CMHC outlived its mandate, now its just meddling.

Derek Decloet – The Globe and Mail

The Canada Mortgage and Housing Corp. was created in 1946 with the best of intentions. Soldiers were returning after liberating Europe from Hitler’s grip; a grateful nation wanted to ensure they could afford their own four walls. The Crown corporation’s job was to see that they got it.

Once the veterans settled into civilian life, CMHC turned its attention to other things. It backed low-rent public housing developments like Toronto’s Regent Park and helped redevelop Granville Island in Vancouver. It also aided homebuyers who didn’t have a 25 per cent (now 20 per cent) down payment by guaranteeing their mortgages–coaxing the banks into lending them money. That mortgage insurance business started in 1954, and for most of the next half-century CMHC lived a placid existence.

Then one day the government woke up and realized that what was once the Veterans’ Housing Shoppe was now backing the mortgages of anyone, for nearly anything. Five per cent down? No problem. Forty-year mortgages, investment properties and highly leveraged $2-million mansions by the water? Yes, yes and yes. Bring ‘em on. The lax standards, combined with low interest rates, opened the way for easy money to flow. Average home prices in Canada have doubled over the past decade. A federal institution whose mission was to make houses more affordable has managed to do the opposite–make them unaffordable.

How did that happen? Governments, Liberal and Conservative, were blind to the First Law of political intervention in housing markets: Anything you do to help homebuyers will eventually go too far–and merely help home sellers win the lottery. The Harper government, after watching home prices jump 50 per cent during its time in office, is now frantically trying to shove the CMHC monster back into its cage. Good luck. The feds’ latest moves–banning the corporation from insuring 30-year loans (after previously nixing 40– and 35-year mortgages) and those used to pay for million-dollar-plus homes–are already being blamed for a sharp decline in housing sales in Greater Vancouver.

No country fetishizes home ownership more than the United States, and no country provides a better illustration of the First Law at work. The Great Depression, not the return of war veterans, spawned Fannie Mae. But its mandate was similar to CMHC’s: to grease the financial wheels of home ownership. Fannie and its younger cousin, Freddie Mac, soon became political instruments that backed the mortgages of thousands of people who had no ability to pay over the long term. This, combined with other factors, including greed, caused Fannie and Freddie to collapse during the financial crisis of 2008.

Behind every housing bubble is a financial institution–or several–promoting the rapid expansion of credit. And behind those financial institutions, usually, are politicians demanding that the loans keep flowing, or turning a blind eye to what’s going on. Here’s Bertie Ahern, prime minister of Ireland, in 2006, dismissing concerns about construction-fuelled inflation: “In actual fact, the reason it’s on the rise is because probably the boom times are getting even more boomer.” Two years later, something did indeed go “boom.” Stuck with tens of billions of dollars in bad loans to property developers, that country’s banking sector went bust. Ahern had to admit the Irish banking regulation had been abominable.

In Spain, political meddling also has a place in the story of a housing bubble. Like the Americans, the Spanish allow homeowners to deduct mortgage interest for income-tax purposes. Like American politicians, Spanish politicians prefer to ignore the fact that the deduction is easy to calculate and therefore can be quickly factored into the price of a home–i.e., the benefit flows to the home seller.

The real estate market is like that. It’s annoyingly efficient. But that’s the point. All of these government initiatives in Canada, the United States, Ireland and Spain had the same objective: to expand the pool of people who can buy a home.

But who gains? Not the first-time homebuyer, who merely faces more competition for a house. The real estate market is even more susceptible than the stock market to being flooded with marginal buyers who shouldn’t be there. Owning your own place has an undeniable psychological appeal, even when the numbers don’t add up. Most people don’t need more encouragement from their politicians.

The U.S., Ireland and Spain are dealing with the terrible fallout of housing bubbles that burst. Canada, so far, is not. The best-case scenario is that we’ll avoid their fate and learn valuable lessons about taking the cult of home ownership too far. Close to 70 per cent of Canadians own a house, up from 60 per cent in 1971. That’s impressive. But Ottawa’s job is to ensure a safe banking system, fairness and reasonable access to loans–period. It’s not to push that number even higher. The risks of doing so are too great. Ask the Americans, the Irish or the Spanish.

