CAAMP’s Spring Mortgage Report 2012
The Canadian Association of Accredited Mortgage Professionals has released its semi-annual report – and it’s packed with loads of market stats, covering mortgages from A-Z. The report evaluates some interesting topics including the real estate market, mortgages, HELOCs, average equity in homes, interest rates, as well as some forecasts for what’s to come! For full access to the report, click here.
OSFI Releases Update to FRFIs re: Draft Guideline B-20
On March 19th, 2012, OSFI released their draft guidelines to Federally-Regulated Financial Institutions (FRFIs) who had up until May 1st to submit their comments on the draft recommendations. OSFI has since reviewed these assessments, and have provided a sneak peak at some of the key issues that will be reflected in the final version of the guideline. Let’s take a look at the top 3 hottest topics and see how CAAMPs statistics relate to the final results:
1. Re-Qualification at Renewal?
OSFI had originally suggested that FRFIs would have to fully underwrite and re-qualify clients at renewal. This didn’t sit too well with FRFIs as their current practices have sufficiently assessed clients’ risk level by reviewing their payment history. OSFI eventually relented, agreeing that the current practice to determine the credit-worthiness of clients is sound. Moving forward, FRFIs will continue to assess the borrowers at renewal time based on their own standards.
CAAMP stats also support the free reign that is and should be given to FRFIs. 94 per cent of mortgage holders have never missed a payment that was outside of policy (some lenders actually offer a “miss a payment” feature). The 6 per cent who have missed payments is pretty insignificant – and can be looked at on a case-by-case basis as per the institution’s standards. Moreover, most Canadians have a considerable amount of home equity, with the average siting at 67 per cent; this includes people with mortgages only, HELOCs only as well as a combination of both.
2. Mitigating Risk to the Ever-Popular HELOC
FRFIs were quite upset over the idea that the loan to value (LTV) of a Home Equity Line of Credit (HELOC) would decrease from 80 per cent down to the proposed 65 per cent; and they likely still have their noses turned up. That’s right – this one is sticking. OSFI feels as though HELOCs are a riskier product since they are revolving in nature with persistent balances and are not eligible for default insurance – as a result, their LTV has decreased to a maximum of 65 per cent. There was one area that OSFI budged on though, and that was to agree not to amortize HELOCs as revolving credit and interest-only payments are fundamental features.
Take a look at the raw facts, though: the average LTV for individuals that only have a HELOC (no mortgage) sits at 18 per cent, and the average LTV for individuals that hold both a mortgage and HELOC sits at 59 per cent – there is a significant amount of equity there. Both LTVs are below the 65 per cent level stipulated by the new rules. Given the numbers, the intimidation should wear off soon.
3. AVM vs. Full Appraisal
Initially, OSFI had said that a comprehensive (on-site) appraisal should be completed at origination, renewal or refinance, and that inflated prices can be attributed to automated valuation models (AVMs). The criticism this proposal received will only intensify if prices begin to fall.
Many FRFIs rely heavily on AVM systems, and do not necessarily send out a human appraiser for all transactions. OSFI has maintained the current practice, whereas FRFIs are expected to take a risk-based approach when evaluating the value of a property and not rely on a single method for property valuations for higher-risk transactions.
The risk involved with inflated AVMs could become problematic if people are taking out high ratio mortgages, refinancing to max values and are closer to the “over extending” vs. “comfortable” side of the credit spectrum. When you have a riskier scenario, it’s best to send out an appraiser! However, these cost time and money – so it’s easy to see the appeal of using AVMs for conventional deals.
The reality? Most deals are conventional! Of homes purchased in 2011/2012, 60 per cent are under a 25-year amortization. Sure, longer amortizations are becoming more prevalent; however the intentions of borrowers are not to have their actual amortization period extend for the full contract period – it’s all about flexibility and protection against future rate hikes. Nowadays, people are taking a more aggressive approach to paying off their mortgages, taking advantage of lump sum payments and increasing their regular payment amounts. Reports show that since the 1990s, mortgage holders have shaved just over 6 years off their original amortization periods!
RateSupermarket.ca Week in Review
Over the last week, the biggest movers on the best mortgage rate’s page were the longer term fixed and variable rates. The 7 year fixed rate dropped 15 basis points, currently sitting at 3.64 per cent, whereas the 5 year variable rate actually increased by nearly the same amount (14 basis points) to sit at Prime – 0.21 per cent.
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Some things never change… Still topping popularity charts for mortgage searches is the 5 year fixed closed rate – just under half of RateSupermarket.ca’s visitors are looking for a good deal (46.8 per cent). Following the 5 year fixed is the 5 year variable rate (29.1 per cent), the 10 year fixed (5.4 per cent) and the 3 year fixed rate (4.6 per cent).