RateSupermarket.ca Empowers Canadian Consumers with New Bank Account and Online Discount Brokerage Comparisons

New Tools Give Canadians a 360 Degree View of Options

Toronto, ON – May 15, 2012 – While most people don’t rely on interest from bank accounts to secure their financial futures, everyone needs one to be able to access cash for day-to-day expenses. Though bank accounts are not typically considered to be financial growth vehicles, there is no reason that consumers shouldn’t maximize earnings wherever possible.

As part of their ongoing mission to provide Canadian consumers with a 360 Degree view of all of their financial options, Canada’s largest impartial rate comparison site, RateSupermarket.ca, has added a slate of bank account and investment comparisons to complement its existing mortgage, credit card, and insurance services.

“Keeping your money in a savings account that isn’t offering you the highest interest rate is practically the same as giving money away,” said Kelvin Mangaroo, President of RateSupermarket.ca. “And if you’re also paying over the top for fees on your chequing account you could be missing out on hundreds of dollars over time.”

The new comparisons include a variety of banking institutions across many account types such as: chequing, seniors, TFSAs, children’s, students and savings accounts. Specifically, the chequing account comparison engine allows visitors to compare monthly fees, transaction fees and online banking features, along with a number of additional account details. Meanwhile, the savings accounts and TFSA search engines help consumers find the best interest rate, comparing differences in total savings over a three-year period; information on monthly fees, minimum balances, transaction restrictions and fees, and how interest is paid out is also included.

In addition to the new banking comparison tools, RateSupermarket.ca has added an extremely thorough engine to compare online discount brokerages.  The site looks at factors such as trade volumes and account value, and registered vs. non-registered, then compares options against more than 30 different criteria – from minimum to maximum trade volumes to phone and online transaction fees for stocks, bonds, mutual funds, gold and options. The engine also looks at mobile options, margins available and foreign exchange capability.

“Our latest product comparisons are another step towards RateSupermarket.ca providing consumers with all the information they need to make more informed decisions about their money.” says Mangaroo.

About RateSupermarket.ca (www.ratesupermarket.ca)

RateSupermarket.ca is the largest impartial rate comparison service for personal finance products in Canada. Founded in May of 2008, their easy to use comparison engine provides much needed transparency to the Canadian financial market and allows visitors to quickly find the best mortgage rates, savings rates and insurance quotes. Their Mortgage Tool App for the iPhone also allows house hunters to compare mortgage rates using their Smartphone. Over 2M Canadians have turned to RateSupermarket.ca to save money on their mortgage, insurance, credit cards and GICs.

CMHC Released their annual report last week, Tuesday May 8^th.  The Canadian Mortgage and Housing Corporation continues to be an integral player in contributing to the stability of the Canadian marketplace.  In 2011, spending on housing accounted for a whopping 20 per cent of Canada’s GDP last year and CMHC provided $2 billion in support of housing programs. Here’s a summary of the report.

Economic Indicators and Forecasts

Economic growth slowed to 2.5 per cent in 2011 compared to 3.3 percent in 2010. The economy is expected to grow by 2.1 per cent in 2012

The Bank of Canada has indicated that the overnight lending rate is likely to remain consistent at 1 per cent for 2012.  Mortgage rates (both fixed and variable) are expected to remain at low levels and CMHC predicts that there will be no exciting movements to posted mortgage rates.  The posted 1 year fixed mortgage rate is estimated to be between the 3.3 per cent and 3.6 per cent range, whereas the posted 5 year fixed mortgage rate is expected to be between the 5.1 per cent to 5.4 per cent range

The unemployment rate declined from 8.0 per cent in 2010 to 7.5 per cent in 2011, while 2012 will see a rate of about 7.0 per cent

Housing starts were up just over 2 per cent from 2010.  Sales of existing homes are expected to increase slightly in 2012 along with the average price (estimated to be around $368,900 in 2012).

Mortgage Loan Insurance

Back in the beginning of February 2012, CMHC was front and center with their news that they were approaching their $600 billion cap for loan insurance which is set by the Federal Government.