Flaherty just can’t leave the mortgage industry alone!

Flaherty eyes privatization of CMHC.

When Finance Minister Jim Flaherty took steps to cool the housing market over the past four years, he largely did so via the Canada Mortgage and Housing Corp., the Crown corporation that dominates the mortgage insurance market.

Now he says his interventions in the housing market are at an end – and he would like to see the CMHC privatized in the next five to 10 years.

“We’ve taken four steps over the last four years to reduce the exposure there for taxpayers, so I don’t think there’s a lot more to do with CMHC or mortgage insurance, certainly not in the foreseeable future,” Mr. Flaherty said in an interview.

Mr. Flaherty’s goal has been to steer the market away from the extremes that rocked the U.S. economy, and to keep mortgage debt loads under control despite the lure of low interest rates.

But the Finance Minister has also been aiming to cut the amount of exposure that taxpayers have to the housing market by way of mortgage insurance and CMHC.

‪Privatizing CMHC would be a step in that direction, although some economists raise questions about whether Ottawa should relinquish control of a major lever on the housing market.

‪Ottawa has made a series of quiet changes to bolster the oversight of CMHC in recent years: adding to its board of directors the deputy minister of finance and the deputy minister of human resources and skills development, as well as putting the Crown corporation under the official eye of the country’s banking regulator.

“This is all about financial stability, because [CMHC is] a very important part of the market and of the financial stability picture in Canada, and it’s kind of been off on its own track,” Mr. Flaherty said.

‪Meanwhile, the housing market interventions by Mr. Flaherty that have drawn the most notice restricted the availability of mortgage insurance four separate times, each time by making it a bit harder for Canadians to obtain mortgages. The most recent changes included cutting the maximum length of an insured mortgage from 30 years to 25, a move that industry players say knocked a number of first-time buyers out of the market.

‪Ultimately, he would like to see the government get out of the mortgage insurance business. “The history of CMHC has to do with providing adequate housing for veterans after the Second World War, and it’s become something rather grander,” he said.

‪“I think in the next five or ten years the government needs to look at getting out of some businesses that we’re in that we don’t need to be in.”

‪His comments come at a time when experts are still debating whether the changes that Mr. Flaherty has made to the mortgage insurance rules have been too little, just right, or too much.

‪House sales across the country fell significantly in the period immediately after he made the latest set of changes, which took effect July 9, and a number of people in the real-estate industry argue that he went too far. But some economists fear that the changes will not have enough of a lasting impact, and that as it becomes increasingly likely that interest rates will stay low for even longer than expected, the mortgage debt binge will resume.

‪“My concern is that the changes in the mortgage insurance rules will probably be felt for three to six months and then the market will go back to really just focusing on underlying fundamentals, and one of the things that’s going to be there is extremely low interest rates that will still incent people into real estate,” said Toronto-Dominion Bank economist Craig Alexander. “So I think we may end up in an environment where we might actually need the mortgage insurance rules tightened further.”

‪That’s because with both inflation and U.S. interest rates low, the Bank of Canada is unlikely to raise interest rates much. But if Mr. Flaherty doesn’t want to tighten the housing market further, pressure on central bank Governor Mark Carney could build.

‪Just last week, Statistics Canada said that the country’s household debt was higher than previously thought, as a result of economic revisions. The biggest component of that debt, by far, is mortgages.

“The revisions to the consumer debt numbers are troubling,” Mr. Alexander said. “If we got hit with an unemployment shock or an interest rate shock, the household sector would be quite vulnerable.”

‪And the International Monetary Fund recently urged Mr. Flaherty to be prepared to change the rules again if necessary. The IMF cut its economic forecasts for Canada earlier this month, and said the country’s key priority must be to keep a lid on risks from the housing sector and household debt. It said the changes that Mr. Flaherty has made thus far have been successful in slowing the rise of mortgage debt, but “if household leverage continues to rise, additional measures may need to be considered.”

