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Harmonized Tax

2010-03-24 | 10:08:30

Tax.doc

2010-03-16 | 14:06:57

The release of last week’s federal budget offers the following implications for the mortgage market:

Pre-Payment Penalties. The government will “bring forward regulations” to standardize the calculation and disclosure of mortgage pre-payment penalties. (This applies to federally-regulated lenders.) This measure will likely be applauded by consumer groups. Interest rate differential (IRD) penalties have garnered a lot of bad press in the past year.

Credit Unions. The government will introduce “legislative framework to enable credit unions to incorporate and continue federally.” This, too, could be a boon for mortgage shoppers. If credit unions are allowed to expand beyond their provincial borders, it will add further rate competition, more new products and cross-border mortgage portability.

Covered Bonds. The government will “help federally-regulated financial institutions diversify their funding sources by introducing legislation setting out a framework for covered bonds. Covered bonds are debt instruments that are secured by high quality assets, such as residential mortgages. The legislation will increase legal certainty for investors in these debt instruments, thereby making it easier for Canadian financial institutions to access this low-cost source of funding.”

Insured Mortgage Purchase Program (IMPP). “The Insured Mortgage Purchase Program will continue to make purchases of qualifying insured mortgages until the end of March 2010. This program has been successful in moderating the impact of the global financial crisis on credit conditions in Canada by providing funds to financial institutions that were then able to continue lending to businesses and consumers. To date, over $60 billion of term funding has been provided to banks and other lenders at a positive spread to the Government’s funding costs. Recently, lenders have not participated as aggressively in the program, as access to funding through capital markets has improved and investor demand for issuance from financing institutions, particularly Canadian banks, has resurfaced.”

The five-year government bond yield is up 30 basis points this month, based on Monday’s close.

That’s a fair sized jump in eight days. When yields do that and remain elevated, lenders usually raise fixed rates. That started to happen on Monday and Tuesday – at least five lenders lifted their five-year fixed rates and/or eliminated their quick-close specials.

BMO and RBC had a different idea. They flipped their playbooks upside down, did the opposite of what you might expect, and actually cut fixed rates. BMO and RBC’s five-year posted rates have been cut to 5.25% (from 5.39%). Their “special offer” five-year rates are down 0.14 percentage points to 3.95%.

BMO and RBC’s advertised five-year fixed mortgages now have a spread of 116 bps above GoCs (again, based on Monday’s close). That’s slim compared to the normal 125-135+ bps.

Both banks have also lowered their variable rates to prime –0.15%.

While terrific for consumers, from a business standpoint you have to wonder if BMO, for one, is overly anxious to regain lost market share. They will get some marketing traction out of this, no doubt. The questions are, how long will it last, what is the benefit if the other Big 5 match and will the short-term volume gains offset the serious margin compression?

Click here to read more from Canadian Mortgage Trends.

The portion of Canadians very likely to purchase a home over the next two years has risen to 10% from 7% two years ago, according to the 17th Annual RBC Homeownership Study of 2,047 Canadians, released on Monday.

Younger folk aged 18 to 24 are leading the charge, with those “very likely to buy” almost doubling to 15% from 8% per in 2009.

Ipsos Reid found 91% of homeowners believe homes are good investments, the highest in 12 years, while 26% expect their home to be their primary source of income when they retire.

Most (44%) who intend to buy a new home in the next two years plan to take a fixed-rate mortgage but combination mortgages had the highest increase in popularity – 40% intending to take both a variable- and fixed-rate component, up from 32% last year.

Click here to read more of RBC’s study results.

The seasonally adjusted annual rate of housing starts reached 196,700 units in February 2010 – and increase from an annual rate of 185,400 units in January 2010, according to CMHC.

“The gain in February housing starts was concentrated in the multiple starts segment, particularly in Toronto,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre.

The seasonally adjusted annual rate of urban starts increased by 9% to 179,100 units in February. Urban multiple starts increased by 19.1% to 89,900 units while single urban starts increased by 0.5% to 89,200 units.

February’s seasonally adjusted annual rate of urban starts increased by 28.6% in Ontario, 14.3% in Atlantic Canada, 10.8% in the Prairie region and 8% in British Columbia.

Click here to read more from CMHC.

The American – the journal of the American Enterprise System – printed a great article recently that compares the Canadian and US banking systems. Click here to read the article entitled Due North: Canada’s Marvelous Mortgage and Banking System.

2010-03-16 | 14:05:23

There was some confusion voiced by mortgage professionals over a communication we sent out on Wednesday based on information received directly from CMHC. It appears that CMHC may not have communicated the latest qualification rules to its front-line staff members, who seem to still be going by older information provided on February 16th, 2010.

You can be confident that the information on qualification requirements we sent out on Wednesday (and also included below) has been taken directly from a CMHC publication called Advice No 146, dated March 5th, 2010.

Clarification on Qualifying Interest Rate

On February 16th, the government announced new parameters regarding the application of the government guarantee supporting the mortgage insurance industry, but did not stipulate the rules around qualifying interest rates. Effective April 19th, 2010, the qualifying interest rate used to assess borrower eligibility will change only for loans with an LTV greater than 80% as follows.

Fixed-Rate & Variable-Rate Mortgages

For loans with a fixed-rate term of less than five years and for all variable-rate mortgages, regardless of the term, the qualifying interest rate is the greater of:

• The benchmark rate
• The contract interest rate

For loans with a fixed-rate term of five years or more, the qualifying interest rate is:

• The contract interest rate

Mortgages with Multiple Interest Rates (eg, Multi-Component Mortgages)

Each component must be qualified using the applicable criteria defined above.

CMHC defines the benchmark rate as the Chartered Bank – Conventional Mortgage Five-Year rate that is the most recent interest rate published by the Bank of Canada in the series V121764 as of 12:01am (ET) each Monday, which can be found at: www.bankofcanada.ca/en/rates/interest-look.html