CMHC LOAN INSURANCE – HOW IT WORKS & HOW IT CAN BE IMPROVED

SOURCE: DAVID LAROCK

In many ways, our government run CMHC mortgage loan insurance program works a bit like the typical Bank of Mom and Dad. When lenders find people who need mortgage loans and don’t have a down payment of at least 20%, they are called ‘high-ratio’ loans and Mom and Dad set the rules. Today, every high-ratio deal must pass through an insurer’s filter (CMHC is by far the biggest). This parent-like discipline is enforced to ensure that banks do not expose their depositor’s money to substantial loan risk. After all, if we thought there was any danger that our bank would lose our chequing account money to bad loans it would undermine our confidence in the entire banking system. And well, we can’t have that.

This lending structure has helped us fare well of late, and it has been held up to the world as a model to be copied. So kudos for that. But as with every system, it also has its drawbacks, like the fact that every lender offers the same high-ratio products using different names and different-coloured pamphlets. In a perfect world CMHC would act as a ‘market maker’ to ensure a minimum standard for high-ratio borrowers that private market competitors would then augment with more flexible solutions, based on risk-based pricing and investor demand that would ebb and flow in response to market conditions. But we’re getting ahead of ourselves. Let’s start with the basics.

If you want to buy a house using a down payment of 20% or less of the purchase price, you are required to pay for mortgage loan insurance (officially referred to as mortgage default insurance). You are essentially buying it on behalf of the lender because if you default on your mortgage, the insurer will reimburse the lender for your loan and most associated costs. The amount you are charged increases as your down payment decreases and your cost generally ranges from 1% to 4% of your purchase price. You are allowed to add the fee to your mortgage but you have to pay the associated PST upfront, as part of your closing costs. CMHC has programs for self employed applicants, new immigrants and a whole host of other groups (see link for full details). Your mortgage loan insurance is fully transferable to a different lender if you find a better deal at renewal and if you want to increase your original loan amount at some point in the future, you only have to pay an insurance fee on the additional amount borrowed.

There are two other insurers who offer very similar products: Genworth and Canada Guaranty (formerly AIG). In theory, since these are private companies, they should be more innovative and offer borrowers more flexibility (as mentioned above) but in reality, CMHC has prevented this by matching every innovation to protect its dominant market share. Examples in recent years include 40-year amortizations, stated income lending and insuring borrowers with Beacon (credit) scores of less than 600. Unlike a private company, however, when CMHC matches a new product they also commoditize the pricing. With profit margins reduced for the private insurers, the attractiveness of taking on incremental risk diminishes. While on the surface that sounds like a good deal for consumers, in reality, it discourages innovation. After all, why would a private insurer offer a more flexible product when it will just be copied and commoditized by the government-run hegemon?

Having a centralized policy for high-ratio underwriting risk has given the government no small amount of control over our residential market. Given the US example of what happens when lending runs amok, maybe that’s not entirely bad. Especially when you consider that since CMHC started assuming the risk for high-ratio mortgages, it has opened up home ownership to a huge swath of middle-class Canadians and was an important catalyst for the democratization of Canadian credit. Since that time (1954), our home ownership levels have been rising steadily and are now among the highest in the world.

It’s just too bad that CMHC’s influence has discouraged private market innovation. In the end, a more balanced market that includes risk-based pricing is the ideal we should be shooting for, with CMHC setting the baseline and private insurers constantly innovating to ensure that every willing investment dollar is matched to borrowers who need additional flexibility to qualify (and who are willing to pay more for the privilege). Just like any Bank of Mom and Dad, CMHC’s ultimate goal should be fostering an independent market that can stand on it’s own two feet.

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TIMES ARE CHANGING!

So I just wanted to let everyone know that I have made a switch in companies…..yes, again!! But before you start rolling your eyes, let me explain.

