This week's mortgage news lowdownThe Only People Valuing “Trump” These Days … Are Playing Euchre

Toronto-area investors are keeping a sharp eye on the developing saga surrounding the Trump International Hotel and Tower. The closing date for this controversial project has been extended as investors scramble to obtain mortgage financing.  This extension hasn’t come for free either – they are losing around $175 each day while condo fees slightly outweigh revenues.  Investors are claiming that no Canadian bank will finance the hotel units as condo units; this after Talon (the developer and owner of both the property and licenses for the Trump brand) assured them that financing wouldn’t be an issue.

The issue lies with the assessment of this hybrid condo/hotel.  In the eyes of the bank it is seen as a commercial enterprise vs. a condo deal.  So what are investors to do?  Well, they need to find cash fast – perhaps a pot of gold at the end of a rainbow, or more realistically, look to the secondary mortgage market for an inflated commercial interest rate to help partially bridge the gap.

I’ll See You in Court!

Investors are now suing Talon and Trump and their respected directors for misrepresentation, false projections and for breaching securities regulation – though none of these allegations have yet been proven in court.  The misrepresentation and false projections stem from excel spreadsheets and inflated revenue streams that glimmered in the eyes of hungry investors looking to make a lucrative investment.  Apparently the sales pitch was quite appealing!  At the end of the day, the problem of financing is a pretty sticky situation but a sales pitch is a sales pitch.  An investor should be doing their due diligence and sift out the smoke and mirrors from the cold hard facts and numbers.

Countering the Condo Sales Pitch

Here’s the hot button issue… the glitz and glam sales pitch and the breach of securities regulation.  There was a loop hole, it was found and (with the public knowledge of what has happened thus far) it seems as though Talon and Trump could be in some hot water.

Talon and Trump got around the OSC and the regulatory requirements for commercial investments by agreeing to not market the hotel units as a cash flow investment.  But investors are feeling they were duped into forking out a nice down payment as the sales pitch was largely based on the profitable potential of the units.  Now, over 50 investors are trying to get out and have even claimed a change in marital status to leave the agreement.

The Lesson Learned For All Condo Buyers

You may not be an investor with millions to sink into a property – but all buyers are faced with risks when considering a pre-construction condo purchase. Here are a few ways to come out on top:

  • Ensure that a spade is a spade (in the Trump situation the problem with financing was that the banks were calling this sale a commercial deal whereas the developers and investors were calling it a condo unit)
  • Look into market projections both domestic and abroad (we’re still experiencing a slowdown in the Canadian economy as the global economy continues to struggle) and ask yourself how your financial situation would change if (dare I say) the condo depreciated in value.  Could you still afford it?  Do you have an emergency fund that you could call on?  Your plan should be something more involved then “I’d just sell and downsize”;what if you can’t sell? According to a recent survey conducted by TD Canada Trust, 38 per cent of condo owners would not be able to afford their unit in the case of a fee increase.
  • Do your homework, ask questions and find a trustworthy real estate agent that will help you find the right home/investment for you.  No, they don’t have a crystal ball to help you play the market but they’re experts in the industry, or at least they should be.  Ask around for a good one and listen to your gut feeling when ‘interviewing’ your agent.
  • Talk to your bank, your mortgage broker, your investment advisor etc.  Call on your entire group of experts to give you their two cents.  Can you afford this?  Will you be approved?

And In Other Mortgage News… Will Interest Rates Rise In Mark Carney’s Wake?

Earlier this week, the Canadian markets were blindsided by the announcement that the Bank of Canada’s Governor Mark Carney will be leaving his post to head up the Bank of England. Seeing as Carney is the man who kept a lid on interest rates (which are currently at historical lows), investors and homeowners alike are worried that a hike is inevitable for his successor. Well, perhaps it is – but as economic factors remain shaky due to European and U.S. fiscal woes, it’s unlikely we’ll take a hike before the forecasted rise later in Q3 of next year.

The Brokers Have Spoken – and So Have the Lenders!

Last month, CMP Magazine conducted their sixth annual Brokers on Lenders survey, which included the feedback of over 450 participants on their bank partnerships. This month, the lenders are talking back, based on their assessments of transparency, customer support, commission structure and more. So, who were the best broker-rated lenders? Merix swept the field with four CMP golds, follwed by MCAP with three, and Bridewater Bank with a silver, respectively. Keep that in mind on your next rate hunt – brokers and lenders with a symbiotic relationship are better equipped to effectively serve borrowers.

RateSupermarket.ca Week in Review

We had some excitement on the Best Mortgage Rates table this week as five-year fixed rates broke the record again at 2.77 per cent! It makes me reminisce about the first appearance of the 2.99 – who would’ve thought back then that it would become the fixed rate norm!? Other downward movement was seen for four-year fixed (down a basis point to 2.88) and 10-year fixed, also down one point to 3.73 per cent. Variable rates stayed relatively stable, with the exception of a three-year hike, from 2.65 to 2.80 per cent.