Changes to mortgage rules immediatly

General Angela Calla 17 Jan

Flaherty tightens mortgage rules

Paul Vieira, Financial Post · Monday, Jan. 17, 2011

OTTAWA — Finance Minister Jim Flaherty unveiled changes Monday morning to mortgage lending rules that would see Ottawa stop backing home loans greater than 30 years and make it more difficult for households to use their property to access financing.

The changes, as reported by the National Post on Sunday, emerged as worries escalate among Bay Street leaders and the Bank of Canada about the record levels of household indebtedness, and how conditions could deteriorate unless pre-emptive action was taken.

The key change announced is that mortgages with amortization periods longer than 30 years will no longer qualify for government-backed mortgage insurance, which is required for buyers with less than a 20% down payment on a home. The previous limit was 35 years.

Also, Mr. Flaherty lowered the maximum amount Canadians can borrow against the value of their homes, to 85% from 90%, on a refinancing; and removed federal government backing for home equity lines of credit, or so-called HELOCs, whose popularity soared in the past decade with growth double that of mortgage debt.

“Canada’s well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries,” Mr. Flaherty said at a media conference. “The prudent measures announced [Monday] build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future.”

Executives at Bank of Montreal applauded the government’s move.

“The actions announced are prudent, measured, responsible and timely,” said Frank Techar, president of personal and commercial banking at Bank of Montreal.

The changes will be implemented in stages, with adjustments on amortization and refinancing limits coming into force on March 18. Government backing on HELOCs will be removed as of April 18.

The government said exceptions would be allowed after the new measures come into force when needed to satisfy a home purchase or sale and financing agreement struck before the March and April in-force dates.

The minimum down payment, at 5%, will remain as is. Further, there are no plans to target condominium purchases by requiring monthly condo fees be added to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage.

Analysts at Scotia Capital said in a morning note the changes had been anticipated for some time. “We remain of our long-held belief that Canada is tapped out on housing and household finance variables that are all at cycle tops, in contrast to the U.S. that has already moved well off cycle tops and may be creating some pent-up demand,” said economists Derek Holt and Gorica Djeric.

The changes to the country’s mortgage rules — the second in as many years — emerge amid rising concern about the record levels of household debt, which measured as a ratio of money owed to disposable income nears a startling 150% as of the third quarter of last year. That surpasses the level of debt held by American households, whose appetite for borrowing helped stoke the financial crisis of a few years ago.

The Bank of Canada recently warned debt levels are growing faster than income, and the risk posed by consumer indebtedness to the domestic economy would continue to escalate without a “significant change” in how consumers borrow and banks lend.

Bank of Canada governor Mark Carney said policymakers have a “responsibility” to look at the benefits of pre-emptive action. Joining the chorus have been chief executives at the big banks, most notably Ed Clark at Toronto-Dominion Bank, in publicly advocating for tougher mortgage standards.

Last Friday, Prime Minister Stephen Harper acknowledged his government was considering changes to the rules governing mortgages.

 In February of 2010, Mr. Flaherty moved to toughen up the mortgage rules amid worries that Canada was in the midst of a housing market bubble. The reforms, since introduced, compelled borrowers to meet standards for a five-year fixed-rate mortgage, even if the buyer wanted a shorter-term, variable rate loan; reduced the amount Canadian can borrow against their home, to 90% of the property value from 95%; and require purchasers of rental properties to issue a 20% down payment as opposed to 5%. The moves played a role, observers say, in slowing down real estate activity.

The Scotia Capital analysts suggested government regulation was the way to go in terms of curbing household appetite for credit as opposed to the Bank of Canada raising interest rates, which they said would be “imprudent” at this time.

The central bank issues its latest rate statement on Tuesday and it is expected to hold its benchmark rate at its present 1% level as signs indicate the economy may be benefiting from renewed business and consumer confidence in the United States.

