LORI MCLEOD
Globe and Mail Update
July 31, 2008 at 7:49 AM EDT
As the financial industry sits down with Ottawa this week to assess tighter mortgage rules, another lending product could find its way into the spotlight - cash-back mortgages.
Keen to avoid a U.S.-style housing bubble, the federal government recently cracked down on lenders and insurers through a series of reforms. Major changes already announced include a planned withdrawal of government guarantees for mortgage loans where the down payment is less than 5 per cent of the home’s value, and for those with amortizations of more than 35 years.
Yet while lenders are phasing out so-called zero-down mortgages, many are still offering buyers a similar option through the use of cash-back incentives in lieu of a down payment. This practice will be up for discussion this week, said Finance Department spokesman Jack Aubry.
Cash-back mortgages could be more contentious if lenders start using them to attract leveraged home buyers who otherwise cannot afford to buy - filling a void created with the loss of zero-down-payment.
This week, Toronto-Dominion Bank rebranded its No Down Payment Mortgage as the CashBack Down Payment Mortgage.
In an e-mail to brokers, TD Canada Trust said the product’s terms and conditions hadn’t changed.
Canada Mortgage and Housing Corp. (CMHC) has also said it will continue to offer a similar product, CMHC Flex Down. In fact, most major lenders have some type of cash-back or “flexible” down payment mortgage option.
In essence, the products aren’t much different than a 100-per-cent mortgage loan. The difference is that they allow buyers 95-per-cent financing through their mortgage, and the remaining 5 per cent down is paid by the bank in exchange for the borrower taking on a much higher rate. That’s usually the posted mortgage rate instead of the discounted rate available to most home buyers, which can mean a cost difference of 1.5 percentage points.
Since the mortgage loan itself meets the new 95-per-cent loan-to-value maximum, all but the 5 per cent in funds borrowed for the down payment is eligible for government backing, which protects the lender against the risk of default by the home buyer, Mr. Aubry said.
Cash-back products were available before the government changes and aren’t a new product emerging to fill a niche, said Joan Dal Bianco, vice-president of real estate secured lending at TD Canada Trust.
In fact, with more clarity from the government regarding the changes, which also include new credit score requirements and loan documentation standards, TD Canada Trust will reassess the CashBack Down Payment product to decide whether it is still appropriate, Ms. Dal Bianco added.
“For this particular product, I will be revisiting whether we keep it in the market or not once we have clarified things. We may pull this particular one, where it goes to the lawyer specifically for the down payment …”
Mortgage broker John Panagakos said he plans to steer his clients clear of cash-back mortgages.
The monthly payments and interest costs are higher than those of traditional mortgages in the early years, meaning little financial flexibility for stretched buyers, he said.
Instead, it’s worth it to wait and save the down payment or borrow it from a family member, he added.
“To me, this basically looks like no money down, but wearing a new suit,” Mr. Panagakos said.
Here is my take on this. Currently you can qualify for 100% financing with a 680 or higher beacon score amortize it over 40 years and also get a discounted rate of around 5.65%. However with the new rules your rate will be 7.15% and you are limited to 35 years. Say you buy a house for 200K with the current program your carrying costs will be 1,043.08 per month and with the new financing rules your carrying costs will be 1,284.14 per month. This adds 241.06 more per month to your debt service load. Sure you pay more in interest over the life of the loan, but if the consumer does not feel it over a monthly basis then what is the risk. Anyway options will still be available to consumers with good credit who want zero down, they just will have to pay out more to exercise those options. Thanks but no thanks!
Cheers,
Pat
The Canadian Press
July 30, 2008 at 10:53 AM EDT
TORONTO — First National Financial Income Fund reported “record profitability” in the second quarter, with revenue rising 23 per cent to $76.9-million from a year earlier and net income up 28 per cent at $30.1 million.
Canada’s largest non-bank originator and underwriter of mortgages raised its monthly distribution to 11.25 cents per unit, or $1.35 annualized, up eight per cent from $1.25.
First National Financial said Wednesday its mortgages under administration increased 28 per cent year-over-year to $36.6-billion at June 30, as originations grew 14 per cent to $3.2-billion.
This growth was attributed to a rising market share in the single-family residential mortgage broker channel and a strengthened position in commercial mortgages.
“First National reached new heights of profitability in the second quarter of 2008, driven by strong volume growth in mortgages under administration and originations, the revitalization of our NHA-MBS program and higher margins on our core mortgage solutions,” stated chairman and president Stephen Smith.
“Although credit markets continued to show volatility, First National’s performance has continued to thrive because of our diversity in funding and revenue sources.”
April-June distributable cash was calculated at $5.3-million or 43 cents per unit. Net income compared with $23.5-million a year earlier, when revenue was $62.6-million.