In 2011, CMHC had planned to only increase their insurance in force by 3.7 per cent to $533-billion.  However, they actually increased it over 10.3 per cent to $567-billion and are quickly approaching their $600-billion limit.  As you can see, the largest contributor to this increase is from the multi-unit residential units.  CMHC is the only insurer of loans for large multi-unit rental properties, including nursing and retirement homes.  Increased life expectancy paired with the aging baby-boomer cohort translates to a heightened demand for nursing homes and retirement homes alike.

What the Average CMHC Customer Looks Like

The quality of borrower is the only saving grace to the increasing level of CMHC insurance issued.  The average equity in CMHC’s insured portfolio stands at 44 per cent meaning that the average person is financially stable and could withstand any potential adjustments to housing prices.  To put this into perspective the average home price in Canada is approximately $370,000 and would therefore have a mortgage balance of $207,200.

Thankfully, the average credit score of CMHC-insured high ratio loans is 724!  Since CMHC has sound underwriting practices the majority of homeowner loans are held by consumers with strong credit scores who demonstrate a prudent approach to managing their mortgages.

A Look at Real Estate Market Stats for April 2012

Over the last week the Real Estate Board of Greater Vancouver (REBGV) and Toronto Real Estate Board released their monthly real estate market reports.  Here is a summary of their findings:

Toronto Real Estate Stats | The Big Smoke

All Toronto real estate statistics are up on a month over month and year over year basis.  The number of listings and the average price have both increased and sales are keeping up to speed – seems to be a good balance!

Toronto has experienced the strongest sales growth across its single detached dwelling category, however, the listings have not kept up to the demand.  This situation could be problematic, especially if consumers begins to reason with cheap credit and think that since mortgage rates are at all-time low they can afford to put in a higher offer.  This could cause competition to stiffen, bidding wars to intensify and lead to an artificial inflation to prices.

Vancouver Real Estate Stats | Van-City

Vancouver experienced a decrease in sales in April, both month over month, and year over year; whereas both the prices and the number of listings have increased.  April 2012 actually saw the fewest monthly sales in Vancouver in over a decade.  Cheap credit has pushed house prices higher! But…Eugen Klein, President of REBGV, claims that, “although April sales were below what’s typical for the month, we continue to see, with a sales-to-active listings ratio of nearly 17% a balanced relationship between buyer demand and seller supply in our marketplace”.

Hmmm… an increase to prices and listings paired with a decrease in sales activity – sounds like a buyer’s market to me, which isn’t necessarily a bad thing…until you throw cheap credit into the mix.  Eventually something’s gotta give – when sellers outnumber buyers and prices are high, the only way to entice more buyers to enter the market is with (you guessed it) lower prices!

The problem with having low mortgage rates (a.k.a. cheap credit) is that consumers can essentially afford more, so they buy now at inflated prices!  Then as a pricing correction occurs and the market cools off, consumers could find themselves underwater (which is exactly what happened in the US). Since Canadian listing prices aren’t necessarily “correcting” as quickly as the government would like to see, they’ve started to make changes to offset the borrowing frenzy that cheap credit has created.

OSFI Stepping in to Make Changes

OSFI released their draft recommendations to federally regulated lenders to tighten underwriting practices with an aim to enhance the quality of borrowers and strengthen the Canadian credit system and marketplace.  OSFI wanted to hear the suggested feedback from lenders and how they would change the draft guideline.

You can check out other comments that I’ve made on the draft recommendations thus far here.  But..I wanted to touch on yet another controversial issue surrounding the proposed changes.

Target: HELOCs

Since CMHC no longer insures HELOCs the maximum loan to value has been capped at 80 per cent.  However in an effort to keep Canadian spending in check, OSFI has considered decreasing the maximum loan to value to 65 per cent.

The draft guideline states that amortizations need to be defined for HELOCs, or that there needs to be a change to the minimum payment requirements which is currently “interest only”.

Of course major banks and lenders would be affected by the proposed regulatory change to HELOCs, but much attention has been focused on what Manulife Financial thinks about all of these changes.

Manulife One Account

The Manulife One account enables you to run all of your banking (savings account, mortgage, chequing account, etc.) through one account.  How?  It is basically a HELOC that consolidates all of your accounts into one, and pays interest on any positive balance once all of your debt is paid off.