Stewart Hall, economist at HSBC Securities Canada, said the extraordinarily low-rate environment “provides all the incentive to consumers to borrow and spend and none of the incentive to save. You can try to [regulate] that away but that is apt to be fraught with significant frustration.”
Read more: http://www.financialpost.com/personal-finance/Flaherty+tightens+mortgage+rules/4119505/story.html#ixzz1BIhkDuhh

Potential Changes to qualification on Condo’s

General Angela Calla 14 Jan

Sources say rules now being discussed would add 100% of condominium fees to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage. – Brett Gundlock/National Post

The federal government’s efforts to get tough on borrowing are now focused on the condominium sector, with new rules in the works to make it more difficult to qualify for a loan on a high-rise apartment, the National Post has learned.

Sources say rules now being discussed would add 100% of condominium fees to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage. Currently, only 50% of the fee is considered. The move has the potential to squeeze thousands of consumers out of the market.

“I know for a fact they are talking about it,” said one source close to finance officials who asked not be identified, about the proposal which is part of series of a new rules that the government is described as “seriously considering.”

It is almost a guarantee that the government will once again lower the maximum length of amortizations for a mortgage, down to 30 years from 35. Longer amortizations lower monthly mortgage fees making it easier for consumers to borrow more.

The Canadian Association of Accredited Mortgage Professionals says 30% of new mortgages last year were for amortizations of 35 years, so a considerable percentage of Canadians are taking advantage of the current rules.

About three years ago, amidst a battle for customers between federal Crown agency Canada and Mortgage and Housing Corp and private mortgage default insurers, amortizations lengths rose almost overnight from 25 years to 40 years before Ottawa cracked down. “Going from 35 years to 30 does almost nothing,” said the source, adding that’s why the government is looking at the changes to condominium qualifications.

Ottawa is also still considering a far more controversial proposal to increase the minimum downpayment required to buy a home but it is unlikely to go from the current 5% to 10%, as some have speculated. A 6% to 7% range seems more likely, said the source.

The proposals only affect those Canadians who require mortgage default insurance. Anyone borrowing from a financial institution covered by the Bank Act must get insurance if they have less than a 20% down payment.

“I’m concerned and disturbed if they are making changes, particularly to condos,” said Stephen Dupuis, chief executive of the Toronto-based Building Industry and Land Development Association. “They have already imposed stricter rules and that was plenty.”

In April, 2010 new mortgage rules went into affect that forced consumers to qualify based on a higher interest rate than was on their actual contract. It also required all housing investors, as opposed to people who use a home as principle residence, to have a 20% down payment which mostly affected the condo industry.

Mr. Dupuis said he can live with the amortization period being shrunk but any attempt to increase the minimum down payment will only hurt the market. “There seems to be a fatal obsession with real estate and engineering the real estate market which may be an unhealthy obsession.”

But Ottawa has coming under increasing pressure from the financial industry to tighten mortgage rules. Ed Clark, chief executive of Toronto-Dominion Bank, has called on the federal government to take steps to curb consumer access to bank loans.

The government is said to have looked into imposing new rules on lines of credit but that would be tougher to implement because it would require a change to the Bank Act, said a source.

The condominium proposal would have an immediate impact because the average condominium fee on an existing home is 55¢ a square foot in Toronto, according to research firm Urbanation Inc. which says the average condominium apartment in Toronto is 900 square feet.

Currently only half that approximate $500 in monthly condo fees counts toward monthly expenses for qualifying purposes. To qualify for a mortgage only 32% of gross income can go towards housing, which also includes mortgage payments including principle and interest, taxes and utilities.

Vince Gaetano, a vice-president with Monster Mortgage, said he too has heard the discussion of condominium fees being included in debt calculations and figures it makes sense.

“Yeah, condos provide extracurricular activities like swimming pools, gyms tennis courts and all that stuff. But the reality is you are paying the fee so why make it 50% it should be 100%,” says Mr. Gaetano. “This is going to put some pressure on people. The rules have not changed in ages and this is way before the proliferation of condos.”

