Things were going great for this New Mortgage Lender for several years since it started up business with a head office, a website and marketing material, business development officers stimulating independent mortgage professionals across Canada to send business their way, top-notch mortgage underwriters to review and approve transactions and the like.  Borrowers were getting their files approved with this New Mortgage Lender when other mortgage lenders would say ‘too much risk’, ‘we need a co-signer’, ‘if they are willing to take a longer term to ensure that they get on more stable ground before the mortgage matures, we’ll write the deal’ and the like.  In many cases, the New Mortgage Lender self-insured the deal, creating an in-house version of what the larger mortgage insurance programs in Canada do to protect the lenders’ assets against client payment default.

Things looked pretty great for everyone involved.

Then came the economic downturn.  This was caused by a variety of factors, but one of the most prevalent ones was that the lenders such as this New Mortgage Lender would package up bundles of these mortgages into a financial tool called a Collateralized Debt Obligation, or CDO, and sell them off to second-tier institutional investors (trust funds, hedge funds, pension funds and the like).  Of its own merit, this is a viable financial model that has been commonly used for a multitude of financial products and commodities for decades.  In fact, it is still used ongoing for many financial products and commodities.

Simply put, the tool wasn’t the issue, but the process was.

Very roughly, where the wheels fell off of the proverbial economic cart was when the investment banking firms stick-handling the packaging and re-selling of these CDOs stopped (to a certain degree) reviewing the actual risk quotient of the contents of the CDO bundles and effectively started following general risk models for the commodity as a whole.  In simpler terms and my humble opinion, this is something like the security guard at the airport letting people walk through the screening checkpoint without scanning their bags or patting them down based solely on the fact that they bought a plane ticket.  If you’re curious to learn more, this process and the after-effects are summarized in a movie, Margin Call, released in the USA in 2010 and Canada in 2011.

All rights due to Alliance Atlantis films, this is not our property

From a Bay Street perspective, the post-2008 Canadian Mortgage marketplace has seen the disappearance of several lenders like New Mortgage Lender as their business model, based heavily on the bundling and re-selling of CDOs, failed when the CDO buyers of B-level mortgages either suffered heavy losses or became gun-shy of the product altogether.

On the Main Street level, when a lender disappears, this has affects borrowers in several ways: unfortunately, none of them includes the outright elimination of mortgage debt… money lent is still due!

In recent years, the term ‘Orphan Mortgage ‘ has emerged due an increasing popularity of the unwillingness or inability by mortgage lenders to renew an existing mortgage term upon its maturity.

Various groups use different definitions to identify the term ‘orphan’ but the most prevalent to this case are as follows:

(special thanks due to Dictionary.com)

Some other reasons for mortgages becoming orphaned:

As outlined above, if your current mortgage is through a lender that is no longer in business, you may not have a renewal option with them available to you. In some cases of this scenario occurring, the mortgage book of your lender may have been purchased by another mortgage lender and this new lender may or may not choose to renew your term.

If you are not sent a renewal letter from your lender, normally within 90 to 120days prior to your mortgage term coming due,  you are likely subject to non-renewal for a multitude of possible reasons.  Some likely scenarios are:

• The lender no longer offers the mortgage product that you were originally approved through
• Unsatisfactory payment history (multiple or frequent missed payments, ESPECIALLY in the 12 months leading up to the renewal date)
• Low credit score
• Your employment information showing on your credit bureau is substantially different from when you first applied for the mortgage

If your mortgage was provided to you by your home builder, upon maturity, the home builder may choose to not renew your term for a variety of internal or external reasons.

What should you do in any of the above cases?

Contact us as your mortgage professionals.  Just because one lender says ‘no’ doesn’t mean that there isn’t another option for you!  We work with lenders across Canada on a daily basis, while most people talk to their mortgage lenders 3-5 times in their lifetime.   We have the experience and lending relationships to help solve your mortgage dilemmas.

To your financial success,

James C. Tworek and the Trimor team!

TrimorMoney.com | CalgaryMortgageBlog.ca

Bank of Canada Interest Rate

Source: Bank of Canada

Bank Prime Lending Rate

Source: Bank of Canada

Conventional Mortgage – 5 Year Rate*

Source: Bank of Canada
*Determinant for high ratio mortgage variable qualifying rate

Top of Page

US Federal Reserve Board Discount Rate

Source: US Federal Reserve
*US Federal Reserve has indicated it will keep this rate until Q2 2013

Exchange Rate $CDN($US)

Source: Bank of Canada

Government of Canada Bonds

Source: Bank of Canada

Total New Housing Starts (Seasonally adjusted and annualized)

Source: CMHC Housing Now - November 2011 and November 2010. This seasonally adjusted data goes through stages of revision at different times of the year.