‪In making his moves, Mr. Flaherty has carefully been weighing the need to get house prices and consumer debt levels under control with the need to keep the economy humming. “We need to be mindful that the housing market, single-family, housing condominium developments, provide a tremendous amount of employment in Canada,” he said.

Home Prices 3.6% higher than September a year ago

The Globe and Mail
Canadian home prices in September were 0.4 per cent lower than in August, though they
remained 3.6 per cent higher than a year ago, according to the Teranet-National
Bank National Composite House Price Index.

This marks just the third time that house prices have fallen in September in the 13 years that this index has data for. The other two were in 2010, and prior to that in 2008
when the country was entering a recession.

Six of the 11 markets that the index studies saw prices fall last month. The decline was
highest in Victoria, where prices fell 1.3 per cent. Vancouver saw its prices
drop by 1.2 per cent for the second month in a row.

Prices were down 0.8 per cent in Ottawa-Gatineau, 0.6 per cent in Montreal and 0.2 per cent in Quebec City. All of those cities had registered sharp decreases in sales over
the past year, according to the real estate boards. But Edmonton, which has
seen an increase in sales, also saw prices drop, falling 0.7 per cent.

The cities that saw prices rise last month were Calgary and Halifax (each by 0.5 per cent),
Winnipeg (0.4 per cent), Hamilton (0.3 per cent) and Toronto (0.1 per cent).

Nationally prices remain 3.6 per cent higher than they were a year ago. But the
year-over-year price growth has been decelerating for 10 months now. Price
growth has been decelerating in Vancouver for nine months, and in Toronto for

It was year-over-year price declines in Vancouver and Victoria that pulled down the
national average in September. Prices in Halifax, on the flip side, were 8 per
cent higher than a year ago. Toronto’s were 7.8 per cent higher, Hamilton’s 6.9
per cent, Winnipeg’s 6.3 per cent, and both Montreal and Quebec City’s 3.8 per
cent. Calgary and Edmonton each saw price increases of 2.2 per cent from
September, 2011. Prices in Ottawa-Gatineau were up 2.5 per cent.

The Key to Selling Your Home Quickly

October 25, 2012 by Silvia Brooks – Posted in News

The real estate market can sometimes be a tough one, but does that mean that you should expect your house to be on the market longer? Are you willing to sell fast for less money?

Chances are you’re not.

When planning to sell your home, it is important to set a definite goal that is supported by a budget and a selling strategy.


How quickly homeowners expect to sell their homes…

1 Week: 26%
2 Weeks: 33%
1 Month: 33%
3 Months: 19%
Unsure: 12%

As you can see, homeowners have extremely high expectations in regard to the selling time-frame on their homes. For many homeowners, these expectations are paired with a need for financial relief, as sellers are paying for two mortgages. In reality, it takes anywhere from 1 to 6 months for a home to sell.

The key to selling your home quickly

In an industry that is often defined by location, there are two additional factors to consider when trying to sell your home: value and timing. In order to sell your home quickly – let’s say within two weeks – a variety of factors have to come together.

In fact, offering the right product, for the right price at the right time requires devotion to your home selling project. The more prepared and focused a homeowner is, the better the chance of selling their home quickly. Being a motivated seller doesn’t necessarily mean that you’re willing to take less than the negotiated price, it simply means you’re more willing to work harder to sell your home.

Preparedness is the key to selling your home quickly. Before your home hits the market, it is essential that you achieve a few basic milestones:

The key to selling your home quickly #1

Complete any unfinished projects

Nicks in the wall and discolored paint won’t bode well with homebuyers, so make sure you leave no stone unturned and walk through your home wearing the eyes of a potential homebuyer. Fix anything you think might annoy them.

The key to selling your home quickly #2

Clean and remove clutter from the home

Intensive cleaning will be necessary before the house hits the market, but it is important to begin removing clutter and personal items from the home as soon as possible. For homeowners who are preparing to move into a new home, this step coincides with the moving process. For others, this type of limited living can be difficult, but on the upside, it is also more of a motivation to sell quickly.