Brad Lamb, a real estate broker and developer, said the practice would discriminate against condominium owners. “When you buy a house you don’t put any future maintenance costs [in your debt calculation],” says Mr. Lamb.

“All it is is a knee jerk reaction by idiot bankers pressuring idiot politicians that don’t understand the nature of the condominium market in Canada. What is driving the condominium market in Ottawa, Vancouver, Toronto and Montreal is investors. This won’t affect them. This just attacks the lowly first-time buyer.”

Expect loonie to stay at par with US

General Angela Calla 13 Jan

 

Flaherty: loonie will stay at par with U.S. thanks to “sound” fiscal situation

 

By Lee-Anne Goodman, The Canadian Press

 

WASHINGTON – The Canadian loonie will hover at parity with the U.S. dollar for some time to come, and deservedly so thanks to Canada’s economic strength, Finance Minister Jim Flaherty said Wednesday.

 

“This is a new world,” Flaherty told reporters after speaking about controlling debt at a think-tank discussion at the Woodrow Wilson International Center for Scholars in the U.S. capital.

 

The high Canadian dollar reflects a “sound fiscal situation” in Canada, he added.

 

“It is unreasonable, given those fundamentals, for anyone in Canada to expect the Canadian dollar to go back to the days when it was significantly devalued vis-a-vis the U.S. dollar…. it makes sense for the Canadian dollar to be much closer to the U.S. dollar that it was for some years.”

 

The Canadian dollar hit a two-and-a-half year high earlier Wednesday of $0.9848, or US$1.0154. It closed the day at $0.9869 to the U.S. dollar, or US$1.0133. The loonie’s been at or near parity with the U.S. currency for weeks, a state of affairs that causes headaches for Canadian exporters who get paid in American dollars.

 

That’s why Ottawa is throwing a lifeline to exporters and manufacturers by lowering corporate taxes, reducing tariffs and extending an accelerated capital cost write-off, Flaherty said.

 

The capital cost measure allows companies to accelerate the rate at which they can write off investments. It was scheduled to expire in 2011.

 

The finance minister spoke to the media after an event that proved something of a Canadian love-in. Those in attendance included Gary Doer, the Canadian ambassador to the U.S., and astronaut Julie Payette, who recently signed on for an eight-month stint as a public policy scholar at the Woodrow Wilson Center.

 

“We look at Canada as a good example of what we ought to do on several different fronts,” David Biette, the director of the centre’s Canada Institute, told Flaherty.

 

The finance minister also said Canada would put global financial standards in place well before deadlines imposed by the Basel Committee of international bank regulators.

 

The new regulations, dubbed Basel Three, are supposed to be in place by 2019. But Flaherty said Canada will move much faster than that, adding the new rules aren’t onerous for Canadian financial institutions since they already practise so many of them.

 

The new standards would require banks to prepare for economic recessions by holding onto more cash and assets that can be easily sold off. They aim to ensure taxpayers aren’t on the hook when a financial institution fails amid a global financial meltdown.

 

“It’s an advantage for our financial system to move more quickly to the Basel III standards,” Flaherty said. “It creates more business confidence. It creates more confidence outside of Canada for direct investment in Canada.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If you have outside debt, a line of credit may NOT be best

General Angela Calla 11 Jan

Home-equity loans surge twice as fast as mortgage growth: BoC

Paul Vieira, Financial Post · Monday, Jan. 10, 2011

OTTAWA — Home-equity lines of credit surged 170% over the past decade, or twice the rate of mortgage growth, a Bank of Canada deputy governor said Monday as she acknowledged keeping interest rates low “create their own risks” for the economy as they pertain to household debt levels.

Agathe Côté said home equity loans, whose popularity grew as housing prices climbed and interest rates remained low, helped Canadians buy goods, such as additional real estate, or pay off higher-interest consumer debt. So-called HELOCs — secured loans that carry lower rates of interest compared to unsecured financing — now account for 12% of all household debt, which as of the third quarter was at a record high, or the equivalent to 148% of disposable income.

