, the words “mortgage debt” do not appear. No cautions about overborrowing or the dangerous amount of collective net worth now stuffed into a single asset.
So much for Mark Carney. His continuous warnings about overheated housing in Vancouver, condo madness in Toronto or the inevitable impact of higher interest rates.”

– Garth Turner at greaterfool.ca 29 Mar 2012

“I had hoped this budget was really going to have some significance, but its totally anti-climatic. Canada is being crippled economically with the biggest ponzi scheme this country has ever seen.”
– ‘Vancouver Mt Pleasant renter’ at greaterfool.ca 29 Mar 2012 6:08pm

It’s what he didn’t say that is noteworthy.
The dog that didn’t bark.
The Finance Minister tippy-toed around the housing bubble, knowing that if he woke the bear, so much else in his budget would become moot. The bear will wake, regardless.
– vreaa

Mortgage Broker – “The government has done plenty to put the brakes on the Vancouver market. It is quite difficult to qualify people for mortgages even for the amount of house they need.”

“The article makes reference to our situation paralleling the US situation, and that is also utter nonsense in so many ways that I wouldn’t even start to get into them all. We do not offer loans at 100%+ LTV, we do not offer teaser loans to subprime clients and qualify them on the teaser rates, and we do not offer NINJNA (no income, no job, no assets) mortgages. As it is, in the Vancouver market, it is quite difficult to qualify people for mortgages even for the amount of house they need. The government has done plenty to put the brakes on the Vancouver market as it is. The harder the government makes it to lend money, the more that the market tilts in favor of the wealthy and the more difficult it will be for average and lower income earners to get ahead. That is a much greater thing to fear for the future.
I have said this many times, but the lending that really needs more regulation is the credit card and unsecured lending industries. What regulation have they been scrutinized under other than a regulation that requires them to disclose how long it takes to pay off a credit card bill with minimum payments? It is that ability to spend money so easily at such high interest rates that is really hurting people. However, the housing market is the one that gets constantly attacked. “Pay no attention to that man behind the curtain.”
I live and work in the highest priced market in Canada, and this is where it is hardest for people to buy. In most of Canada, housing is SO much more affordable than here. Most of the country has nothing at all to worry about.”

– Jeff Evans, Richmond mortgage broker, posting as ‘Jeff’ at greaterfool.ca 28 Mar 2012 9:01pm

“I have been enjoying all the radio, TV and print ads from the major banks telling everyone about 2.99% for 4 years as if they are offering you something special. I do have that available with other lenders as well, but I have something even better… 2.89% for 4 years! That is better than the banks are offering!
Contact me today and we can get you locked in for this special offer.”

– Jeff Evans at his site bc-mortgage-brokers.ca, 20 Mar 2012

What do you call a mortgage that starts at a 2.89% rate and then, after 4 short years, resets to a rate that is perhaps substantially more than that?
“Teaser”, perhaps?
– vreaa

Infographic Argues For A Soft Landing – “Just because it is in the form of a Tintin book, doesn’t make it true.”

– this infographic from ratehub.ca, a ‘mortgage blog’, 27 Mar 2012.
The link was kindly forwarded to us by frequent contributor ‘Zerodown’, who adds:
“I admit to being impressed with the thoroughness of this info graphic. However, just because it is in the form of a Tintin book, doesn’t make it true. An annotated version will be required.”

We think this infographic overstates the strength of Canadian borrowers: 5% has not been the minimum downpayment; 32% of income has not determined the ‘maximum affordability’; 153% debt-to-disposable-income ratio is a very significant level; “Long term low interest rates” do not “shield the market from a bubble burst”.
We personally can’t see a soft-landing (a coolly deflating balloon?) playing out.
Who do we expect to keep buying Vancouver RE at these extremely lofty price levels once the promise of future abnormally large price gains disappears? Because, that is what would be required for a ‘soft landing’; a steady stream of buyers prepared to take out ginormous loans to buy RE that is no longer appreciating, or is very likely dropping, in real terms.
Who do those calling for a ‘soft landing’ propose to be doing that buying?
– vreaa

“CMHC has signalled it will dramatically curtail its growth in the mortgage market”

“Canada Mortgage and Housing Corp. has signalled it will dramatically curtail its growth in the mortgage market in the coming years in an effort to cool Canada’s sizzling housing sector.
Documents released by the Crown corporation this week show CMHC expects to increase mortgage insurance over the next few years at only a fraction of the pace seen recently.”