Average MLS® Resale Price for Local Markets 

Source: Canadian Real Estate Association

Canadian Housing Stats for November, 2011

Let us begin with some observations on the basic mechanics of sovereign debt default management, or to the average person, “balancing ones budget.”

If you borrow $1 at a 5% simple interest rate, next year you’re going to owe $1.05.  If you don’t pay any of it back and just roll over the debt, you’d then have to borrow $1.05 next year and on and on and on (compound interest).  This is obviously a slippery slope, even if it’s a sovereign government doing the borrowing.

Though the previous example seems obviously wrong, countries and individuals alike often justify the continued borrowing based on increasing incomes or increasing GDP.  If a country’s GDP growth rate for example, is higher than the interest rate they borrow at, then the debt they owe, although growing, would still shrink as a percentage of their GDP.  But if GDP growth is below the interest cost, then the debt that’s continually rolled over would grow to become a larger percentage of their GDP.  As soon as lenders recognize that’s where the country is headed, the government is going to find it much more difficult and expensive to borrow the necessary new sums of money needed to fund the country and it’s debt burden.

To prevent this from happening, government and individuals need to run a budget surplus, meaning that tax receipts or income must exceed expenditures (a/k/a/ earn more than they spend).  In doing so, a portion of the surplus can be used to reduce the debt, avoiding the downward spiral faced by a number of countries and individuals around the world today.

According to ECB data, Greek government debt was already 120% of GDP in 2008.  The budget deficit was over 10% of GDP in 2009 and almost 5% in 2010.  That, plus the rapidly increasing interest rate costs (higher risk, higher cost) facing Greece, pushed their debt to 156% of GDP in 2010.

If Greece were an individual talking to a bank for a mortgage, it’s a solid bet that they would be hearing “declined” and put on a serious debt counseling program!  The reality is that many of the developed nations around the planet were (and still are) running on a similar treadmill.  The current shocks have been keeping borrowing rates in Canada low.  As the EU countries and the rest of the world work their way through this process, we’ll eventually see better economic times and likely, interest rates bounce upward a bit.  If you would like a non-obligational review of your mortgage needs or a preapproval to shop for your new home protected from rising rates, contact us today!

Helping you make heads and tails of it all,
James C Tworek and The Trimor team!

- with thanks to the team at GoMax Solutions!

Activity in the energy patch has had trickle down effects on many sectors of Alberta’s economy recently, but residential construction has remained slow. However, with data out this morning showing that housing starts notched higher for the second time in three months that might be changing.

Builders began construction on 28,400 (SAAR) urban housing units in October 2011, the second highest amount since March 2010. Residential construction has generally been quite subdued in Alberta over the past year (and really since the recession began) but in August and now October starts have climbed above the 28,000 mark.

The very weakest segment of Alberta’s residential construction market over the past three years has been condominium construction—weighed down by an oversupply of units started during the boom. However, it appears that the surges in both August and October were thanks to a rise in multiple dwelling starts (i.e. condominiums).

Edmonton appears to be the winner in October with multiple dwelling starts jumping from less than 300 in September to nearly 800 in October. Back in August a surge in multiple dwelling starts in Calgary was behind the jump.

With two months of data now pointing towards some life in Alberta’s residential construction market, the case for a pickup in construction activity is being strengthened. That said, multiple unit dwelling starts can be very volatile and there are certainly no guarantees the recent rise will be sustained into the New Year.

Wait a minute, I thought that the government took away 100% financing in Canada – they did, sort of – what they did not take away was your opportunity for a no money down mortgage.  Doesn’t this sounds like Barack Obama style political double talk? Yes, but I will explain the semantics along with your options below.

No money down mortgage options:

The government has limited CMHC to a maximum lending amount of  95% loan to value.  This leaves us with two solid options:

• § Free down payment mortgage: this is a 95% mortgage with 5% cash back from the lender.  The advantage is that it affords us a one step option.  The disadvantages include limited terms, potentially higher early payout costs, and higher rates as lenders will charge their five year fixed posted rate.  This rate is typically 1.3% to 2.0% higher than the best discounted five year fixed rate.
• § Flex down payment mortgage: this is a two step process where we are allowed to borrow our client’s down payment from an unsecured lending source.  We proceed with a 95% mortgage and then often 5% down payment from an unsecured line of credit with interest only payments.  The advantage is we are able to offer all best rates and terms including fixed and variable mortgages.  Additionally the cost for early mortgage payout is the same as a regular 5% down mortgage.  The only disadvantage for this product is that it is a two step process where by we have to obtain the client’s mortgage approval in addition to an unsecured line of credit.

Additional no money down mortgage thoughts:

We will almost always strive to complete the flex down option for our clients as it affords significantly better interest rate savings and options.  However, for clients that are purchasing their home with a long term view, receiving a free down payment from the lender for their purchase and being charged a premium on their rate for it is not a bad deal either.

