Major Changes in Mortgage Qualifying

[troutman]

Originally Posted by Delgar

Maybe a little off topic, but how does a lender make money at even 2% per year. That's about where my mortgage is also but is there not better places to put your money as a lender?

For example, if you borrowed $300,000.00, interest paid over a 5 year term would be over $15,000.00. The magic of compounding interest.

[OMG!WTF!]

Originally Posted by Delgar

Maybe a little off topic, but how does a lender make money at even 2% per year. That's about where my mortgage is also but is there not better places to put your money as a lender?

It's a bit like WalMart...bulk lending. Lots and lots of loans. Also prime rates and over night rates are much lower so there is still a decent mark up at 2%. Those low 2% rates are usually variable too so the mark up remains even if prime goes up. If you pay out a loan early they often make quit a bit on the payout penalties too. Plus once they have your mortgage in place there is a better chance they will get your other, more lucrative accounts...credit cards, heloc's, personal lines, bank accounts, business loans. The evil genius master plan for the bank is to own your credit so it literally becomes impossible for you to qualify for credit at other banks.

[opendoor]

Originally Posted by OMG!WTF!

It's a bit like WalMart...bulk lending. Lots and lots of loans. Also prime rates and over night rates are much lower so there is still a decent mark up at 2%. Those low 2% rates are usually variable too so the mark up remains even if prime goes up. If you pay out a loan early they often make quit a bit on the payout penalties too. Plus once they have your mortgage in place there is a better chance they will get your other, more lucrative accounts...credit cards, heloc's, personal lines, bank accounts, business loans. The evil genius master plan for the bank is to own your credit so it literally becomes impossible for you to qualify for credit at other banks.

And that's only for the ones that the bank or lender actually keeps. Mortgages are also insured and then sold off grouped together in Mortgage Backed Securities where the lender makes it's money off of the spread, sort of like a bookie or a casino. So they might return a tiny percentage on the mortgage, but they also don't really have any capital directly invested in it and are acting as more of a middle man. In that case it's more like a commission than a return on investment.

[MillerTime GFG]

Good article breaking down the principal residence exemption:

http://www.theglobeandmail.com/globe...ticle32271116/

[stampsx2]

Originally Posted by MillerTime GFG

Good article breaking down the principal residence exemption:

http://www.theglobeandmail.com/globe...ticle32271116/

And i know the federal government will be fair with this and reduce my taxes owing for any capital losses I had on the sale of a property even if it carries over for many many years of tax reductions.

[Fighting Banana Slug]

Originally Posted by MillerTime GFG

Good article breaking down the principal residence exemption:

http://www.theglobeandmail.com/globe...ticle32271116/

This makes sense. From the earlier reports, the "changes" to the principal residence exemption sounded just like the original concept for the principal residence exemption. I didn't realize you didn't need to report anything, when claiming the exemption. As complicated as it might be, these reporting obligations make sense. Sell a house, consider whether it is exempt by virtue of the PRE. Doesn't target foreign owners per se, and in fact might catch more residents who improperly aren't paying tax.

[Shazam]

Originally Posted by Leondros

The CRA just allocated loads of money to look exactly at real estate and associated tax evasion. It is an area that has been extremely abused over the past half decade.

One example would be they could complete a number of audits including starting from land transfer titles for a certain year and tracing them back to tax returns. For example, I found that Joe transferred his house to person X. I would expect to see either a disclosure for capital gains exemption, or a capital gain associated with an income property.

So what you're saying is that they're just starting to look into it, whereas before they didn't give a ####.

Just so you know, there is no requirement for a disclosure of cap gains exemption when selling your primary residence. At best, all the CRA could do is trace all your transactions to see if there was a large amount of money moved around, and that's easily worked around.

[Shazam]

Originally Posted by GreenLantern

My personal experience dealing with the mortgage for our house was that banks are looking to take advantage of you. "Oh we can easily bump this up another 50k to put that loan in here so you can pay 25 years of interest instead of 3, and then you have extra cash to do your yard and buy furniture for your house." Are you kidding me? Like are you ####ing kidding me?

And at the end of it all he goes and here is your pre approved line of credit, My what? Its pre approved don't worry just sign. I don't want that. WHY WOULDN'T YOU WANT IT? ITS PRE APPROVED!!! Ohhh ok captain idiot, let me just help you shovel that debt on top of me.

If they are putting rules in to protect people from themselves, all the more power to them. But again, I'm not a professional in this area, just speaking off of my own experience.

LOL, that was like the last time I had to get a mortgage approved, I ended up qualifying for $1.5 million, the lady told me "you should totally get a $1.5million house, you'd be stupid not to! Don't you want a dream house!"

[Deegee]

There are a pile of bad bankers and a few good ones. There are a pile of bad brokers and a few good ones.

Seems pretty consistent with other roles in other industries.

[Deegee]

Originally Posted by MillerTime GFG

Renewing with your current lender I'm sure will be fine, as you can always do that without having to re-qualify as long as your payment history is good, but I'm not sure what will happen if you want to transfer to another lender, as you are subject to re-qualifying in those cases. What if using the benchmark rate pushes your ratios out of line? You're then stuck with your current lender, which may not be ideal.:

When you transfer you don't apply for new mortgage insurance coverage. These changes are for new applications. As a transfer is not a new application a lender's internal guidelines will apply.

Now, I do work for a large Alberta Credit Union and I am a fan of these changes. I'm not sure how anyone can argue pushing people into mortgages at 42% TDS based on 2.39% is in a client's best interest. There are too many bad bankers and bad brokers who either care only about their sales objectives or basis points they are getting to truly care about providing sound advice. Because of the competitive nature of the industry, what we're seeing is the government step in to help consumers because there is nobody else looking out for them here.