First National also said it is suspending its distribution reinvestment program. The program raised capital of $10.5-million during the second quarter. “However, it became clear as the quarter progressed that additional capital was not required,” the company said.
Why is this important to you? First National is an “A” lender and has the best support and service in the industry. They get all my “A” business because of this. All their underwriting is done on their fantastic Merlin system, which means if you have a question it is answered quickly. After your mortgage closes you are given access to the system to keep tabs on your mortgage, so you can make extra payments if needed, change payment dates, go from a variable to a fixed or change the account it is coming out of all at a touch of a button. These are just some of the reason why they are my choice for my clients mortgage. To sum it up they just make it easy to do business with them.
Cheers,
Pat
GE exits Canadian mortgage business
LORI MCLEOD
REAL ESTATE REPORTER
July 30, 2008
The global credit crisis has claimed another victim in the Canadian mortgage industry asGeneral Electric Co. winds up its mortgage operations here.
After three years in the business, GE Money Canada said it will stop taking new mortgage applications tomorrow. It’s the latest in a string of alternative lenders that have decided to scale back operations or close shop amid the credit crunch.
Lenders who relied on bundling and selling loans to fund new mortgages have run into trouble as the securitization market went dry.
GE uses its own capital to fund mortgages, and in its case the decision is part of a broader corporate strategy to shift away from consumer financing, said Stephen Motta, chief executive officer of GE Money Canada.
“This was precipitated by the credit market turmoil, and the need to deploy capital more effectively,” Mr. Motta said.
The business is worth less than $1-billion and has 50 employees, some of whom will find new jobs within GE.
GE exited its U.S. subprime lending business in July, 2007, and has been scaling back its mortgage operations around the world. Last week the company said it was realigning its operations to focus on its core business areas: infrastructure, media and finance.
The company is also considering strategic options for its credit card operations, including GE Money Canada’s business primarily consisting of private label cards, Mr. Motta said. However it will continue to focus on expanding a division that provides loans for power sports equipment and other big-ticket items.
Other foreign-based lenders that have recently departed the Canadian mortgage lending market include HSBC Financial Corp. Ltd. and Accredited Home Lenders.
“This is the one major, direct impact on the Canadian mortgage market from what’s happened in the U.S.,” said Jim Murphy, president of Canadian Association of Accredited Mortgage Professionals. “My concern is that fewer mortgage providers means less choice and options for Canadian borrowers.”
GE Money Canada will finish processing current mortgage applications, and will hold existing mortgages on its books until their terms conclude.
This is what I was sent as one of their brokers:
To our broker partners,
| GE Money wishes to advise that, effective at the close of business this coming Thursday, July 31, we will no longer be accepting mortgage applications. This difficult decision to wind down our mortgage business in Canada comes as a result of a lengthy analysis of our global business, as GE and GE Money continue to apply investment capital in areas providing the best potential return for our shareholders.
Though we will stop taking mortgage applications as of Thursday, we will fund our outstanding commitments.
We are grateful to our employees, and to our many broker and business partners who assisted in the development and launch of our mortgage products across Canada. Our first priority today is to assist the members of our talented team who have been impacted by the announcement with the transition to the next steps in their careers. |
|
|
| Best regards,
Joe Veckerelli
President, GE Money-Mortgages |
This is my take, another one bites the dust. For those of you who are keeping track here is a list of lenders who have pulled Alt-A or Sub Prime products or left the market all together. If I have left anybody out please let me know. Accredited Home Lenders, Abode Mortgage, GE Money, GMAC-RFC, Money Connect, myNext Mortgage Company, N-Brook, ResMor Trust, Street Capital, Interbay and Xceed. At this point I must give a shout out to Wells Fargo for sticking it out and hanging in with us. Thank You.
Cheers,
Pat
WASHINGTON — A Bush administration official said Monday the next government will inherit a record federal budget deficit for next year that approaches $490-billion (U.S.).
The official said the deficit was being driven to record levels by the sagging economy and the stimulus payments being made to 130 million households in an effort to keep the country from falling into a deep recession. A deficit approaching $490-billion would easily surpass the record deficit of $413-billion set in 2004.
