The Public's fear of Small Lenders

Every day I hear clients say, " who are they? I've never heard of this lender. Can't you put me into a bank mortgage?" Yes, I could but I like you and want to do what's best for you.
As a mortgage broker, I offer mortgages from banks, trust companies , credit unions and mortgage companies , sometimes called, "monolines". What is a monoline?. It is a financial company that only deals with one aspect of the financial market, in this case, mortgages. Unlike banks that offer car loans,RRSP's , consumer loans, credit cards and bank accounts, monolines only deal in mortgages.
What does this mean to you? No cross-selling. If you have one product at a bank they will call you, ask you when you visit a branch and mail you literature trying to get you to move all your banking business to them. This can be annoying and you do not always get the best products but you have it all in one place, which is what they want. Why? You are less likely to shop around and to move it to another institution if you have all you banking stuff in one place. You now are paying more for the same mortgage than your neighbour, just for the convenience of having your stuff in one place. Here's another trick. You know the mortgage insurance that banks try to sell you? It is non-transferable. When you move your mortgage you have to re-apply. If you are older and now have per-existing conditions, , it can be expensive and may not be available any more. Interestingly, the insurance companies that offer this product to the banks offered to make it transferable and the banks declined the offer. , hmmm. In who's best interest is that?
Many people worry about monolines being small. Why? They worry that if the monoline were to go bankrupt they could lose the mortgage. No worries, the mortgages are sold in bundles to insurance companies and banks. As Boris Bozic of Merix Financial says, "Why are you worried? you are not depositing your money with us, we are giving you the money?"
As you can see, there are no disadvantages in dealing with a mortgage company rather than a bank and there are plenty of advantages. Who needs a bank marketing department calling them at supper time 2 times a month to try to sell insurance, RRSP's or trying to get you to open another bank account?

      Banks have limited choices and they can not offer you the best rates , nor will they. They are interested in cross selling and will try to year after year. It's in your best interests to consider a monoline lender and to consult a mortgage broker to see who have the best product for you. 

Let me finish by offering you this video on monolines. It's an eye opener for consumers. 

Enjoy the video.

If you have any questions, pop me a line at davidcooke.ca 

  

Changes to Canada's mortgage rules - November 1, 2012

    Today we received a reminder from our lenders about the changes to mortgage rules in Canada as of today. The major change that will affect people today is that if you want a line of credit , the maximum that you will be able to access is up to 65% of the value of your home. This is down from 80% yesterday. As Canadians grapple with high debts on credit cards and loans, this will remove one way for them to consolidate their debts. I suspect there will be more unsecured loans and more people driven into bankruptcy.
        The other big change is with conventional uninsured mortgages. As of today you will have to qualify at the bank's 5 year  benchmark rate intead of the lower rate for 1-4 year mortgages. This may make it difficult for investors and some home buyers.
 We will have to wait to see what the repercussions are from this latest change to the mortgage rules.
 If you want more information or to discuss these changes you can contact me here.
 I have included the whole notification below for you to read over yourself.
 

As I suspect you are aware, OSFI - the regulator of all Canadian Financial Institutions, has imposed underwriting guidelines for Residential Mortgages on all regulated lenders and CMHC.  These underwriting guidelines are known as B20 and have been created at the insistence of the Financial Stability Board, the financial oversight organization of all G20 nations.  The creation of these guidelines is a direct result of the financial crisis caused by poor American mortgage lending practices.

My purpose in writing this is to give you, our valued brokers, an overview of the components of B20 in general terms.  I will explain to you what it means to your lender partners - at least to Optimum Mortgage and secondly, what it means to you. 

Components of B20
The Guideline sets out what OSFI considers to be prudent residential mortgage underwriting standards.  A residential mortgage is considered to be a loan or any other product, like a HELOC, that is secured by a residential property - up to a four-unit dwelling. 

The Guideline sets 5 principles for sound residential mortgage underwriting:

1.       All lenders must have a policy outlining risk appetite, governance and over site mechanisms to ensure lenders follow their own policies;

2.       Lenders must confirm the borrower’s identity, background and demonstrated willingness to service debt obligations on a timely basis;

3.       Lenders must assess the borrower’s capacity to service their debt obligations on a timely basis;

4.       Lenders must be satisfied that the value of the property being financed has been confirmed by an independent third party; and,

5.       Lenders must stress test their book of business with unlikely, but plausible scenarios to determine the impact to their business.  Lenders are expected to impose a higher level of due-diligence on higher risk deals, conduct ongoing risk-assessments on the insurers they use and generally pay close attention to the risk attached to their residential mortgage portfolio.

Mark Carney and Bank of Canada (BoC) has once again elected to leave the key interest rate untouched. The central bank has kept this rate, at 1.00 per cent since September of 2010.

 

The central bank announced the Canadian economy continues to expand, but that housing activity is starting to decline and exports remain weak.  Ultra-low mortgage interest rates artificially inflate long-term affordability and incentivize consumers to borrow money. Unfortunately, Canadians have been taking on household debt to a record 163 per cent debt-to-income ratio. This has caused the Bank of Canada governor to label it as the greatest domestic threat to the economy.

 

Still, the bank said growth will average 2.2 per cent this year, one-tenth more than it had projected in July.

 

 

The next BoC rate meeting is December 4, 2012.

NOTE: while my official website shows a 5 year fixed rate of 3.04%, my brokerage has been able to negotiate a rate of 2.94%  O.A. C. 

Contact me for up to the minute rates. 

my website