Mortgage Rules Change Today

Starting today, borrowers face a new set of rules when it comes to mortgage lending in Canada.
The changes will have particular impact on younger/first-time buyers and could make it harder and/or more expensive to buy that first home.

As of today, buyers with less than a conventional 20-per-cent down payment will no longer be able to spread their mortgages over 30 years. The amortization period is being shrunk to 25 years. This is the measure that has been making headlines since June when the new rules were announced by Finance minister Jim Flaherty.  Funny thing is, the 25-year mortgage was the norm until relatively recently. The 30-year mortgage was introduced to stimulate the housing sector. Now that the job is done, we are reverting to the old rules.

 If you have 20 per cent to put down and thus don't need the Canada Mortgage and Housing Corp. to insure your mortgage, you can still get a 30-year term.

The second change to the mortgage game is that home owners will no longer be able to take quite as much equity out of their homes. Starting today, owners will be able to refinance up to 80 per cent of the value of their homes, down from 85 per cent.

 Flaherty put the new measures in place to A) cool key overheated housing markets. B) to discourage Canadians from taking on too much debt C) to persuade homeowners to stop treating their houses like ATM machines and pay off those pesky mortgages.

Flaherty announced the new measures largely in response to overheating in the Toronto market. Not everyone thinks they were the best approach.

In an interview with The Globe and Mail, Philip Soper, the head of Royal LePage, said that Flaherty used a hammer, when a fly swatter might have done the job.

 “The market is clearly cooling on a national basis, and I’m concerned that what is essentially a Toronto problem is being attacked with a blunt instrument that’s going to hurt the housing market nationwide,”

Maybe so. Mortgage industry insiders say the tightening will have the same effect as a one-per-cent interest rate hike. The government says the more stringent requirements will have an impact on about 5 per cent of new buyers, forcing them to the sidelines until either they save more or have higher paying jobs.

Some think the tighter lending rules will result in a market slowdown that would make it easier for young/first-time buyers to get into the market. Guess we'll see.

Several of my buyer clients have asked me what the mortgage rules will mean. I'm not convinced it will have much impact in Montreal. I don't see too many buyers opting for 30-year mortgages. I think I've had two clients over the course of the last two years. In Greater Toronto, some 40 per-cent of first-timers opt for 30-year mortgages. Different market, different circumstances. If clients ask my opinion, I encourage them to put down as much of a down payment as possible and to opt for as short an amortization period as possible. Call me crazy but I don't think it would be a terrible thing if marginal buyers were forced to the sidelines.

One last point. As of today, the CMHC will no longer insure mortgages priced above $1 million. It boggles my mind that the federal government was up until now insuring houses worth that much. Whatever happened to buying within your means. scraping and skimping to buy that first home? Seems to me that a $1-million home ought to be a move-up property. It would be in Montreal, but I suppose that in hotspots like Toronto and Vancouver, that kinda cash will get you a crack house or shack.

Check out  Crack Shack or Mansion and you'll see what I mean.

Foreclosures Down in 2010

Good news from an economist at the Quebec Federation of Real Estate Boards. The number of properties that went into foreclosure, or were seized by mortgage lenders because of non-payment of debt, fell by 15 per cent last year to 2,356.

That compared to 2,782 properties seized in 2009. The report was prepared by economist Paul Cardinal.

How does foreclosure work? If you have a mortgage, you are bound by the terms outlined in it. Your lender will expect payment according to the agreed-upon schedule. If you fall 30 days behind in  payments, the lender will send a letter threatening action if the payments are not brought up to date. They have to warn you before beginning foreclosure proceedings.

Here's the thing. Bankers are not sitting in their money-filled towers eagerly waiting for you to default on your mortgage. They really would much rather keep you in your house and paying them regularly. If you're having temporary problems paying a mortgage because of ill health or a temporary work stoppage, it's better to tell your bank up front. Chances are they'lll work out an arrangement of some sort. The worse thing you can do is try to duck your lender.

The lender must publishes a notice in the Quebec Land Registry notifying the borrower that his or her property will be seized if the outstanding balance is not repaid within 60 days. Then they ask the court's leave to begin proceedings. The 60 days gives the borrower time to get his poop in a group. That could mean scaring up the cash to pay back the arrears. Often it means putting the property up for sale to pay off the debt and walk away with whatever equity has built up.

Here's the bad news. Once the bank has begun foreclosure proceedings that will necessarily mean extra legal costs - thousands if not tens of thousands of dollars depending on the file and the number of legal manoeuvres involved. Eventually that comes out of the defaulting party's end of the sale.

7,288 mortgage holders received foreclosure notices in Quebec last year, versus 8,809  a year earlier. That represented a 17-per-cent decline in notices sent out.

A notice does not necessarily translate into a foreclosure. About 58 per cent of those served managed to repay their arrears and hang onto their homes. That left the unfortunate 12.5 per cent who couldn't and didn't. Those 909 had their property seized and sold. 597 or about 8 per cent were able to sell their properties and repay their debts. Another 8 per cent, or 607, repaid their defaulted amounts and at least temporarily got their lenders off their back but then received second notices a few months later.

In Montreal. 175 mortgage holders lost properties to foreclosure last year, a 29-per-cent decline compared to the 247 of 2009. The hot spot in the province was the Montéregie region south of Montreal where 488 foreclosures took place, down from 586 a year earlier.  In fact, the number of foreclosures fell across the province except for in four regions, the Mauricie, Gaspésie-Îles-de-la-Madeleine, Centre du Québec and Abitibi-Tèmiscamingue.