To read the rest of the article from the source click here, other wise here is my take. The Canadian national debt is roughly 725 Billion, click here for the running tally. It works out to just over 22K per average Canadian. Now compare that to our American neighbors, 9.5 Trillion or just over 31K per American. Should we break out the check book now and pay off our share? Heck no. If you really think about it what comes to mind is what kind of fiscal lesson are our so called parents trying to teach us. If we need more money we will just print more. To stimulate the economy we will just send out cheques cause they think that we are just going to spend it any way. Our saving’s rates are at all time low’s, what are we going to do if this economy really does tank and quickly. Ask for a goverment bail out? They are worse off than we are! We have to change our habits and do it quickly, as we can not look at our national leaders for the right direction to go. Sure we as Canadians have whittled away at our national debt at a faster rate this past decade, but on average the regular Canadian is carrying far too much debt. All it takes is a little knowledge and a push in the right direction to get you on the right track to debt freedom. Contact us to see how we can help. Use the chat box above, or leave a posting below, if you’d like to brainstorm some specific ideas about your own situation or ask for a free debt analysis to see how we could help you personally.
Cheers,
Pat
JONATHAN STEMPEL
Reuters
July 27, 2008 at 9:00 AM EDT
NEW YORK — Even as Washington Mutual Inc. lost billions of dollars from risky mortgages, the largest U.S. savings and loan could rely on its credit card business to turn a profit. No longer.
The thrift’s $175-million (U.S.) second-quarter loss from its card unit stemmed from higher delinquencies and an inability to sell some card debt to investors because of illiquid markets. It was Washington Mutual’s first card loss since it entered the business in 2005 when it bought Providian Financial Corp.
Washington Mutual is not alone. American Express Co., Bank of America Corp., Capital One Financial Corp., Citigroup Inc. and JPMorgan Chase & Co. face pressure as falling home prices, $4-a-gallon gas and rising food costs leave more cardholders struggling to pay their bills and force even wealthy customers to spend less.
To read the rest of the article from the source where I found it click here. Otherwise here is my take, This is a sure sign that people are robbing Peter to pay Paul. Here is the easy solution “Stop living on your credit cards”! It is the highest cost to borrowing that we have available to us, well that is if you don’t include you local loan shark! There is a better way. My company has helped many people who where drowning in debt to reduce their overall expenses and showed them the road to becoming totally debt free. Put that plastic on ice and call our office to see if we can help.
Cheers,
Pat
You may want to read the title again as it is not about securities in the stock market. I just read this on my friend John’s blog. I hope that you enjoy it as much as I did. You can click here and read it on his site.
Cheers,
Pat
As taken from the Globe & Mail. See my comments below.
The stock market would have you believe that the worst of the financial mess is over, and that it’s time again to buy, buy, buy. But Barry Ritholtz, who writes The Big Picture Blog, thinks the buying frenzy of the past week is a head fake that will end badly.
“The anticipated bear market bounce in financials has led to the usual fools’ chorus that the worst is behind us, the economy is on the mend, and a recession is avoided,” he said. “How’s the economy doing? You tell me.”
He then goes on to list (and it’s a long list) the problems that continue to plague the U.S. economy. For one, General Motors Corp. and Ford Motor Co. are suffering, but so is mighty Toyota Motor Corp., a sign that this isn’t an isolated slowdown affecting a couple of troubled names.
The nay-sayers are at it again. So there is no time better than the present to take control of you finances. The so called professional’s are not doing so hot at it. This is what I mean by that comment, I want you to take control of your finances so that the banks, credit card companies or any one you may owe money to is not in control over you. So that when the economy tanks, and no one is giving out credit any more ( well they are, but they are making it harder to get) and people still need it. I want you to be in a position where you can fund you own life style. Where you will not have to go hat in hand to the local bank or broker so you can rob Peter to pay Paul. Please contact my office so we can show you how to take back control and get back in the driver’s seat toward your own financial freedom.
Cheers,
Pat
A group of investors has become the first to launch a class-action lawsuit againstCanadian Imperial Bank of Commerce, alleging misrepresentations about the bank’s exposure to the American subprime mortgage market. The claim alleges that the bank misrepresented its total exposure to U.S. subprime loans by saying it “was ‘not a major issue’ when, in fact, the bank had exposure to billions of dollars of losses.” The suit was filed with the Ontario Superior Court by Toronto’s Rochon Genova LLP. Lawyer Joel Rochon said that CIBC “ignored its legally required disclosure obligations to the detriment of the investing public.” CIBC denied the allegations. “CIBC is confident that, at all times, its conduct was appropriate and that its disclosure met applicable requirements,” spokesman Rob McLeod wrote in an e-mail. CM (TSX) rose $3.17 to $63.29. CP
I just got back from seeing the new Batman movie, and I’ve got to tell you it was good. It was not just good, it was scary good. Probably one of the best action movies that I have seen ever, and I have seen a lot of movies.