As you know, I re-joined one of the big name brokerages a few months ago. Great office, great people – horrible fees!! With the fees being so high, it made it difficult to do what I love to do most – help people make their dreams a reality! As a big brand Salesperson, there was little wiggle room by the time you paid all of your expenses to be able to offer lower fees at those times when you knew the seller really needed it.

That’s just not who I am! I like knowing I have the flexibility to be able to truly help someone else when they need it. Make no mistake, I want to make a decent living just like everyone else, but I knew there was a better way to do this thing we call Real Estate. So I started looking around for a brokerage that would let me do business the way I want to do business. Yes commissions are always negotiable no matter what brokerage you are with, but often the fees for Realtors attached to some of the offices makes it very difficult to pass savings along to our client.

So as I said I started to search for a company. I found one! It’s called Assist2Sell 1st Options Realty. It is what is referred to in the business as a “discount brokerage”. Many Realtors frown upon this type of office….and don’t get me wrong – if it was an office that just threw your listing on MLS and left the rest to you, I would be against it too!

440-B  FSW$ colorBut here is the beauty of it – Assist2Sell is a FULL SERVICE brokerage! We just charge less for the same services you would get elsewhere. How is that possible you ask? Easy – lower fees with good service for clients tends to increase business. This gives us more buyers and sellers to work with. So what it comes down to is the volume of business we can do while saving you money! Sound too good to be true? It’s not! It really is just great service at a lower cost to sellers. And of course buyers still pay nothing!

There will be those out there who will try to convince you that a discount brokerage can’t possibly provide the same level of service as “traditional” brokerages. I’ve done the traditional brokerage route. It was alright, but a lot of the money I was spending was on the big fees – not servicing my client’s needs!

Let’s face it, times have changed. In today’s market it is a lot different than years ago when there was no internet and limited technology and Realtors were driving all over the place to complete offers, get listing information and take buyers from one house to another. Sure we still do some of that, but not to the same degree.

47% of buyers come from open houses 63% come from driving around neighbourhoods (According to NAR (National Association of Realtors®)

Now don’t get me wrong, I’m not saying that Realtors don’t work hard – we do….all of us! It’s just that for me, I feel like I can afford to take a little less, which means you get to save like never before!

Sound interesting? Well if you live in Lanark County or the surrounding area and would like more information, give me a call, text (613-812-1444) or email soldwithkim@gmail.com. Or visit my website at www.kimmays.com and click the home button for the dropdown menu which offers further explanation. I look forward to hearing from you!

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DO I NEED SPOUSAL CONSENT?

Source: Riopelle Group Professional Corporation
The question of spousal consent must be asked for every residential real estate transaction, whether it be a purchase, sale, mortgage or transfer of title.

We often field the question from clients, realtors and mortgage agents asking, “When is spousal consent necessary?”

To help answer this question, we have created an easy, at-a-glance reference tool featuring a set of three short questions to determine whether an untitled spouse must consent to the transaction. Chart below!

Firstly, we need to determine the spousal status of the person who is buying, selling or refinancing a property. A client who is currently single, widowed, common-law partner or a former common-law partner does not require spousal consent.

Secondly, we need to determine for those clients who are married, separated or divorced whether they are trying to sell, mortgage or buy, if applicable, a property that is or was ordinarily occupied as the matrimonial home.

If the target property is not or was never the matrimonial home, consent is not necessary. For those who are married only, if the property is the matrimonial home consent will always be required.

Lastly, for clients who are separated or divorced, we must determine whether the untitled spouse has released his or her interest in the property via a Separation Agreement or Court Order. If the answer is yes, consent will not be needed. However, if the answer is no, then spousal consent from the untitled spouse must be obtained.

Whatever the situation, realtors, mortgage agents, lawyers and clients must remain mindful of spousal rights and how they may affect the interest of each party when dealing with residential property.

It should be noted our chart does not necessarily apply to all transactions. Please check with your attorney to clarify your particular situation.