– from ‘Bank regulator proposes heightened scrutiny of mortgage market’, G&M, 19 Mar 2012 [hat-tip Derp]

This ‘signal’ has been widely discussed across various blog sites.
Headlined here for the chronological record.
This could be enough to crash the Vancouver market.
A soft landing (a ‘cooling’) will not occur, as buyers will not step in at stratospheric high price levels without the expectation of abnormally large price gains going forward.
– vreaa

“I just found out my ex-girlfriend is now a mortgage broker. I shudder to think that someone who was so financially irresponsible is now advising people on their biggest purchase in life.”

“I just found out my ex-girlfriend is now a mortgage broker.
I shudder to think that someone who was so financially irresponsible is now advising people on their biggest purchase in life.
I don’t know what you need for qualifications to become a mortgage broker these days, but she has no degree, worked pretty much in sales and call centers her whole working career, can barely manage her own finances.”

4SlicesOfCheese at VREAA 8 Mar 2012 5:14pm

“I know a number of small business owners who turned speculators and flippers because of their ability to acquire large loans based on poorly reviewed business records.”

“I know a number of small business owners who turned speculators and flippers because of their ability to acquire large loans based on poorly reviewed business records.
One guy has a small business that employs 6 people. He probably pulls out 80-90K per year but the business grosses 2-3 million. No asset value. All service work.
With the help of his crack dealer (mortgage broker) he was able to acquire more than a million dollars in debt to finance a house and another $200K for home renos after the purchase. All this with less than $200K in equity. I was shocked.
When I met the mortgage broker at the house opening party she told me that this was just “how it was done.” All very routine.
How many of these are out there? I guess we going to start finding out in 2012.”

Junius at greaterfool.ca 1 Feb 2012 11:32pm

CIBC, CMHC, Tap The Brakes (While On Black Ice, At 112mph)

“CIBC’s wholesale mortgage arm, FirstLine, quietly announced Tuesday that it will no longer accept new applications from “stated income” homebuyers who can’t prove they have the annual net income to qualify for home loans.
FirstLine also set a $1 million cap on what it will lend for a home purchase.
The major change in policy, which is bound to pique the interest of other major lenders, came on the same day it was revealed that the Canada Mortgage and Housing Corp. could be forced to cut back on the mortgages it insures.
The moves are seen as among the clearest indications yet that Canada’s hot housing market and record levels of household debt are a concern far beyond just the Ottawa offices of Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney. …
“The signs are there that everyone is worried, with the exception of BMO. It’s not like there is just one person saying there is a problem with the housing market,” said Jason Friesen, a mortgage consultant with the Callum Ross Team.
“It’s impossible to know, given all the doom and gloom in the rest of the world, what will happen over the next three months or the next six months, but lending institutions are looking for ways to protect themselves.”

‘Self-employed, new immigrants may find getting a mortgage tougher’, Toronto Star, 1 Feb 2012

The Canada Mortgage and Housing Corp. said Tuesday it “has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance.”
“To ensure equitable access to portfolio insurance within CMHC’s annual limits, an allocation process is being established, which has caused some delays.”…
“The federal government, which ultimately must cover the Crown corporation’s mortgage guarantees, has imposed a $600-billion cap on how much liability the CMHC can take on.
Ottawa increased that from $450 billion in 2008, as the global financial crisis led banks to increase focus on their cash reserves.”