As the Canadian mortgage industry continues to reinvent inself more often than Madonna, I wil be with you, helping you to see behind the curtain and cut through the lender smoke to see the truth and your true options.

If you or your family or friends are considering a no money down mortgage please feel free to contact Rylan so that he can ensure you receive the best fit your your new home purchase.

This is a message that as a team of Mortgage Professionals we’re trying to get out to

EVERY Canadian homeowner possible!

Did you know?

According to a 2010 study by CAAMP, on a national average, Mortgage Brokers complete about 50% of all new home purchase transactions.  After the fact, Banks renew approximately 90% of the mortgages on their books (instead of Mortgage Brokers)… of that 90%, the vast majority of mortgage terms of at posted rates.  The difference in cost to a YOU between posted and discounted rates is over $18,000 over a 5 year period based on a $250,000 mortgage amortized over 25 years.

What would you do with another $18,000 in your jeans?  We think most people would agree that if they could save money on their mortgage it would be worth their time to spend an hour with a knowledgeable mortgage professional reviewing their options.

In a recent survey completed, the #1 reason clients had signed the renewal from the bank without shopping the rate was clients were unsure if they would qualify.  Many borrowers have experienced job changes, periods of unemployment, or increased debt loads over the last few years and the fear of not qualifying drives them in increasing numbers to just sign the renewal.  As Canadian Mortgage Brokers, we don’t work FOR the banks BUT we work WITH virtually ALL of them.  What this means is that we have many more mortgage products and lending programs available to you.  We continually spend a large amount of our time educating Canadians about their mortgage options and new home financing products that are available across the country.  This is how we as mortgage brokers deliver value to you and can save you LITERALLY thousands of dollars in wasted interest!

Facts on 6 Major Bank Mortgage Renewal Policies: How your Bank plans to take your hard-earned money over the next 5 years
Source: GoMax Solutions
TD Canada Trust:	Renewal letters are sent out and the rate offered is the same as what was offered on the previous term.
CIBC:	Renewal letters are sent out at posted.  If client signs they get the posted rate.  If they go to the branch they can negotiate.
Scotia Bank:	Renewal letters are sent out at posted.  Client is required to go to the branch to sign, at that point they may offer a discount if client asks.
BMO:	Renewal letters are sent out at posted.  If client signs they get the posted rate.  If they go to the branch they can try to negotiate.
Royal Bank:	Renewal letters are sent out and the rate offered is the same as what was offered on the previous term.
HSBC:	Renewal letters are sent out at posted.
Source: GoMaxSolutions SO… if the major banks are currently renewing 80 to 90% of the mortgages they hold, and of that 80 to 90% they are renewing the majority at posted rates, imagine how much extra interest Canadians are paying to Bank coffers by laziness.  When you consider there is over $250 billion worth of mortgages renewing this year, a few points of interest here and there results in a STAGGERING amount of money that could be in YOUR pockets to pay down debt, renovate your home, save more money for retirement or purchase a second home. Don’t let LAZINESS get in the way of a successful financial future!  Contact us today – our dedicated purpose as mortgage professionals is to save you money on your renewing mortgage term. To your financial success,   James C. Tworek and the Trimor team!

The value of one’s home is a fairly strong factor in determining consumer sentiment. Home prices are also important signals for potential buyers looking to get into the market. For both owners and buyers in Edmonton, the market this summer is summed up in one word: stable.
The median selling price for Edmonton residential property in August was $315,000, essentially unchanged from July and stable across the past five months. Single family homes sold for a median price of $355,000 in August (down from $360,000 in July). Condominiums drew a median price of $225,000 (up from $223,000 in July). Total sales were fairly constant at 1,709 during the month.
A few years ago, Edmonton’s housing market was riding a rollercoaster of ups-and-downs, soaring in price and sales
in 2008, and correcting during the recession. Since then, prices have mostly recovered and are now in a period of relative stability.
This price constancy is perhaps a bit surprising given the turbulent global economic environment at the moment. But it does highlight the fact that Alberta’s economic and labour market confidence are better than they are in most other parts of North America at the moment.
“Residential property is holding its value and the economic prospects for the Alberta and Edmonton markets show real growth potential in the next few years,” said REALTORS® Association of Edmonton President Chris Mooney in a press release late last week.

Source - ATB Financial's Daily Economic Comment Sept 6, 2011

Canada’s national housing agency says it expects the country’s real estate industry will remain healthy in the second half of the year, building on favourable economic conditions in the first six months of 2011

Canada Mortgage and Housing Corp. said Monday that there have been fewer claims under its mortgage insurance programs, which protect lenders from defaults by borrowers.