A jump in foreclosures is often a sign of trouble ahead for the real estate market. In Quebec,  1 out of every 278 sold properties received a so-called 60-day notice last year. That compares to 1 in 59 in the U.S.  One out of every 860 Quebec properties was foreclosed upon, versus 1 of 45 in the U.S.

More significantly, foreclosures accounted for between 2 per cent and 2.5 per cent of all residential sales in Quebec last year. That stacked up against 26 per cent in the U.S.

A strong Quebec real estate market helped absorb those foreclosed properties efficiently. Over all property prices rose 8 per cent in the province last year.

Montreal Police Issue Warrant for Alleged Mortgage Fraudster

Stephane Giroux of CTV News has an excellent report tonight about a man suspected of obtaining mortgages for at least five Montreal properties he didn't own.
One Westmount homeowner was tipped off to the scam when a bank evaluator showed up at her door to do a evaluation for the person seeking the mortgage.
An eagle-eyed clerk at Westmount city hall also noticed that welcome tax bills were being sent to the same individual for several residential properties within a few blocks of each other.
Mortgage fraud reached epidemic levels in Ontario during the hot real estate market of the early 2000s. It seemed that scammers were able to easily obtain identification documents that allowed them to obtain false mortgages on properties and then either disappear with the cash, or, in the case of the truly bold and brazen, resell the property and disappear with the cash.
This kind of scam has never been a huge problem in Quebec, which is why this story is so noteworthy. Here, unlike Ontario or the rest of Canada, notaries play a key role in assuring an orderly and meticulously researched and documented property transfer.
Notaries have an obligation to read all the ownership documents attached to a property, sometimes going back a hundred years or more to ensure that the vendor has the legal right to sell. They verify that there are no mortgages or other liens on the property when it passes from vendor to buyer.  They meet with both parties, and though it usually seems rote and a little insulting, they ask to see two pieces of ID from each party, to be sure the buyer is who he says he is and the vendor is who he says he is.
In this case, the scamster appears to have bypassed the notary and gone to a lawyer. The police investigation will reveal whether the lawyer preformed his or her job dilligently.
The good news is that the homeowners did not lose their properties and are not out of pocket. Looks like the banks who left the fake mortgages might not have been so lucky. 

What's next for Canada's Housing Market?

The Globe and Mail hosted a frank and lively web panel with TD Bank economist Pascal Gauthier about the Canadian real estate market this week. This after the latest Canadian Real Estate Association statistics showed a decline in sales in June offset by a year-over-year increase in prices. The two markets where the sales decline were most notable were Toronto and Calgary.
 The report prompted radio newscasts to conclude that "the air is coming out of Canada's housing bubble" and other such trite, go-to formulations.
Read Gauthier's web chat for yourself, and see if he thinks there's a bubble in the Canadian housing market.

Bursting the Myth of the Real Estate Bubble

If I had a nickel for every time someone has said they were waiting for Montreal's real estate "bubble" to burst, I'd have enough money to buy one of those fancy lattés instead of a Timmy's double-double.
The myth of the bubble is the single biggest misconception I battle as an agent. I can talk until I'm blue in the face about fundamentals like interest rates, job creation and demographic shifts and the impact they have on the local housing market but I guess I have all the credibility of a used-car sales person. "Trust me! I'm a real estate agent."
OK, so don't believe me. But take a peek at this column by Gazette business scribe Jay Bryan. He puts his boots (more like LL Bean mocs, actually) to the myth of the housing bubble

Here's an interesting point to note about the Montreal real estate scene. The number of properties for sale in May, the last month for which there are statistics, fell by 16 per cent compared to a year earlier. That might have to do with nervousness. It's also true that if people don't list, other people don't list and next thing you know, there's a shortage of listings. A classic Catch 22.
That shortage of listings translated into an 8-per-cent drop in sales. Still, despite the inventory squeeze, the volume or total dollar value of sales rose by 1 per cent compared to May, 2009. Prices for houses, condos and plexes were up 8 per cent, 7 per cent and 11 per cent respectively, according to the Greater Montreal Real Estate Board
Not too shabby

CMHC and the Big Banks Tackle Mortgage Default Worries Head On

Canada Mortgage and Housing Corp. and the country's biggest lenders are launching a campaign aimed at heading off an increase in mortgage defaults.
They will urge mortgage holders to approach their lenders about easing the terms of their mortgages before financial problems get out of hand.
The campaign is a reaction to a rising number of mortgage defaults in this country - though the problem is minuscule compared to what's going on in the U.S..
According to the latest figures from the Canadian Bankers Association, as of last October .29 per cent of Canadian mortgages were in arrears, up from 0.26 per cent a year earlier. To be in arrears, mortgage payments must be 90 days late.
The Canadian situation stands in stark contrast to the U.S., where Washington has introduced a $75-billion mortgage bailout that offers lenders incentives to modify existing loan agreements and standardizes the terms for loan modifications. As many as 6 million U.S. homeowners are at risk of defaulting on their mortgages in the next few years.
Canada wants to nip the problem in the bud. Borrowers are being encouraged to talk to their lenders to find alternatives such as skipping payments, tacking late payments onto the balance of the loan, extending the term or amortization amount or locking into a fixed rate.