‘CMHC curbs mortgage insurance offerings to banks’, CBC, 31 Jan 2012
[hat-tip allen]

Our bubble/’balloon’ doesn’t need a ‘pin’ to prick it before it implodes, but any nudge could help it past its tipping point. -vreaa

Bloomberg – “Canada’s Subprime Crisis Seen With U.S.-Styled Mortgages”

“Canadian lenders are loosening standards, offering mortgages similar to U.S. subprime loans that pose an “emerging risk” to financial institutions, according to the banking regulator.
Banks and other lenders are becoming “increasingly liberal” with mortgages and home-equity credit lines that don’t require individuals to prove their income, according to 152 pages of documents obtained by Bloomberg News under freedom of information law from the Office of the Superintendent of Financial Institutions. The mortgages, typically granted to the self-employed and recent immigrants, “have some similarities to non-prime loans in the U.S. retail lending market,” the documents show.
“It just speaks to the general easing in lending standards, which has contributed to a booming housing market,” said David Madani, an economist in Toronto with Capital Economics, which estimates that Canadian housing prices may fall 25% over the next few years. “The problem is sort of baked in now, so I’m not sure there’s a way to prevent a weakening of the housing market.”

OSFI head Julie Dickson said in a Sept. 26 speech the agency is “very focused” on mortgages and home-equity lines of credit, which allow individuals to borrow against the equity in their homes. …
Home-equity credit lines without income verification have become “an increasingly popular option,” OSFI says in the analysis, adding that they “pose greater risk” than mortgages because the credit lines are offered at floating interest rates. …
OSFI officials assessed Canadian banks’ potential losses from defaults on home-equity lines of credit last year, the documents show. The results were blacked out under legal provisions that allow the government to withhold commercially sensitive information.

– excerpt from Bloomberg, via FP, 30 Jan 2012
[hat-tip to Makaya and Zerodown]

So, Canadian lending has perhaps been looser than previously celebrated. “Baked in” is the way we’ve previously described the coming implosion.
There is no way of deflating the bubble in an orderly fashion.
Those who propose such a hopeful outcome need to explain who they expect to be buying this year, next year, and the next. Which buyers do they propose now step forward, take out oversized mortgages to buy still extremely overpriced properties, to bail out the many, as the ‘balloon’ deflates in an orderly fashion? It simply isn’t going to play out like that.
– vreaa

TD Training Session Teaches Mortgage Agents How To “Overcome Objections” To ‘HELOC Product’

Sent: January 24, 2012
To: Undisclosed recipients
Subject: Overcoming HELOC Objections and the HELOC process, Wednesday Feb 8, 2012

From: Main Reception [mailto:Admin@XXXXXXXX.com]

 Hello Agents, 
On Wednesday, Feb 8 from 10 – 11AM, my assistant Sarah and I will be putting on a presentation regarding the HELOC product.
Our goal is to discuss the following:
  • The full application process for the HELOC on our end and how we can streamline it
  • Provide you tools(Excel sheets, HELOC calculators) that will ease the process in dealing with clients for you in the future
  • Explain to you exactly what we discuss with the client (and how we discuss it)
  • Overcoming objections that we face and role play overcoming objections that you face
We will also have a detailed Q&A period following the presentation so we can assist in helping you overcome common concerns that we face when working with new clients.
I hope to see you all there!   
Trevor Yerema
Manager, Residential Mortgages
TD Canada Trust
Prairie Region
Phone: 403-466-6654
Fax: 403-770-8382             