The main selling feature of the Manulife One account is the interest savings and benefits of having your pay cheque and other deposits directly applied to your debt (compared to having interest accumulate in-between payments).  Sounds great…but the problem is that Canadians aren’t paying down their revolving debt, they are re-using it!  How do we fix this? The leash needs to be tightened by enforcing a “principal and interest” payment, compared to the current “interest only” payment minimum.

But..with these proposed regulation changes to HELOC lending guidelines (increasing the amount of equity required from 20 per cent up to 35 per cent), the Manulife One account and Manulife as a whole, could be “collateral damage in the process” says Manulife Financial CEO Don Guloien.  Manulife experienced record loan volumes which were largely driven by the success of the Manulife One Account.  But Guloien commented that he is on board with the proposed changes suggested by Finance Minister Jim Flaherty, and supports any changes that will harness the increases in home prices and decrease consumer debt levels.

RateSupermarket.ca Week in Review

The single change made to the best mortgage rate page over the last week was to the 3 year variable mortgage rate which dropped to 2.80 per cent while all other rates have remained steady.

Do you want to know when the best mortgage rates change?  Be the first to know and sign up for RateAlert, RateSupermarket.ca will e-mail you a daily digest of the mortgage rates that have changed in your area!

The 5 year fixed mortgage rate remains the most popular searched rate, with 47.5 per cent viewing rate.  And nearly a quarter (23.5 per cent) of visitors are searching for a 5 year variable mortgage rate.  Nearly 1 in 9 (8.7 per cent) of visitors have checked out the 10 year fixed mortgage rate rate over the last week and finally under 5 per cent are looking at the 3 year fixed mortgage rate fixed (4.7 per cent of visitors) and 4 year fixed mortgage rates (4.1 per cent).

After the financial meltdown of 2008, things were not 100 percent economically fantastic here in Canada, but it was nothing like in the U.S. Many of us felt pretty smug about it, really. Our unemployment levels weren’t so bad, our housing prices stayed firm and our banks were a model of efficiency and best practices.

Or so we thought. Last week, the Canadian Centre for Policy Alternatives revealed that Canadian banks got as much as $114 billion dollars in secret government bailout money. It was a shocking allegation, and one that not everyone believes.

Here’s what happened.

The Bailout Claim

In The Big Banks’ Big Secret, written by David Macdonald, chief economist at the CCPA, it says between 2008 and 2010, the government bolstered our banks to the tune of $114 billion, an amount that equals $3,400 for every Canadian. That amount is higher than the per capita support given in the highly publicized U.S. bank bailouts. This money came through the Canada Mortgage and Housing Corporation (CMHC), the Bank of Canada and the U.S. Federal Reserve.  For instance, the CMHC bought $69 billion worth of mortgages from banks during this period. In the report, Macdonald also says three of our major banks were totally underwater during that time.

However, the report — which was culled from financial documents of the above organizations — also reveals Canadian banks pulled in $27 billion in profits as a group and CEO compensation went up 19 per cent.

The Other Side

The Canadian Bankers’ Association and Finance Minister Jim Flaherty have said many of the details of the report are wrong.

For instance, the CBA has been quoted saying that banks were in no way in serious financial trouble at that time and that money was moved around to deal with liquidity — simply making sure the banks had enough cash on hand — not bailout money. All the federal banks were trying to flood the system with money during that time by increasing loans to banks, all to keep money moving during a tough time.

As well, the CBA has been quoted saying the CMHC bought mortgages, but they were fully secured and insured good loans. This was through the publicized Insured Mortgage Purchase Program, introduced in 2009, and the CBA reports that the CMHC made $2.5 billion via interest by buying these mortgages.

The government has said any money given to banks to deal with liquidity issues came in the form of loans and those loans have already been paid back.

The Bottom Line

Understanding economics on a federal or even global scale is a tough thing for everyday consumers. In fact, one of the criticisms of the financial industry was that a lack of understanding of the markets led to the economic crisis itself — folks on Wall Street were buying bonds and loans they did not truly understand.

It is important that organizations like the CCPA look into government documents and try to unravel the complexities of what goes on in good times and bad. We consumers need to know what happens at our banks, particularly since these organizations are massively profitable and charge us highly for their services.

In this case, it is hard to separate the propaganda from the real economic facts. We may suspect some wrongdoings here, or we may believe our system is being run responsibly. In the end, all we can do is educate ourselves and keep asking our government and big businesses to be accountable no matter what’s going on in the world.