“If there were a sudden weakening in the Canadian housing sector, it could have sizable spillover effects on other areas of the economy, such as consumption, given the high debt loads of some Canadian households,” she said in remarks delivered to the Canadian Club of Kingston, Ont.

Data collected on behalf of the central bank suggest roughly one-third of the financing made available via HELOCs are used to pay off other debt, while another 20% is used for stock-market investments. The roughly 50% of financing remaining, Ms. Côté said, is used on current consumption, and renovating or purchasing other properties.

This real estate-related spending has a domino effect, she added, as it can accelerate the increase in house prices, “reinforcing the growth in collateral values and access to additional borrowing, thus leading to a rise in household spending.”

Analysts say this type of cycle could spell trouble for Canada’s growth prospects in an environment of rising rates and softer housing prices. That’s why the Bank of Canada is pressing individuals and lenders to proceed with caution now in terms of taking on or issuing debt.

“The issue is not whether we are going to see a wave of defaults,” said Benjamin Tal, deputy chief economist at CIBC World Markets. “It is how higher interest rates will lead to a softening in credit demand, and then consumer spending.”

In a recent interview, Finance Minister Jim Flaherty singled out the rapid-fire growth in home-equity loans as a cause for concern and that was one area the federal government may target should it move to try to cap household debt levels.

Since the trough of the recession, household credit has grown about twice as fast as personal disposable income.

Meanwhile, Ms. Côté tried to address the dilemma the central bank faces as it continues to warn about record levels of household debt while keeping its benchmark policy rate at extraordinarily low levels in the face of a still-fragile recovery. Bank of Canada policy is to set interest rates in an effort to reach or maintain 2% inflation.

“Some have asked if increasing interest rates poses such a threat to households, why raise them? Yet others have asked if household debt is such a concern, why not raise rates and discourage borrowing?” she said, noting rates are set to achieve or maintain 2% inflation. Annual headline inflation was 2% in November, although the core rate, which strips out volatile-priced items, fell to 1.4% in the month.

“The bank recognizes that low interest rates, while necessary to achieve our inflation target, create their own risks,” said Ms. Côté, who was appointed deputy governor last June.
http://www.financialpost.com/news/economy/Home+equity+loans+surge+twice+fast+mortgage+growth/4087788/story.html#ixzz1AjKdc2Ri

2011 housing market should be resilient

General Angela Calla 7 Jan

 

Housing market should be resilient in 2011 thanks to low interest rates: LePage

 

Sunny Freeman, The Canadian Press

 

TORONTO – The Canadian real estate market will follow a similar pattern this year as that seen in 2010 as buyers pull sales forward into the early months in anticipation of higher interest rates, according to a report from one of Canada’s largest real estate firms.

 

The aftershocks of the recession, including a lingering low interest rate environment, will continue to influence the Canadian real estate market in 2011 — a year that will be stronger than expected, said the report released Thursday by Royal LePage.

 

Royal LePage predicts that average home prices will rise three per cent to $348,600 in 2011, driven largely by a rush to buy in the first half of the year in advance of anticipated interest and mortgage rate hikes in the second half.

 

“Canadians realize that interest rates are unsustainably low and that homes will become effectively more expensive when mortgage rates return to normal levels,” said Phil Soper, president of Royal LePage.

 

“2011 is expected to unfold much like 2010, when close to 60 per cent of sales volume occurred in the first half of the year in anticipation of interest rate increases that never materialized.”

 

However, the number of transactions will be slightly lower than last year and activity will be modestly closer to the norm because the pull forward phenomenon last year was exacerbated by a tightening of mortgage qualification rules and the introduction of the HST in Ontario and British Columbia in the middle of the year.

 

Soper said the extension of low mortgage rates will be an unexpected boon to the market this year.

 

“Like many Canadians, we anticipated an end to the ultra-low interest rate era before year-end 2010,” he said.

 

“Paradoxically, global economic weakness, particularly in the United States, allowed policy-makers and financial institutions to keep borrowing costs low, resulting in a stronger Canadian housing market and a better than forecast fourth quarter.”