– this e-mail passed on to VREAA, 26 Jan 2012 by regular reader ‘Peter Pan’, who also writes:
“A friend forwarded this e-mail to me – a TD Manager, Retail Mortgages is organizing a training session with independent financial planners on techniques to OVERCOME objections from retail clients to HELOCs.  Hey, what better way to shove more debt down clients’ throats, right?
This e-mail really struck in my craw because Ed Clark and the other Bank CEOs rail against Canadians increasing their levels of personal debt while actively encouraging their employees to do exactly the same thing.”
Hypocrisy deserves to be called out. This is what Peter Pan is talking about:
“Less than a year after Ottawa forced the banking sector to cut back on risky mortgage lending, the head of one of Canada’s biggest banks says the federal government should go even further.
Ed Clark, the chief executive officer of Toronto-Dominion Bank, said in an interview that he believes Ottawa could tighten the rules on housing loans more than it already has, without hurting the economy or putting the housing market at risk.”
‘Mortgage rules should be stricter: TD chief’, G&M, 14 Dec 2011

“A friend from Kelowna phoned me wanting to borrow some serious money ($50K). It is time for them to refinance their mortgage; Kelowna prices have collapsed since they bought 4 years ago; they paid $450k a house which is now worth $370k; to refinance at these new rates the bank said they have to bring up their equity to positive status.”

“A friend from Kelowna just phoned me recently wanting to borrow some serious money ($50,000). Of course this friend didn’t expect me to supply all of it but would be grateful if I could chip in a good $10k and they would try scrounge around the rest from other friends and family. Obviously, they had to explain why they needed so much money urgently. According to the explanation:
It is time for them to refinance their mortgage (or is it renew the mortgage). Pardon me, I have never had a mortgage before. Unfortunately, Kelowna prices have collapsed since the time they bought (about 4 years ago). They paid $450k for this nice suburban house which is now worth around $370k. I even went onto MLS and verified the prices in their neighborhood. My friend tells me that in order to refinance at these new juicy rates the bank said they have to bring up their equity to positive status. That is where the $50k shortfall comes in. My friend is at his wits end now. Keep in my mind my friend was being very incoherent during the phone call – I guess a result of the panic and desperation. As a result I had to do my best to piece together the pieces of random information he was throwing at me. However, he did specifically mention regret about getting in at the peak instead of having just rented a place until the crash. Strange! coming from someone who claimed rent was throwing money down the drain when justifying the house purchase a few years back. Also, he is worried about the security of his job.
I sympathize with his situation but, unfortunately, can not lend him the money because I know there is no chance in hell of me getting back my $10k. Also, my $10k will not make any difference considering that it will be almost impossible for him to raise the other $40k. That means I will have to finance the whole 9 yards – now what are the chances of him paying back $50k. I am personally moving to Alberta next month and will be buying my first home and therefore will need all the cash I can get my hands on.
If this is where Vancouver is headed, then there is gonna be some serious misery in this town. Already, Victoria is headed that way. Refinance day will be judgment day (that is if you have not already been laid off before that date). Family and friends will not help you out of this one. Especially, local friends who will also be in the same predicament.”

– IamOuttaHere, sent via e-mail to VREAA, 14 Jan 2012 [Thanks, IAOHere! -ed.]

“When I asked him what is he going to do when they raise the rate, he said “I am just gonna sell the place, and I will get the money back anyway.”

“One of my younger colleagues can barely keeps up with his mortgage at 3.85%.
When I asked him what is he going to do when they raise the rate, he said “I am just gonna sell the place, and I will get the money back anyway”.
This make me think, how many Canadian homeowners have this idea in mind? And when this actually happens, what would be the magnitude of listing waves?”