RateSupermarket.ca’s Expert Mortgage Panel Predicts Status Quo on Mortgage Rates

Toronto, ON – (May 10, 2012): Increased uncertainty in Europe and the wider global economy will cause Canada to sit back and wait before making any major changes to interest rates that could potentially derail its economic growth. While this waiting game plays out, RateSupermarket.ca’s panel of mortgage experts expect both fixed and variable mortgage rates to remain unchanged in the short term.

Fixed mortgage rates: Unchanged

Demand for mortgages is moderating in many parts of the country, and there is decreased need for competitive discounting from big lenders to maintain mortgage market share. All these factors point to one conclusion – little change is on the horizon for fixed mortgage rates. Our panel of experts expect fixed rates to remain level for the next 30-45 days.

Variable mortgage rates: Unchanged

The recent French and Greek elections raise concern for the future stability of the Eurozone. Will Greece exit the European Union?  If so, how many other debt ridden countries will follow? With so many questions unanswered, our Mortgage Rate Outlook Panel members think the Bank of Canada is unlikely to risk rocking the boat by increasing interest rates any time soon.

This, coupled with the fact that discounts to the Prime rate are not expected to budge given the lack of interest in variable rate terms at the moment, means that variable mortgage rates will stay where they are in the short term.

About the Mortgage Rate Outlook Panel

The Panel includes some of the country’s top mortgage experts, and helps Canadian consumers make informed decisions by offering a short-term outlook for fixed and variable mortgage rates.

This month’s panel members:

• Mark Kocaurek, Senior Vice President, Treasury & Lending (Chief Lending Officer) of ING DIRECT Canada
• Dr. Ian Lee, Director of MBA Program, Sprott School of Business, Carleton University
• Wayne Spinney, Mortgage Agent, Centum Mortgage Professionals
• Dan Eisner, MBA. AMP. President, True North Mortgage

About RateSupermarket.ca (www.ratesupermarket.ca)

RateSupermarket.ca is the largest impartial rate comparison service for personal finance products in Canada. Founded in May of 2008, their easy to use comparison engine provides much needed transparency to the Canadian financial market and allows visitors to quickly find the best mortgage rates. Their Mortgage Tool App for the iPhone also allows house hunters to compare mortgage rates using their Smartphone. Over 1.5M Canadians have turned to RateSupermarket.ca to save money on their mortgage, insurance, banking, credit cards and GICs.

She is one of the most universally revered people on the planet. She is a nurturer, a provider, a support system, an educator, and sometimes even a needed disciplinarian.

She is Mom.

But rather than queuing up to wait for a table in an over-crowded restaurant or paying a jacked-up price for flowers that will wither and die within days, this Mother’s Day, why not treat your mom with something a little more personal (and easier on the wallet)?

Tech Toys

The very fact that she is your mom means she grew up in a different generation, one that probably didn’t use computers, cellphones, online banking, and various other things that we take for granted. Around about the time my mother finally figured out how to operate the VCR without any assistance, society forced her to upgrade to a DVD player. I’m hoping she figures that one out before I have to buy her a hologram projector…

Here are a few ways you can help get your mom up to speed with her digital lifestyle.

• Enter key contacts into her phone’s address book.
• Assuming she’s not a complete Luddite and actually has an email address, set up the appropriate spam filters on hers – and show her how (and why) to periodically check her junk mail folder for messages that erroneously end up there.
• Show her how to switch on the TV, VCR, DVD player, stereo system, and anything else that’s connected to her home entertainment system (and write up a cheat sheet she can keep nearby).
• Transfer the images off her camera’s memory card to a computer, and help her print off copies of her favourites.
• Set her up with online bill payments and show her how to manage her bank account online. If she balks, remind her that most companies are heavily pushing customers to get e-statements instead of snail mail bills, offering either incentives or, like Bell Canada, charging a $2 monthly premium for clients who insist on a paper statement. (See also, “Fiscal Fitness,” below.)

Manual Labour

Later this summer, my mother is moving out of the house she’s been in for more than a decade. While I didn’t intend it as a Mother’s Day gift, this week I’m taking a day off work to help her purge some of the clutter (and, to be honest, crap) she doesn’t need to cart along with her. A few trips to Goodwill and, probably, a few more to the dump will help get her organized enough to start packing what she really needs to keep.

