Good Morning,

I hope you are having a fun day so far and had a good weekend, I have included below our weekly mortgage update with a focus on rental property financing updates.

Mortgage Rate Changes:

Fixed: Five year fixed rates have stabilized in the 3.29 to 3.39% range, with the ten year at 3.89% still being available as well.

Variable:  We also saw an increase in the variable last week with many lenders increasing to the prime to prime +.2% range.  (prime is 3.0%)

A quick review of rental property financing changes:

 

• The revenue property guidelines are still the same and have not changed as it relates to down payment and credit, with 20% down payment still being required as a minimum.
• The biggest change we have seen is in the lender treatment and underwriting of our clients who have more than three or four rental properties.
• Most lenders have adopted the CMHC guidelines for rental property, namely a 50% add back of rental income to client’s income and addition of the entire property liability payment to their liablility column.  This is an ok way of calculating client’s mortgage numbers until they have several properties and all of a sudden calculating the entire rental payment as a debt equates the the same theoretical debt loan of a client who leases a fleet of Maseratis!  This is not a true or fair calculation as the properties typically cover themselves however it is the way it currently is.
• The Alternative  is that we have three lenders who do not set a limit on the number of rental properties a client can own and instead of the add back scheme I described above, use a debt coverage ratio which in essence says that if the client can cover their own debts and the property covers its own debt and the client’s credit makes sense then the are approved.  The only draw back  is that two of the three lenders require 25% down payment, not 20%.

 

Please always feel free to give me a ring about or put me in touch with any of your sophisticated investor clients as we have excellent relationships and many years of experience in structuring these advanced mortgage financings for these clients.

 

And not to beat the drum but now Equifax is also agreeing the tightening mortgage guidelines is not the answer…..

Report blames non-mortgage debt for consumer woes

_{By Vernon Clement Jones | 11/04/2012 7:17:00 PM |}

A new report from Equifax is pointing a finger in the same direction as brokers, arguing non-mortgage debt as the real threat to consumer solvency.

“It is not surprising to see consumer credit continue to increase given the significantly improved levels of consumer delinquencies and bankruptcies witnessed in the last year, coupled with record-low consumer borrowing rates,” said Nadim Abdo, VP of consulting and Analysis for the credit bureau.

While Credit card debt continued its fall during the first quarter of 2012, decreasing by 2.1 per cent from the same period last year, The Equifax Report reveals total consumer indebtedness — excluding mortgage debt – actually increased by 3.4 per cent compared to the time last year.

New loans opened in Q1 2012 were nearly 1 per cent higher than they were a year earlier. And the largest increase in outstanding balances was in auto finance loans and lease agreements, which grew by 10 per cent over the Q1 period for 2011.

Those highlights back up the concerns of mortgage professionals calling on banking regulators to shift their focus away from tightening mortgage lending rules and toward strengthening the underwriting on unsecured debt.

The argument may be loss on the Office of the Superintendent of Financial Services as it prepares to bring in a slew of new, more rigid guidelines for banks and other mortgage providers.

Of immediate concern to brokers is its intention to increase the equity requirements for homeowners seeking HELOC – something that could remove that option for Canadians in desperate need of debt consolidation.

“This guideline change (moving the equity minimum from 20 per cent to 35 per cent) would create an artificial crisis by removing the recourse some homeowners now have to consolidating unsecured, high-interest debt into secured, low-interest debt,” said Ad Lakhanpal, an Oakville-based broker with Mortgage Alliance. “Lenders are already asking borrowers questions about what they intend to use HELOC funds for to ensure it’s not being abused.”

The comments jive with those of other brokers reacting to proposed guideline changes now being floated by the Office of the Superintendent of Financial Services. The watchdog wants to lower the maximum loan-to-value of uninsured home equity lines of credit to 65 percent from 80 percent.

“The federal government already instituted tougher guidelines for qualifying for HELOCs and lenders already use stricter lending guidelines, including net worth tests, property valuation tests, and credit scoring to ensure that HELOC borrowers are the best of the best,” Gord McCallum, owner of First Foundation Residential Mortgages, told MortgageBrokerNews.ca.

I hope you have an awesome week, I am happy to chat and would love to catch up, as well please always feel free to give me a ring with any questions, particularly about your rental property financing.