– azenis at RETalks 15 Dec 2011 6:26pm

Foreigner On Visitor Visa Buys House – 35% Down, 65% Canadian Bank Financing

“Have any [of your readers] ever seen any articles regarding “foreigner mortgage”?
Here is the story – 
One day I attended a lunch in a friend’s house; I did not realize there were her other friends coming over from China and visiting the same time.  During the lunch, our topic was buying house in Vancouver – The friend who was from China was looking for to buy a 2M house and it did not surprise me at all since I have been hearing the story about those wealthy buyer.  What surprised me was the mortgage.  This friend of mine whom is on the visitor visa and that means not yet a Canadian citizen nor Residence.  In the first place, I thought she bought her house in 100% cash since she has no any credit or nothing in Vancouver…  Till, she mentioned to me that she feels that cost of living in Vancouver is very high and I started to asked her what made her think this way; she said the hydro bill, the tax and the mortgage fee…etc.  I was kind of in shocked when I hear “mortgage”.  She later told that she has a 65% loan with the local bank and she has only paid 35% down.  She said she has a business in China and the bank required her to provide some documents from her business in China then she got the mortgage from the Canadian bank.  I had my month wide open – – believe or not.
My question is – is the foreigner really buying the house with whole cash? or it’s sooner going to be Canadian bank’s debt?
I wish someone could provide some comments or stories if they do know anything….. I have been sitting on my cash and don’t want to put them in the bubble market.”

-‘Sab’ via e-mail to VREAA 11 Mar 2011

Can any readers verify whether the described financing scenario is occurring in the Vancouver market?
Further: On an obliquely related note: We recently spoke to a couple with a modest annual income who had used a cash windfall as a 30% down-payment on a BC property. They were puzzled, given the size of their down-payment, that they’d had to undergo such prolonged scrutiny by the lending bank. The degree of scrutiny was likely because their deposit was too high for the mortgage to be CMHC insured. If they’d had only 10% down, it likely would have been quicker and easier for them to ‘qualify’. – vreaa.

“When your credit card is maxed out, you don’t go out and get another one and continue to accumulate debt at 18 per cent interest.”

“Households don’t operate like this and neither should countries. When your credit card is maxed out, you don’t go out and get another one and continue to accumulate debt at 18 per cent interest. Instead, you figure out a way to restrain your spending and you increase your payments to reduce your debt.”
Finance Minister Jim Flaherty, Toronto, 25 Nov 2011

Canadian household debt is now >150% of disposable income, more than the US at the peak of their housing bubble. Our Minister of Finance speaks of austerity yet continues to support loose mortgage lending that encourages more and more Canadians to overextend themselves into more and more debt. – vreaa

Waitress Pre-Approved For $250K Mortgage

“I was just eating breakfast at a little resto in E. Vancouver and I heard the waitress talking to one of the customers about how she just got herself a Realtor(tm) and has been looking for an apartment to purchase. She looked maybe mid-twenties and talked about how she’s tired of throwing away money for rent, she found a place for 178k (I think that’s what she said), and she has a friend that will rent some space from her. She might be moving to Vernon, though, so she’ll just rent the whole place if she does.
This is who buys real estate in this city? I cannot believe that a bank would give her a mortgage. She’s a server at a cafe. She said she’s pre-approved for 250k, but thinks that’s too much, so she’s being conservative! what can you buy on the east side for that kind of money, anyway? I find this; and the Maint fees are 500 pm. Sheesh.:
#502 – 175 E BROADWAY Vancouver. MLS V905512
437 sqft; condo/strata
Ask price $177,000
Maintenance Fees: $498.40 Monthly”

– Oilman at vancouvercondo.info October 12th, 2011 at 11:43 am

Yes, this is who buys RE in this city. Or, more broadly, individuals at different income levels over-reaching to a degree similar to this.
And, wow, those are pretty remarkable maintenance fees, they come close to the mortgage payments (with 10% down, 3% rate, 30 yr amort., monthly payment is $670).
– vreaa

Zero-Down Mortgages In Canada – “Better yet, there are programs available from some financial institutions where they will offer a “free down payment” “

“If you’re a first-time homebuyer, you may feel you can’t afford to purchase a home because you haven’t managed to save your down payment. But there are many solutions available today that can help first-time buyers with their down payments.
Many lenders will allow for a gifted or borrowed down payment. And of those lenders that will not provide this alternative, many offer cash-back options that can be used as a down payment.
Better yet, there are programs available from some financial institutions where they will offer a “free down payment” or a “flex down”. Of course, you will end up paying about 1% more in your interest rate, but the program will help you get in the homeownership door and start accumulating equity earlier. You must, however, stay with the original lender for the full initial five-year term or else you’ll have to pay the down payment back.”
“Now is an Ideal Time to Buy”.