The key to selling your home quickly #3

Decide on your price

Do your homework to establish your property’s range of value, and evaluate the market listings in your region – both those that have already recently sold and those currently listed. By monitoring the market, homeowners can bide their time. An example of this would be to run a simple search of properties valued similarly to yours and to consider how your property would fare against them.

The key to selling your home quickly #4

Stage your home and take photos

Let in the natural light and hang a few impersonal works of art on the walls. The idea is to create a blank canvas that will engage the imaginations of others. The Internet is a major resource for buyers. Take a few photos that highlight your favorite spaces in the house. If you are unsure of what to photograph, browse a few other listings for inspiration.

The key to selling your home quickly #5

Budget your time and money

This final step is not about buying snacks or cleaning the toilets – though you will need to do these things – but instead it is about budgeting. Before you put your house on the market, you need to establish a budget. This budget will not only account for extra expenses, but will also help you manage your investment of time. As a motivated buyer, you will need to commit to marketing and showing your home. Also, you need to know how long you can afford to keep your house on the market.

If you plan to sell or buy a home, call us first!

Higher mortgage rates would hit households hard: BMO Add to …

Tara Perkins –
Real Estate Reporter

The Globe and

Tuesday, Oct. 23 2012, 12:05 AM EDT

three-quarters of Canadian households would feel a significant strain if they
were to experience a modest increase in their monthly mortgage payments, a new
survey by Bank of Montreal suggests.

BMO will release
an inaugural report on housing confidence Tuesday, as policy makers, economists
and the general public pay more and more attention to house prices and debt
levels, with signs the real estate market could now be turning a corner after
years of strong growth.

While the Bank
of Canada is expected to leave interest rates at their current levels Tuesday
morning, the market will be carefully parsing the words in its accompanying
statement for signs of what’s to come. Central bank Governor Mark Carney is in
a tough spot: low rates are being blamed for sky-high consumer debt levels,
largely in the form of mortgages, but raising rates could dampen economic
growth at a time when trouble spots such as Europe are still a threat.

The BMO report
suggests that Canadians still have strong buying intentions when it comes to
housing, with 46 per cent of homeowners saying they intend to buy a property in
the next five years. But the number who would buy in the next five years drops
to 36 per cent if house prices were to rise by 5 per cent, showing the
sensitivity of the market to prices at a time when many economists expect them
to soften.

In contrast to
economists’ expectations for most regions of the country, the survey suggests
that homeowners generally expect prices to rise by 2 per cent over the next
year. Residents in the Greater Toronto Area were even more optimistic, even
though that area is expected by forecasters to see one of the larger price
declines. Vancouver residents were more likely to expect falling prices.

Meanwhile, about
one-third of those surveyed have already cut back on big purchases and spending
on entertainment, while one-quarter are reducing the amount they save in order
to make their mortgage payments.

While nearly all
of those surveyed said debt is a serious issue for Canada, only 19 per cent
thought that it was a problem for them. Sixteen per cent said a 10 per cent
increase in mortgage payments would leave them at risk of not being able to
afford their home.

“Rising debt and
elevated house prices have increased the vulnerability of a meaningful number
of households, and their financial situation will worsen if interest rates
increase even moderately,” BMO senior economist Sal Guatieri stated. “With
rates likely to remain low for some time, the recent tightening in mortgage
rules will help to cool credit growth and the housing market.”

The survey was
conducted for BMO by Pollara, and done by way of online interviews with a
random sample of 1,011 homeowners between Sept. 13 and Sept. 21.

Royal Bank of Canada (RBC) buys Ally Financial

Canadian banks snapping up consumer loans

John Greenwood | Oct 23, 2012 7:42 PM ET | Last Updated: Oct 23, 2012 8:49 PM ET

Against a backdrop of rising concern around the crisis in
Europe and slowing consumer loan growth domestically, Canada’s banks are under
pressure to maintain the steady earnings growth that markets have come to
expect of them.

