Canada could be facing a mortgage nightmare in the next few years with an estimated 30,000 subprime loans - now dubbed "orphan loans" - coming up for renewal in the next few years, according to a report in the Financial Post.
So concerned about the situation at hand, the industry recently approached the federal government with a request for a bailout - specifically to participate in a $1-billion fund to help finance the coming flood of orphan mortgages. Several alternative mortgage lenders began lobbying the government in the spring 2009 on the same issue but still have not gotten a response.
"This thing is a wave and it's just starting," Eric Putnam, formerly with a subprime lender, now managing director of Debt Coach Canada, told the Post. "Investors are no longer willing to continue on and these mortgages were not insured by the CMHC so the borrowers are not going to be able to move to another lender in today's environment."
Subprime loans have dried up in the wake of the financial crisis. There were at least a dozen sub prime lenders here in Canada and was forecast as the fastest growing sector of the entire mortgage market, Benjamin Tal, senior economist at CIBC World Markets, told the Post - who pegged it at being about five per cent of the total market.
The general term subprime refers to high interest loans made to people who are unable to get a better deal at any one of the big banks.
Mary Wozny
Wednesday, April 14, 2010
Saturday, April 10, 2010
New BFS Mortgage Insurance Rules in Effect
The new CMHC rules for self-employed borrowers took effect Friday and pose new challenges for this category of client.
First off, self-employed borrowers with more than three years in the same business who apply for a mortgage using stated income, as well as commissioned-income borrowers, are now required to provide to provide traditional proof of income (or "third party validation") through documents like financial statements, contracts and T4s.
Those who have recently become self-employed and don't have third-party validation can still apply for a mortgage, but have to come up with a 10 per cent down payment instead of five per cent. Refinancing will also be cut to 85 per cent loan to value instead of the previous 90 per cent.
Brokers have been giving the rule changes mixed reviews with some sayings the latest move was "off the wall" and hopes that if enough people talk about their displeasure with the changes, the CMHC might alter its decision.
"I don't think this was a good decision - it doesn't make sense now," one broker said, adding it also makes writing off income for tax purposes more difficult for BFS clients.
Some brokers on the other hand, agrees with CMHC's decision.
"The more people who default on loans, the worse the market becomes," they state, noting they felt a lot of self-employed people have qualified for mortgages when they shouldn't have. "This provision for self-employed is going to put the right people in the right structure of home."
First off, self-employed borrowers with more than three years in the same business who apply for a mortgage using stated income, as well as commissioned-income borrowers, are now required to provide to provide traditional proof of income (or "third party validation") through documents like financial statements, contracts and T4s.
Those who have recently become self-employed and don't have third-party validation can still apply for a mortgage, but have to come up with a 10 per cent down payment instead of five per cent. Refinancing will also be cut to 85 per cent loan to value instead of the previous 90 per cent.
Brokers have been giving the rule changes mixed reviews with some sayings the latest move was "off the wall" and hopes that if enough people talk about their displeasure with the changes, the CMHC might alter its decision.
"I don't think this was a good decision - it doesn't make sense now," one broker said, adding it also makes writing off income for tax purposes more difficult for BFS clients.
Some brokers on the other hand, agrees with CMHC's decision.
"The more people who default on loans, the worse the market becomes," they state, noting they felt a lot of self-employed people have qualified for mortgages when they shouldn't have. "This provision for self-employed is going to put the right people in the right structure of home."
Monday, April 5, 2010
Report Says 1 in 4 Canadians House Poor....
One in four Canadians rely on subsidies or spend over 30 per cent of their pre-tax income on housing costs, including mortgages and rent, according to a report by the Conference Board of Canada.
According to the report, a household is unaffordable if more than 30 per cent of its pre-tax income is spent on household costs - a situation that more than three million Canadians find themselves in. The typical household spends 50 per cent more on shelter than on food and over five times more on shelter than on clothing.
"The quality and cost of housing are major factors in the health of Canadians," said Diana Mackay, conference board director of education and health. "However, about one-fifth of Canadian households do not have the resources to afford both good-quality homes and other health-enhancing expenditures, such as nutritious food or access to recreational activities."
The report warned that the high number of Canadians stretched too thin negatively affects their health, productivity, and national competitiveness, and increases the cost of health-care and welfare.
Warmly,
Mary Wozny
According to the report, a household is unaffordable if more than 30 per cent of its pre-tax income is spent on household costs - a situation that more than three million Canadians find themselves in. The typical household spends 50 per cent more on shelter than on food and over five times more on shelter than on clothing.
"The quality and cost of housing are major factors in the health of Canadians," said Diana Mackay, conference board director of education and health. "However, about one-fifth of Canadian households do not have the resources to afford both good-quality homes and other health-enhancing expenditures, such as nutritious food or access to recreational activities."
The report warned that the high number of Canadians stretched too thin negatively affects their health, productivity, and national competitiveness, and increases the cost of health-care and welfare.
Warmly,
Mary Wozny
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