– from an e-mail sent to prospective clients, 5 Oct 2011, by David Lund, Realtor, Prudential Realty, North Vancouver [hat-tip ‘D’]

Remarkably, these are still being peddled. – vreaa

A Mortgage Broker and ‘Sidelined’ Prospective Buyer Living On The West-Side Sees Cooling Market

“A comment from ground zero and an industry player, me. I happen to live on the West Side of Vancouver and I am a mortgage broker so let me give you a first hand assessment here in Lotus Land.
I dropped by an open house yesterday for an 850 sq. foot condo listed at $540K to network with the Real Estate Brokers. (crazy that $540K buys you a 850 foot box)
First thing they asked me is if I was busy as they used my answer as a gauge of the market. Most mortgage brokers in my circle have seen their business drop 30-40% from last year. The two RE Brokers said that their embedded mortgage brokers in their RE office have been slow also.
It is getting significantly harder for mortgage brokers to compete against what the banks are underwriting as brokers are now racing to the bottom with rates. No wonder the banks got a finger wagging from the OFSI.
I asked the RE Brokers if the Asian money is still snapping up properties here on the West Side and they have said that has cooled considerably.
Although they did say lots of boomers are buying condos for their children to get them started in the game.
Maybe since we are all in the industry we could talk frank with each other and put all that Realtor sunshine talk aside.
Vancouver really only has 2 industries, Real Estate and Mining (ok maybe tourism), with China slowing down on buying real estate and commodities it would only make sense that inventories are rising and sales are drying up.
On a more personal note my wife and I have been contemplating buying a home since we had paper profits from her stock options and my stocks, but the downturn in the stock market has wiped a good $250K from our portfolio.
The market needs buyers like myself to perpetuate the next level but for now we are sidelined and watching.”

Dave at The Economic Analyst, 5 Oct 2011 [Hat-tip to Ben Rabidoux for sending this along by e-mail (and to jesse who simultaneously reposted the comment on an earlier VREAA thread). Clearly an anecdote that captured our collective attention.]

So much here:
1. Mortgage broker who recognizes that prices are ‘crazy’.
2. Most mortgage brokers have seen business drop 30-40% yoy.
3. “Asian money” has “cooled considerably”.
4. “Inventories are rising and sales are drying up.”
5. One example of future demand being “sidelined” with stock market fluctuation.
All adds up to a cooling market.
Perhaps the top is in.
– vreaa

Are economists ignoring Australia’s property bubble? – “Many leading economists whose analysis and commentary the public relies upon have so many conflicts of interest it would fill a small book.”

I view of a related discussion on the ‘UBC housing’ thread yesterday, we note this timely Australian article today [from ‘Are economists ignoring Australia’s property bubble?’, Philip Soos, theconversation.edu.au, 20 Sep 2011].

Excerpts –

“One aspect of housing and stock market bubbles continually repeats: the vast majority of economists either miss or deny their existence.
In recent years, enormous asset bubbles have burst in many countries.”

“In Australia, our $2 trillion housing bubble has seen prices rise by 127% from 1996-2010, and every fundamental indicator is off the chart.
But while it seems logical to conclude that Australia’s property bubble will inevitably burst, very few observers seem willing to do so.”

“By definition, an asset bubble requires the vast majority of the public and economists to participate in the mass delusion that prices will endlessly rise.”

“Many leading economists whose analysis and commentary the public relies upon have so many conflicts of interest it would fill a small book. Consultancies, university chairs, endowments, six-figure salaries, and industry directorships comprise part of the package that ensures economic “thought leaders” within government, industry and universities speak the words pleasing to the rich.”

…and, one might add, in Vancouver, we’re ALL ‘rich’.