Do I need Spousal Consent

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CMHC CHANGES ITS MORTGAGE INSURANCE PRODUCT OFFERING

Source: Canada Mortgage & Housing Corporation

As part of the review of its mortgage loan insurance business, CMHC is discontinuing its Second Home and Self-Employed Without 3rd Party Income Validation mortgage insurance products effective May 30, 2014. Self-employed Canadians can still qualify for CMHC insured financing through CMHC homeowner products with a validation of their income using traditional methods.

cmhc_logo“CMHC helps Canadians meet their housing needs and contributes to the stability of the housing market and finance system” said Steven Mennill, Senior Vice-President, Insurance. “As part of the review of its mortgage loan insurance business, CMHC is evaluating its products and services to ensure they are aligned with these objectives.”

As a result of changes to CMHC’s mandate to contribute to the stability of the housing market, benefitting all Canadians, while effectively managing and reducing taxpayers’ exposure to risk, CMHC is undertaking a review of its mortgage loan insurance business. This is the first set of changes resulting from this review.

CMHC Second Home and Self-Employed Without 3rd Party Income Validation will remain available for new mortgage loan insurance requests submitted to CMHC before May 30, 2014, regardless of the closing date of the home purchase. As is normal practice, complete borrower and property details must be submitted by a lender to CMHC when requesting mortgage loan insurance.

Combined, CMHC Second Home and Self-Employed Without 3rd Party Income Validation account for less than 3% of CMHC’s insured business volumes in units. Given the limited use of these products, their discontinuation is not expected to have a material impact on the housing market.

As Canada’s national housing agency, CMHC draws on more than 65 years of experience to help Canadians access a variety of quality, environmentally sustainable, and affordable housing solutions that will continue to create vibrant and healthy communities and cities across the country.

Backgrounder

CMHC Self Employed (Without Traditional 3rd Party Validation of Income)
•CMHC introduced its Self Employed Without Traditional 3rd Party Validation of Income product in 2007 in response to industry competition. The product allowed self-employed borrowers who were unable to provide traditional sources of income validation to access CMHC-insured financing for a 1-2 unit owner occupied property.
•For the majority of self-employed borrowers, income validation is readily available. To validate their income, self-employed borrowers can provide copies of their Notice of Assessment, audited financial statements or unaudited financial statements prepared by an independent third party, for the previous two year period.

CMHC Second Home
•CMHC introduced its Second Home product in 2005. CMHC Second Home offered borrowers more financing options when purchasing an owner-occupied second home located anywhere in Canada.
•Going forward, CMHC will limit the availability of homeowner mortgage loan insurance to only one property (1-4 units) per borrower/co-borrower at any given time.

 

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SCOTIABANK LOWERS 5 YR MORTGAGE RATE TO 2.97%

Romina Maurino, The Canadian Press

scotia Scotiabank is the latest lender to create waves in the mortgage market after lowering its special fixed five-year rate to 2.97 per cent, the lowest fixed rate among the big banks.

The rate is effective until June 7, and comes amid growing competition for mortgages that have pushed rates down in recent months.

It’s also below the 2.99 per cent level that drew sharp criticism from Ottawa in the past over fears that such rates could overheat the housing market and encourage buyers to borrow too much.

However, Scotiabank says the rate is on par with others in the market.

David Stafford, Scotiabank’s managing director of real estate secured lending, said the trick is to use the low rates to your advantage because they won’t last forever.

“Our best advice to people renewing from a higher-rate mortgage is don’t change your payment,” he said.

“If you have a four per cent mortgage and you’re up for renewal and you’re renewing into a three per cent mortgage and your payment isn’t killing you, keep the payment because the interest cost to your mortgage will drop, but the additional payment will all go to principal.”

The special five-year rate doesn’t come with the strict restrictions that usually accompany such low rates, he added, so borrowers can have the flexibility they’ll need if their circumstances change.

John Andrew, a real estate expert with Queen’s University, said it was likely that other banks would follow Scotiabank’s lead to keep pace in a competitive market – especially given a lag in sales in the all-important spring market, which was delayed by bad winter weather.