My dad passed away a few years ago, and my only brother lives a two-hour flight away, so when it comes time for some grunt work, I’m often the guy she calls in. But if even your dad is still keen to putter around, and you’ve got a soccer-team’s worth of able-bodied siblings, your Mom will always appreciate a hand around the house, and it saves her having to hire someone else to do the work.

Here are a few more ideas:

• After a bit of a false start, spring really is here for good. Now is the perfect time to rake up last year’s leaves, prune deadwood off of trees and shrubs, and seed and fertilize the lawn.
• Help organize – and purge the clutter – from the garage, attic, basement, or any other room in the house that’s becoming a dumping ground for junk.
• Wash and vacuum her car.
• Ask to see her to-do list of odd jobs around the house, and tackle as many as you’re qualified to handle. Painting a room, fixing a leaky faucet, oiling some squeaky hinges, or repairing a torn window screen are all relatively easy DIY jobs.

Financial Fitness

Granted, Mother’s Day may not be the best time to bring up retirement planning and wills, but since you are thinking about her, it’s worth thinking about her financial wellbeing.
There’s an older generation of moms out there who truly are old-school in the sense that they allow(ed) their husbands to take care of all the family finances. If Dad happens to die before Mom does, along with all the emotional turmoil she’ll go through, she could face some serious difficulties getting her finances in order.

Perhaps your mom could use a tutorial on some general personal bookkeeping and financial planning. You could start by sending her links to some of the relevant articles on this blog. After you’ve covered the baby steps, get her an appointment with a financial and/or estate planner to make sure everything else is properly organized.

Happy Mother’s Day.

If I really think about it, I’m pretty sick and tired of a whole lot of my service providers. I wonder if my insurance company is ripping me off. (Probably.) My bank may be gouging me with service fees. My internet bill sometimes, randomly, shoots through the roof. And, like just about everyone I know, I deeply dislike my phone providers.

If it’s time to break up with any one of your service providers, it’s not enough to just be annoyed or frustrated. You need to take a methodical approach to make sure you’re making the right move and that nothing in your life will be disrupted when you switch gears.

Here’s a checklist of things to think about when you make a move.

Switching Banks

This is the biggest move you’ll make. Before you change, be sure there will be no extra fees for releasing any of your bank accounts or lines of credit. Verify that the new financial institution has a good web site that will allow you to pay your bills and check your balances easily. If you are opening a new savings account, be sure to check the interest rate offered. Also, make sure any automated deposits or expenses are updated and accounted for.

Checklist:

• all automatic deposits including paycheques and government deposits
• regular bills (hydro, cable, phone, etc)
• automated credit card payments
• mortgage payments
• car payments
• insurance payments
• automated debt payments (i.e. student loan, line of credit, etc)
• investments such as RRSPs, RESPs and TFSAs and their auto payments

Switching Phone Companies

Ensure your new provider will support your cell phone and everything, including the data plan, suits your needs. When you change, make sure you’re not going to get dinged by any penalties or be forced to change your number. Make sure changing won’t impact your internet or cable service or any bundle discounts.

Checklist:

• pay the last bill promptly
• check that your bank lets you pay your bills online
• make sure the first bills reflect the services you actually subscribed to
• any deals you’ve been promised are happening

Switching Internet Providers

This strikes me as a huge one: changing your email address is a major pain. Consider moving to something like Gmail to have a consistent address no matter who offers your service. Again, ensure you’re not going to get dinged for extra charges like installation and be sure you’re getting some sort of great deal for being a new subscriber.

Checklist:

• make sure any friends or colleagues, even old ones, have your new email address
• ensure all important email subscriptions get your new address
• you’ll need to change your user name for any web portal or account where you sign with your email
• make sure the first bills reflect the data plan you actually subscribed to
• any deals you’ve been promised are happening

Switching Cable Companies

Everyone’s moving away from traditional cable and into things like Netflix and Apple TV. If you do get rid of cable or switch providers, be sure you’re getting what you truly want and you won’t miss anything.