Anyway you may be wondering how does this apply to the mortgage industry? Well let me tell you, in the movie Batman does everything that he can to prevent the Joker ( Oscar performance by Heath Ledger) from continuing to terrorize Gotham City. The Sub prime lender’s, the central banks and the government over reacting by changing mortgage insurance policy has done nothing short but terrorize it’s citizen’s. Sure our options are narrowing, for the people with less than perfect credit, the one’s who are self employed and the one’s that want to buy commercial property. However you must realize that they have not cut off every means of escape, you don’t realize that we live in a vacuum. When one option disaperars another one must take it’s place. The options are there they are just not the same as the one’s we lost. Here are a few examples, we lose 40 year amortization’s and 100% financing, Wells Fargo still has them, Interbay pull’s it’s small commercial lending program’s, there are plenty of private lenders willing to fill the void.
If you are feeling trapped like all your means of escape are cut off, and that you have run out of options,then it is time to take back control. Be the caped crusader in your own life by cutting the apron strings to the banks. If you owe them money then they are in control. It’s time to take it back and let us show you how to do it!
Cheers,
Pat
I could not have said it better my self so here is the article in it’s entirety.
Cheers,
Pat
Entrepreneurs’ flexible finance scheme quashed
Tony Wanless, Financial Post Published: Monday, July 21, 2008
Dean Bicknell/Canwest News ServiceFor sale signs lined up along the street on Country Village Landing N.E. for condos in this Calgary, Alta. neighbourhood.
When Canada Mortgage and Housing Corp. (CMHC) recently announced it was no longer backing 40-year amortization mortgages, it presumably was attempting to put some order into the teetering housing and mortgage markets. In the process it quashed the hopes and dreams of thousands of Canadian entrepreneurs who had rallied to the new mortgage as a flexible method of financing small businesses.
The 40-year mortgage was initiated by lenders last year as home prices climbed to levels that put monthly payments out of reach for many homebuyers. The theory was that by extending mortgage periods up to 40 years from 25 years, lenders could keep monthly payments lower. This, when coupled with low down-payment requirements - usually about 5% - would keep more people in the mortgage market. But there was more risk involved, so they also required the mortgages be insured by CMHC. When that body removed its backing, it essentially killed the plan.
Many financial advisors detested the 40-year mortgage because the numbers involved were almost pornographic: Math showed it would triple the cost of a home if extended for the entire 40 years. They contended the new mortgage would draw the most marginal of homebuyers into the market, setting the system up for much grief if the economy wobbled. And when the U. S. subprime mortgage mess created an avalanche of foreclosure horrors, their visions became the conventional thinking.
However, many Canadians who flocked to the mortgage — about 40% of new mortgages last year were of the 40-year variety — weren’t the marginal homebuyers feared by economy watchers. They were entrepreneurs who had been hamstrung for years by the small business lending market and saw it as a flexible method for financing their businesses.
In Canada, about 56% of 2.2 million “employer businesses” employ one to four workers, commonly called micro businesses. About 2.5 million Canadians identify themselves as self-employed, and many of these people are treated as pariahs by a lending system that operates on a dependable repayment schedule, and so almost always ties a mortgage to a steady job. In contrast, self employed and micro business operators generally have variable incomes that are out of sync with the 9-to-5 world preferred by most bankers.
Previously, micro business operators were usually given the bum’s rush by lenders, and were either forced to go to the private market, or bring in tax returns to show they had dependable income. The latter works against proper business tax planning, which involves trying to get your personal income as low as possible.
As an example of this kind of convoluted lender thinking, I recall a situation where a Toronto couple who owned a successful business applied for a mortgage, and the husband who was listed as the owner was rejected because he was self-employed. But the wife was approved because she was employed by the business.
Any entrepreneur can tell you that small business operation continually has its revenue highs and lows. The 40-year mortgage was perfect for very small business operators because it aligned with their income patterns. Also, its flexibility allowed the homebuyer to make a low mortgage commitment that could be covered in lean times, but also allowed them to slap extra money on that mortgage when revenues were fatter. It also helped them to own an asset that could then be used to get a line of credit that micro business operators often use for operating capital.
By killing the 40-year mortgage, the CMHC and lenders were trying to protect Canadians from overextending themselves. Canadian authorities, it seems, are always quite willing to protect us from ourselves, especially when it comes to our ability to pay back their loans.
Yes, the 40-year mortgage was riskier for lenders than a conventional mortgage. But most entrepreneurs live with risk every day and have learned how to handle it. It’s often feast one month and famine the next, so they operate on a form of budgeting based on worst-case scenarios and treat everything above that as a bonus. By looking simply at the math, and not at the usage patterns or the primary buyers of these mortgages, lenders laid waste to one of the few financing methods in existence for this growing army of 21st-century small business operators.
— - Tony Wanless of Knowpreneur Consultants (www.knowpreneur.net), is a Certified Management Consultant who helps knowledge-based businesses with strategy, innovation and planning.
Next Page »