Secondly, having a client roll a bunch of debt into a mortgage over 25 years is crazyness. AFC is 100% correct in his comments regarding how easy it is to bury debt into a mortgage. Its absolutely ridiculous that someone can run up debt, roll it into their mortgage for a minor cost and move on. A consolidation loan may be at higher pricing, but is at least retired in far fewer years than 25, unless bankers and brokers are now doing mortgages with 5 year amortizations on a regular basis. For the record, that's not happening.

People need protection from themselves sometimes. I'm not a huge fan of government intervention overall, but I can appreciate that it is needed here.

[MillerTime GFG]

Originally Posted by Deegee

When you transfer you don't apply for new mortgage insurance coverage. These changes are for new applications. As a transfer is not a new application a lender's internal guidelines will apply.

Thanks, I meant to come back to that and clarify, but forgot. Oversight on my part.

As a CU, do you bulk-insure?

[Deegee]

Originally Posted by MillerTime GFG

As a CU, do you bulk-insure?

I know we sell our CMHC mortgages right now, and the treasury and finance team are working hard to open the gates for Genworth insured deals.

Honestly, we haven't been shared much more outside of that, and I'm not sure if I'd remember if other information was shared.

I can comment that our conventional term mortgage lending policy remains unchanged. We were already qualifying on BoC 5-year for our FlexLine (umbrella mortgage) prodicts, so that has not changed.

[Amethyst]

Originally Posted by Deegee

People need protection from themselves sometimes. I'm not a huge fan of government intervention overall, but I can appreciate that it is needed here.

Totally agree with this! I was out with some friends/acquaintances once and a couple of them were recommending going to a broker, because their banks would only give them one amount, whereas the broker would get them more. The person who can get you into more debt, that you can barely manage, is not necessarily the best.

When I bought my house, I used a broker and he could have got me a mortgage at almost double the house prices that I was looking at. I didn't go anywhere near his amount, because I wanted a life, not just a house I could barely afford. I feel like that is not a common sentiment with most people though.

[MillerTime GFG]

Originally Posted by Deegee

Secondly, having a client roll a bunch of debt into a mortgage over 25 years is crazyness. AFC is 100% correct in his comments regarding how easy it is to bury debt into a mortgage. Its absolutely ridiculous that someone can run up debt, roll it into their mortgage for a minor cost and move on. A consolidation loan may be at higher pricing, but is at least retired in far fewer years than 25, unless bankers and brokers are now doing mortgages with 5 year amortizations on a regular basis. For the record, that's not happening.

While I agree there are people that completely overextend themselves, it really is case-by-case. There are some people that can responsibly handle higher debt ratios, as they're not spenders, and people can get themselves into requiring consolidations for a variety of different reasons, some of which are out of their control.

Like I said from the beginning, I get what the government is trying to do, but I don't agree with the method.

[MillerTime GFG]

Originally Posted by Deegee

I know we sell our CMHC mortgages right now, and the treasury and finance team are working hard to open the gates for Genworth insured deals.

Honestly, we haven't been shared much more outside of that, and I'm not sure if I'd remember if other information was shared.

I can comment that our conventional term mortgage lending policy remains unchanged. We were already qualifying on BoC 5-year for our FlexLine (umbrella mortgage) prodicts, so that has not changed.

But do you back-end insure your conventional mortgages?

[Deegee]

Honestly, I don't believe so, but like I said the retail team isn't really told about those items, so I am speculating.

I'd say it's more the norm that people over extend themselves than other true reasons for consolidation. As a manager I need to compliance every deal that flows through the Branch I am at and almost every consolidation is a result of overspending. Very few are a result of marital breakdowns or income loss (which I would argue is over extending as well) or different reasons.

I don't want to derail the thread though because there are other items that are way off topic with regards to these types of deals, such as the pull of advice for a short amortization for consolidations and competition forcing someone into order taking that could be debated.

[MillerTime GFG]

UPDATE:

Banks are being told by the Government to adhere to the same regulations (qualifying even conventional deals at the benchmark rate). National Bank has officially confirmed they will be adhering, as has ATB. It is not mandated yet, so the other banks have not switched over, but I'm hearing it's just a matter of time before it is mandated.

So it appears it's not big win for the big banks.

[TurdFerguson]

CMHC to issue first ‘red’ warning for Canada’s housing market

“CMHC has recently observed spillover effects from Vancouver and Toronto into nearby markets,” CMHC chief executive officer Evan Siddall said in an opinion column in The Globe and Mail. “These factors will be reflected in our forthcoming Housing Market Assessment on Oct. 26. They will cause us to issue our first ’red’ warning for the Canadian housing market as a whole.”

CMHC also saw Calgary, Saskatoon, Regina and Toronto as housing markets that showed strong signs in July of problems looming. Five markets were seen as having moderate risks (Edmonton, Winnipeg, Hamilton, Montreal and Quebec City) while five others were deemed weak for problematic conditions (Victoria, Ottawa, Halifax, Moncton and St. John’s).

http://www.theglobeandmail.com/real-...ticle32386112/

[bluejays]

I'm curious what those "signs" are? I'm in the market for a condo here in Toronto, and the price per sqft overall is ridiculous. A correction would be more than welcome in the next few months.

[Deegee]

Originally Posted by MillerTime GFG

UPDATE:

Banks are being told by the Government to adhere to the same regulations (qualifying even conventional deals at the benchmark rate). National Bank has officially confirmed they will be adhering, as has ATB. It is not mandated yet, so the other banks have not switched over, but I'm hearing it's just a matter of time before it is mandated.

So it appears it's not big win for the big banks.

Is this OFSI? Or another group?