Checklist:

• all the TVs in your home will be supported
• you won’t miss anything big coming up like the Olympics
• all family members (like kids) won’t miss certain channels and that these folks can actually operate your new system
• if you bundle your products with one provider, make sure dropping the cable will not affect the other service fees

Switching Insurance Companies

It’s not that hard to call around and get quotes, but actually switching insurance providers is a lot of work. You often need to have your car assessed, satisfy the provider as to the contents of your home via listing your possessions or taking pictures. You also need to ensure your new provider will cover your unique needs such as an older home, a home office or a vintage car.

Checklist:

• make sure everyone in the family gets the new proof of insurance
• keep up to date paperwork in the vehicle
• your policy covers everything you need it to
• familiarize yourself with the claim process

It’s a lot of work, as you can see, to save money and get better service from your providers. Make detailed notes, be sure you haven’t missed any detail or extra charge and if it makes sense don’t be afraid to take a chance on trying something new.

By now you should have completed your taxes and are most likely eagerly awaiting your return. While some will get just a couple hundred dollars back, some of you could be in for a fairly sizable cheque. It’s easy to get excited about unexpected money, and hard not to want to spend it all at once. Before it arrives, though, take some time to think about how you can best use that money. Here are 8 suggestions for ways you can spend your tax refund wisely:

1.    Pay off any outstanding bills

If you have outstanding bills, using your tax refund to pay them off is probably the best option for you. There’s nothing worse than the stress of being behind. Take this opportunity to get ahead of the game for once.

2.    Pay down your credit card debt

Credit card debt can build quickly, but it’s hard to whittle down once it mounts. If you have outstanding debt on your credit cards – debt that keeps you up at night – the responsible thing to do would be to put your tax return towards that debt. Of all the debt you have, credit card debt is most likely to have the highest interest rate running from 9 – 23 per cent. By paying that debt down first, you’ll actually be saving money in interest later.

3.    Put some of it towards your mortgage

If you have a mortgage that allows you to make additional payments without penalty (and most mortgages will allow you to make an annual lump sum payment of 5 – 25 per cent of the mortgage value), this might be the perfect opportunity to use that to your advantage. The more you pay now, the less you pay in interest later.  Check out how much money lump sum payments can save you with this Mortgage Calculator.

4.    Invest in your future

If you haven’t started an RRSP, maybe it’s time. Your return might not amount to much now, but over the years your investment will grow. This is a particularly good idea if you are feeling no other financial pressures at the moment.

5.    Start an emergency fund

Doesn’t it sometimes seem like bad things happen either when you’re least prepared or when you’re least able to cope? You just paid a huge vet bill and your washing machine suddenly dies. You finally paid off your credit card debt and your car breaks down. These situations happen all the time, and sometimes it feels like you’ll never get ahead. Without an emergency fund, situations like these can be stressful. Why not take this extra cash and set it aside for those little emergencies? When the time comes – and it will – you’ll be glad you did. 

6.    Upgrade your job skills

Have you recently found yourself wanting to return to school? Have you dreamt of taking courses to upgrade your skills? Will doing so help increase your salary? If you answered “yes” to any of these questions, you might want to consider using your return to invest in yourself. This is an especially good idea if it will help to boost your income in the long run.

7.    Treat yourself to something nice

Sometimes being responsible is all we do. If you’re one of those people who seems to always be doing the right thing – saving money, paying down bills, saying no when you really want to say yes – then maybe you need to do something nice for you. Buy yourself a new outfit. Go get your hair done. Take yourself out for a nice lunch. Go golfing. Spoiling yourself is sometimes the best course of action – especially if it’s something you don’t often do.

Alternatively, you could also treat someone else to something nice.  It might not be top on your list of things to do with your tax refund, but using some or all of that extra money to make a charitable donation could be more rewarding than a new pair of shoes.

8.    Go on vacation

Many Canadians use their returns to book their yearly vacation. Without their return, some wouldn’t even get a vacation. You don’t have to spend every waking hour worrying about your debt, retirement savings or credit card bills. You are allowed to let loose and have a little fun. Go ahead; use your return and treat yourself to some time away. You deserve it! 