But players are finding ways to make it happen.

Royal Bank of Canada on Tuesday confirmed reports that it
is buying the Canadian subsidiary of auto lending giant Ally Financial Inc. for
$1.4-billion, net of excess capital.

business has always had an attraction to us

A significant player in this country, Ally Canada has
about $9-billion of assets and RBC expects it to generate roughly $120-million
of earnings in the first 12 months after the transaction closes.

“The business has always had an attraction to us,” Dave
McKay, RBC’s head of personal and commercial banking, said in an interview.
“[The deal] has allowed us to basically double the size of our position in the
[auto finance] market place with a high quality, established player with a
broad base of relationships across the country.”

The announcement comes the same day as Toronto-Dominion
Bank, the country’s second-biggest lender, said it will buy retail behemoth
Target Corp.’s U.S. credit card portfolio which has assets of US$5.9-billion.
Target said that it expects to book pre-tax gains associated with the sale of
the portfolio of up to US$600-million.

Under the agreement which includes a seven-year funding
commitment from TD, the two companies will split the profits from the portfolio
with Target getting the larger share.

In a statement, Ed Clark, chief executive of TD, said the
acquisition will “significantly expand” the bank’s presence in the North
American credit card business.

“This asset purchase aligns perfectly with our risk
profile and strategy, and will contribute to achieving our stated adjusted
earnings target of US$1.6-billion from our U.S. P&C segment in 2013,” Mr.
Clark said.

The big banks have traditionally earned the lion’s share
of their profits from their retail lending operations which for the past ten
years or more have enjoyed a huge lift from falling interest rates and a rising
housing market. But that’s coming to an end.

So to keep their loan books getting fatter, the banks are
essentially buying loans made by other companies — or at least, that’s one way
to look at the Ally and Target deals.

Analysts say that also describes Bank of Nova Scotia’s
recent acquisition of Internet lender ING Direct.

Formerly known as GMAC, Ally Financial ran into trouble
in the financial crisis and is now 74% owned by the U.S. Treasury. In a bid to
raise capital it’s been selling off parts of its international operations so
the sale of Ally Canada was widely expected.

The business provides inventory financing for 580
dealerships, primarily GM and Chrysler, across the country and loans to 450,000

Auto finance is appealing to the banks because the loans,
which are secured, carry relatively high interest and require only limited
bricks and mortar investment, since consumer lending is done out of the

Mr. McKay said the transaction which is expected to close
next year will take Royal to a number-one position in terms of auto loan market
share with about $24-billion in assets, up from a number two or three.

Mr. McKay rejected suggestions that buying Ally was simply
about goosing growth in a stagnate economy.

“We bought a stable business with good growth prospects,
with distribution expansion and a top franchise,” he said. “Whether loans were
growing really well or not, we would have gone after this company.”

TD is also a big player in auto lending in the wake of
its $6.3-billion purchase of Chrysler Financial at the end of 2010, and indeed
it’s been jockeying with RBC the top spot in marketshare.

CIBC World Markets analysts Rob Sedran called Ally an
“interesting acquisition” for RBC “in that it adds heft in one of the few
domestic businesses in which it did not already have a dominant position.”

But he cautioned in a note to clients that growth prospects “may be
hampered somewhat” by over-heavy consumer indebtedness and rising competition.



Announcement: Manulife acquires Benesure Canada Inc.

WATERLOO, ON, Oct. 24, 2012 /CNW/ – Manulife Financial announced today that it has purchased Benesure Canada Inc., Canada’s leading third party administrator and distributor of life and disability creditor insurance solutions to the mortgage broker marketplace.

With the announcement of this transaction, Manulife Affinity Markets becomes Canada’s largest provider of creditor insurance solutions for mortgage brokers, currently earning premiums in excess of $65 million from more than 170,000 Benesure Canada Inc. clients.