“There’s no question that the mortgage lenders are very concerned about this slow spring and are obviously trying to catalyze the market and it’s obviously even more competitive right now than it normally would be,” Andrew said.

“We’re looking at mortgage rates very, very close to this level being predominant right into the fall, and then I think we’re going to see bond yields begin to creep up again and we’ll start to see some rates rising.”

Finance Minister Joe Oliver has said in the past that unlike his predecessor Jim Flaherty, he had no plans to wade into the debate over the setting of mortgage rates, calling it a “private” decision by lenders. But he has signalled he would keep an eye on the changes, noting that Ottawa has intervened in the past.

On Wednesday, he called the Scotiabank change a small drop in rates and restated he wasn’t planning to become involved.

“It’s a tiny difference and we’re not here to determine mortgage rates for the industry,” Oliver said in Ottawa.

Andrew said he wouldn’t expect a big crackdown from the federal government if rates continue to drop.

“There’s not a lot else they can do, unless they decide to increase the minimum down payment from five per cent, and rightfully so, I think they’re quite scared to do that because that would have a huge impact on first-time home buyers (and) in the home building industry and mortgage lending and so on,” he said.

Investors Group recently offered a 1.99 per cent rate for a 36-month closed, variable-rate mortgage, but Scotiabank is the first of the big banks to push its fixed rate down below three per cent in recent months.

As part of its special rates, Scotiabank is also offering a five-year variable rate of 2.47 per cent.

Rating agency DBRS published a report Wednesday saying that low and stable interest rates are the largest factor driving increasing levels of household debt and decreasing mortgage debt servicing. It found that mortgage debt servicing fell to 3.1 per cent, the lowest level since record keeping started in 1990.

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HOME INSPECTORS SHOULD BE REGULATED

Although I have worked with many excellent, well qualified home inspectors over the Home Inspection - Magnifying Glassyears, I have also worked with a few who would make you question just what exactly made them think they were qualified to do this job. Below is the Ontario Real Estate Association’s take on this:

The Ontario home inspection industry should be regulated, according to the Ontario Real Estate Association. Ontario REALTORS® support the provincial government’s initiative to push for regulation to enhance the home inspection industry and provide greater protection to consumers. Currently, anyone in Ontario can call himself or herself a home inspector. The Ministry of Consumer Services commissioned a review of home inspector qualifications by an independent, 16-member panel of stakeholders, including home inspectors, consumer advocates, educators, and professionals in real estate, law and insurance. A Closer Look: Qualifying Ontario’s Home Inspectors, was released in December and recommends regulation of home inspection industry. The panel made 35 recommendations in its 72-page report, after which the government invited public review and feedback to guide decision-making. Click the link to view this report. For more details, visit www.orea.com and click on “About” and then on “News and Press Releases.”

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GIVING BACK TO OUR COMMUNITY

Lots of people believe that real estate sales representatives are just after the sale, and then they are done with you. I suppose there is plenty of reason for them to feel that way – there are lots of stereotypes out there that class us in about the same boat as a used car salesman (sorry to all the honest car salesmen out there!).

However, myself and the team here at RE/MAX Connections Realty are out to prove that theory wrong! Of course, we do want to make a living, however, we are all about community, and supporting the community we live and work in. If you look around, you will soon discover that RE/MAX Connections Realty frequently sponsors various clubs and organization, as well as community events – either put on by us or one put on by a community/town group.

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A prime example of this would be this past weekend when RE/MAX Connections Realty hosted a free Family Fun Day in Smiths Falls. The day involved horse drawn wagon rides, hot dogs and hot chocolate for anyone who came out. We had a huge turn out, and everyone had a fabulous time. And the weather was perfect!!

That’s just an example of the things we are doing. If you think you might be interested in having your email added to our events contact list (you will not be harassed at all – we will just contact you about upcoming events), just send me a quick email at soldwithkim@gmail.com and I will see that your name is added.

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