I’d like to be able to give you a magic formula for how to best spend your tax return. Unfortunately, there isn’t one. Everybody deals with money differently. If you’re a person who pinches pennies all year round, then maybe this is the time to treat yourself to something nice. If you spend too much money and have a mountain of debt that stresses you out, maybe your return should be used to pay that debt down. You know yourself best. Make a list similar to the one above and prioritize. My personal advice is to put 50 per cent towards debt, 30 per cent towards savings and the rest towards a treat for yourself. But be honest and make the best decision for you.

CAAMP Response to Draft Guideline B-20 Residential Mortgage Underwriting Practices and Procedures

Back in March of this year, OSFI (Office of the Superintendent of Financial Institutions Canada) released their draft recommendations to banks and other federally regulated lenders to tighten underwriting practices.  The OSFI was calling on banks to submit their feedback to the suggested changes with the deadline being this past Tuesday, May 1^st.

The Canadian Association of Accredited Mortgage Professionals (CAAMP) is Canada’s national mortgage industry association, representing the largest and most respected network of mortgage professionals in the country.  CAAMP chose to comment on 5 areas surrounding the 18 pages of recommendations released by OSFI:  (1) loan documentation, (2) debt service charge (additional assessment criteria), (3) loan to value ratios, (4) down payments and (5) home equity lines of credit (HELOC).

You can find the entire report from CAAMP here.

Loan Documentation and Underwriting

In terms of the loan documentation, it sounds as though OSFI has suggested that at renewal, a client must re-qualify and endure the entire underwriting process.  CAAMP and others alike are looking for clarification around this proposed change.  If the idea behind this is to literally re-qualify the client, CAAMP does not support this movement.  How would you feel if when your mortgage came up for renewal, you’ve made all of your payments on time, but somehow you no longer “qualify” for that mortgage?  This might be due to the fact that you are now retired or your income isn’t what it used to be.

The idea of re-qualifying for a mortgage that you’ve been compliant with seems a little backwards to most…myself included.  The majority would support the idea of re-assessing the risk at the time of renewal, but find it unnecessary to go through the whole underwriting process again.  CAAMP has suggested that implementing such a process “would result in a number of properties hitting the market at the same time thereby driving down prices”.  I find this to be a little dramatic as I don’t believe that a large number of consumers wouldn’t re-qualify … but I do agree that re-qualifying is redundant.

Down Payment

OSFI has also proposed that any cash back amounts received from mortgages should not be used as any part of the down payment.  CAAMP has sided with OSFI on this change and supports the idea that borrowers should have “skin in the game” (one of the 5 C’s of credit).  There was a reason that the Minister of Finance ended the no down payment mortgage back in 2008…and it wasn’t to spark creativity among borrowers by using a 5 per cent cash back product to satisfy the minimum down payment requirement.  I agree!  Borrowers should have some capital to put towards what likely will be the biggest loan they will ever have.

The Mortgage Market in Canada

Canada’s mortgage market is said to be a model to markets around the world.  Our success distinguishes us from the rest of the world. We can attribute our success to the regulations that we have in place, and the governing bodies who ensure compliance.  The demise of the American mortgage marketplace and the bailouts that the U.K. banks had experienced should be a reminder that sound policies are a cornerstone to our success, and although tedious it is important that we review and alter them periodically.

Market Update

StatsCan released a report on Canada’s GDP for February 2012.  Due to a weak global demand and temporary mining closures in February (namely across potash and nickel mines in Saskatchewan), overall real GDP declined 0.2 per cent.  Canada experienced decreases across its agriculture and forestry, mining and oil and gas, manufacturing, utilities, and retail sectors which wasn’t offset by the increases across construction, wholesale, financial and insurance, education, health, and public administration sectors.

So let’s focus on the areas that are directly speaking to the mortgage and housing industry.  Construction rose 0.5 per cent in February due to increases in residential and non-residential building constructions.  Output of real estate agents and brokers also increased 1.1 per cent in February due to increased activity in the home resale market.  And finally the finance and industry sector climbed 0.5 per cent.  All good news!

RateSupermarket.ca Week in Review

It feels funny to report a notable change to the best mortgage rate page since rates have been so stagnant for the last little while.  However the 3 year variable rate has increase by 15 bps over the last week, leaving the best rate in Canada right now sitting at prime – 0.10.  The only other increase to rates over the last week was the 5 year fixed rate, up 5 bps from last week and sitting at 3.14 per cent.  Do you want to know when the best mortgage rates change?  Be the first to know and sign up for RateAlert, RateSupermarket.ca will e-mail you a daily digest of the mortgage rates that have changed in your area!