“Strategically, this is an important purchase for Manulife,” said Gavin Robinson, Senior Vice-President and General Manager of Manulife Affinity Markets. “With this acquisition we are well positioned to serve even more Canadians and meet their broad range of insurance needs. Establishing a leadership position in the mortgage creditor insurance marketplace and expanding our reach among mortgage brokers represents an opportunity for growth in a highly-stable, key Canadian market. The combined expertise and capabilities of the two organizations will also enable us to leverage other areas of our business and provide additional distribution opportunities for other products.”

Top 100 Neighbourhoods to invest

Canadian Real Estate Wealth Magazine has released the Top 100 Neighbourhoods to invest in, with a third of those communities in investment-ripe Ontario.

Quebec and British Columbia aren’t far behind in overall numbers for the inaugural list, featured in the November issue of the magazine. It hits newsstands Monday.

Economic uncertainty has plagued the housing market over the past year, and has no doubt affected the purchasing confidence of homeowners and investors alike. To find areas that had the fundamentals to withstand a turbulent market and provide long-term cash flow to buyers, the magazine’s team of journalists combed the neighbourhoods of Canada.

Unlike other reports that give generalized overviews of many of Canada’s already bustling cities, the compilation delved deep into specifics to find hidden gems such as Saint-Jean-Sur-Richelieu, Que., and Swift Current, Sask. Each neighbourhood was evaluated on criteria such as population growth, average property price, rental yields, vacancy rate, capital growth over 12 months and more.

“This was more than a research project,” said CREW Editor Nila Sweeney. “Our hope is that the Top 100 will bolster Canadian confidence in the real estate market and portray the diversity of investment opportunities outside of our major cities, although they, too, are represented.”

Sponsored by Re/Max and Verico Financial services, the report features expert analysis and input from Realtors, brokers, local mayors, financial analysts and more.

The report will be presented live at the Investor Forum Vancouver where attendees will get an in-depth analysis into each of the Top B.C neighbourhoods that made the list this year.

Easy tips to increase your credit score

Having a good credit score is an essential part of not just getting a good mortgage rate, but also for qualifying for a mortgage in the first place.  If your score falls below 600 then some immediate action is needed.  Here are some steps you can take to boost you numbers.

Make payments every month
While this may sound like a no brainer some people don’t think that missing a $10 payment on a small balance is a big deal. It is!  Make sure you always make at least the minimum payment.
Have at least 3 debts on your credit bureau
Having only one credit card can hurt your score since there isn’t much data. This is especially true if its maxed out.  If qualifying for another loan is a problem then consider a secured credit card. These cards require you to provide some cash up front. Give them $500 and you get a credit card with a $500 limit that reports your payments to the credit bureau.
Pay down your debts
Yes it’s ironic but banks like lending money to people who don’t need it. If you’re maxed out on your cards it makes you look desperate and you get a low credit score.  If you have low balances on high limits you appear much more solvent and will score high on the credit bureau.
Follow these simple tips to improve your credit score and seek the advice of an accredited mortgage professional.

Mortgages Rates Expected to Rise in November!?

Yes…expectations are they will rise November 1st after the major banks fiscal year end which is October 31st.  However, in saying that; no one but the banks can say 100% what will happen and the banks of course are tight lipped…

The fixed mortgage rate forecast is beginning to sound like a broken record as we keep repeating the same things over and over again.  5 year fixed mortgage rates are tied directly to the 5 year government of Canada benchmark bond yield which doesn’t look like it’ll be making any significant changes in the months ahead.  This 5 year benchmark bond yield has mostly been bouncing between 1.2% to 1.6% for the past year and was last recorded at 1.37% on Oct 5th.  Current 5 year fixed mortgage rates enjoy a spread of 1.72% over the benchmark bond so there’s no immediate pressure for a rate change.

Global risks haven’t subsided over the fall thus far and Canada remains a financial safe haven.  So, once again I have to report that the short and medium term outlook for the 5 year fixed mortgage rate is steady as she goes.  There will be anomalies and competitive pressures that could drive 0.25% swings in the mortgage rate but don’t expect any significant changes.