 

Average house prices rose between 3.9 per cent and 4.6 per cent in the fourth quarter of 2010, while price appreciation is expected to continue a moderate and steady climb throughout the current year.

 

The report contrasts with some recent predictions by economists that prices should remain flat or decline over the next year.

 

The Canadian Real Estate Association has predicted prices will fall by 1.3 per cent to a national average of $326,000, this year, tied to weakness in British Columbia and Ontario — the hottest real estate markets of 2010. It has also forecasted a nine per cent decline in sales.

 

CREA has yet to release year-end data for 2010, but preliminary reports from two of the biggest markets, Toronto and Vancouver, released this week indicate 2010 declined as expected.

 

Sales were down by one per cent compared with 2009 in Toronto, while the average home selling price was $431,463, up nine per cent from 2009.

 

In Vancouver, sales declined 14.2 per cent from 2009, and were 10.3 per cent below the 10-year average for sales in the region. The average selling price in B.C.’s largest city was up 2.7 per cent at $577,808.

 

Canada’s real estate market has been on a rebound over much of the past year after sales dried up in late 2008 and hit a multi-year low in January 2009.

 

The housing market’s sudden plunge was sparked by a credit crunch that developed in the U.S. housing and lending industries, and gradually spread across the globe, causing a worldwide recession in the late summer and early fall of 2009.

 

The commercial real estate market experienced a similar plunge as investors lost confidence in the sector. However, the commercial market, which includes office and retail spaces, had a stronger than expected year in 2010 and that momentum is projected to strengthen throughout 2011, according to a report released Thursday by CB Richard Ellis Ltd. Some market observers had predicted a glut of vacancies in Canada’s major business centres, but that didn’t happen, said John O‘Bryan, vice-chairman of CB Richard Ellis Canada.

 

We‘ve had good news over the past twelve months with respect to interest rates, housing trends and employment gains, with many companies announcing plans for expansion, he wrote in the report.

 

“2011 may well be another good, stable year but should be viewed with cautious optimism in light of the concentration in employment growth on part-time jobs rather than the full-time positions that indicate confidence in long-term, sustainable growth.”

 

http://ca.finance.yahoo.com/news/Housing-market-resilient-2011-capress-4179400062.html?x=0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage rates can rise regardless of the BOC

General Angela Calla 4 Jan

Canada Housing Trust reduces sales of mortgage bonds

| Friday, 24 December 2010  courtesy of mortgage trends



With the country’s second largest debt issuer reducing mortgage bond sales this year and looking to continue the trend next year, mortgages for consumers may become more expensive.
 
Canada Housing Trust, the financing arm of the nation’s housing agency, sold $39.4 billion this year, a drop of 16 per cent, according to data compiled by Bloomberg News. Issuance increased to a record C$46.9 billion in 2009 as the financial recession limited other sources of funding for banks and mortgage lenders.
 
“It was becoming apparent in spread performance that maybe the supply was outpacing demand,” David DesLauriers, managing director of government finance at Toronto-Dominion Bank, told Bloomberg News. “The program started to lower the size of the issues.”
 
Although many factors influence mortgage rates, reduced sales of Canada mortgage bonds may mean more expensive mortgages for consumers as banks turn to higher-cost funding sources, DesLauriers said. Canada mortgage bonds are backed by the federal government, making them a relatively inexpensive form of financing.
 
Canada Housing, the nation’s largest debt issuer after the federal government, sold $23.8 billion worth of five-year fixed-rate bonds, $7.9 billion of five-year floating-rate bonds and $7.8 billion of 10-year fixed-rate bonds this year.
 
Canada Housing has “done a better job aligning the size of mortgage bonds with investor demand,” Andrew Hainsworth, director of debt capital markets at Bank of Montreal, told Bloomberg News. “They want to get a little bit of spread performance out of CMBs. It’s also part of the repairing of the credit markets after the financial crisis.”
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