Still hot in the number one spot for the most popular searched mortgage rate is the 5 year fixed mortgage rate with a 47.3 per cent viewing rate.  Following the 5 year fixed is the the 5 year variable rate which sparked an interest in 22.9 per cent of RateSupermarket.ca’s visitors, the 10 year fixed which was searched by 9 per cent and finally the 3 year fixed searched by 5.7 per cent.

I must confess. I’ve never been much of a gold bug. And I admit, I’ve never understood how the market values gold or the reasoning behind holding gold. So why is the market full of news about investing in gold?

What is the Value of Gold?

Owning gold doesn’t come with any dividends or interest, so it doesn’t pay an investor any income while you hold it. Because of this, investors can’t use cash flow or yield to estimate the value of an ounce of gold.

Gold by itself doesn’t produce anything. It doesn’t manufacture anything, it doesn’t create any new technologies or processes, and it doesn’t create any revenue or profit. So, we can’t use the typical business valuation models to determine the current and future value of it.

Also, unlike most other metals and commodities, gold isn’t consumed – it’s horded. Gold is mined, refined, and circulated and it never disappears. That means then that the supply of gold is always increasing.

Gold: A Fear Trade

When the economy is doing well, stock markets and real estate are appreciating in value, and gold is rarely thought of as an investment opportunity.

History demonstrates that, as an investment, gold gains popularity as investors are told to fear future outcomes such as:

• That future inflation will increase and thereby erode an investor’s financial wealth.
• Paper-based currencies will depreciate as central banks/government treasury departments continue to print money without restrictions.

These scenarios are what the investment industry refers to as invisible killers because the investor never actually sees their negative influences on their investment statements or pay cheques. Both work silently and unseen to diminish an investor’s savings.

Gold Gets an Investment Makeover

Recently, however, gold has been attempting to cross over from its historical status as a fear trade into the world of legitimate investing, right along side bonds, common shares, mutual funds, ETFs and preferred shares. We can see evidence of this reconstruction with pronouncements such as the following from organizations like the World Gold Council (WGC):

“Gold is a foundation asset within any long-term savings or investment portfolio. For centuries, particularly during times of financial stress and the resulting ‘flight to quality’, investors have sought to protect their capital in assets that offer safer stores of value. A potent wealth preserver, gold’s stability remains as compelling as ever for today’s investor.”

Tracking Gold’s Recent Value

So, how does the market presently determine the value of gold? Currently, it’s determined simply by the amount of money chasing it. The market value of gold goes up when the amount of money chasing it increases, and it drops when the flow of money decreases. 

As outlined in the World Gold Council chart above, the price of gold began to take off at the end of 2004. So why did gold prices suddenly begin to rise?

Although retail investors had access to a couple of gold exchange-traded funds (ETFs) prior to 2004, these options were not well known, and most investors desiring to invest in gold had to buy physical gold in the form of bars and coins. It was not until 2004 that the new gold ETFs began to pop up everywhere.

In fact, by 2005 the retail investment demand for gold was growing so fast the WGC had to create a separate entry just to track retail investment in gold ETFs and similar products. In 2005, the total investment demand was 593.6 tonnes and this has grown steadily to 1,640.7 tonnes in 2011.

Don’t Be the Dumber Guy

When an asset’s market price is solely dependent upon the amount of money chasing it, its market price is said to be subject to the “Dumber Guy Rule,” where an investor buys the assets hoping some dumber investor will be willing to pay more for it at some future date. This may seem like a silly rule, however, it simply implies that when the asset does not:

• Pay an income
• Generate revenues or profits on its own
• Create new technologies or processes, or
• Get consumed

… then the asset’s market price is solely dependent upon the next investor willing to buy it.

But buying assets that are subject to the dumber guy rule is always tricky and your success often depends upon your timing. Are you at the front of the line or closer to the back?

Unfortunately, usually by the time you read about an asset in the news, the line has been in place for a while and joining in may put you closer to the end than you think.

So if you are buying gold, check out how many investors are in front of you in the line.

You don’t want to be the last Dumber Guy!