CMHC attributed the reduced number of claims to continued low interest rates and an improved employment situation.

The agency said it expected fixed mortgage rates to stay relatively flat for most of the year, with the five-year posted rate at between 4.1 per cent and 5.6 per cent, then increase slightly in 2012.

CMHC said variable rate mortgages would remain near historically low levels, although some banks recently increased their variable rates to reflect the higher cost of raising money.

Prices of homes shown on the Multiple Listing Service are expected to grow only slightly going forward because the supply and demand for resale homes will likely stay in balanced territory, CMHC said.

A least one analyst agreed that the real estate market should stay fairly healthy for the rest of 2011, but said it’s already cooling slowly and home prices may decline in the longer term.

“What you’re probably looking at is a period where prices are relatively flat, maybe a little bit lower in the next few years,” said Adrienne Warren, an economist at Scotiabank who specializes in the real estate industry.

“Affordability from a price perspective has deteriorated and that’s going to have to, over time, come back to more normal levels but it doesn’t imply that that has to happen quickly as a type of correction that occurs quickly.”

She said interest rates are low and attractive right now and encourage first time home buyers to enter the market, which drives up prices. Once those rates begin to rise — likely in the second half of 2012 — the current price of homes will become unaffordable for many, putting downward pressure on future prices.

Meanwhile in its report Monday, CMHC said changes to mortgage rules introduced by the federal government earlier this year played a part in reducing mortgage interest payments and allowed Canadians to build equity in their homes faster.

Canadians are finding it easier to pay off their mortgages, with arrears levels improving and the volume of mortgage insurance claims lower than expected.

In March, the federal government put through new rules that reduced the maximum amortization period to 30 years and cut the maximum amount Canadians can borrow to 85 per cent of the home’s value.

After the changes, refinancing activity fell by nearly 40 per cent, which means fewer Canadians took on more debt. Federal Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney have repeatedly warned of the ballooning debt level of Canadian consumers.

Ten per cent fewer Canadians bought mortgage insurance immediately after the new rules began, and the level was five per cent lower than sales before the changes came into effect.

CMHC reported its net income for the quarter was $383 million, up $61 million from $322 million in the same quarter last year. Revenues were down slightly at $3.3 billion, versus $3.4 billion.

The agency’s predictions for the rest of the year echo a revised forecast by the Canadian Real Estate Association released earlier this month. CREA said it expected higher national home resales this year, reversing upward its previous forecast of a one per cent dip.

National average prices will be in the range of $347,700 to $374,300, growing to between $349,500 to $385,000 in 2012, CREA predicted.

CMHC said sales of existing homes should range between 429,500 and 480,000 units in 2011 and between 410,000 and 511,900 units in 2012.

Earlier this month, the CMHC said that national housing starts rose to 205,100 units on a seasonally adjusted basis in July, 11.6 per cent higher than the 188,900 reported in the same month last year and 4.3 per cent more than the 196,600 recorded in June.

The uptick, driven by strong construction on condos and apartment buildings in urban centres, is likely due to builders catching up to robust demand last year rather than expectations of coming growth, it said.

Home building activity has been increasing through the first seven months of 2011, but starts are still down 4.6 per cent from a year ago.

Predictions for the Canadian market were in stark contrast with the most recent figures from the United States, which showed that country’s depressed housing market is still trying to get back on track.

The U.S. National Association of Realtors said Monday that its index of sales agreements fell 1.3 per cent in July to a reading of 89.7. A reading of 100 is considered healthy by economists

The association also said a growing number of buyers had cancelled contracts after appraisals showed the homes they wanted to buy were worth less than they bid.

Some highlights of the report:

Housing starts: After moderating progressively since the second quarter of 2010, housing starts have rebounded in the second quarter of 2011. They are expected to moderate again over the course of the next three quarters. Housing starts are
forecast to be 183,200 units for 2011 and 183,900 units for 2012.
Resales: Sales of existing homes through the Multiple Listing Service® (MLS®)2 declined in the second quarter of 2011 and are forecast to remain stable in the remaining quarters of 2011. MLS® sales are expected to increase modestly in
2012. Overall, 446,700 sales are forecasted in 2011, followed by 458,000 in 2012.
Resale prices: The average MLS® price in the second quarter of 2011 continued to increase but is expected to plateau for the remainder of the year. For 2011, the average MLS® price is forecast to be $367,500 while 2012 will see a modest increase to $372,400.

Provincial Spotlights

Ontario and Saskatchewan:

Housing starts will moderate in all areas of Canada in 2011, with the exception of Ontario and Saskatchewan which will experience a modest increase in housing starts.

Alberta and British Columbia:

In 2012, growth in housing starts is expected to be strongest in Alberta and British Columbia.