Tuesday, March 31, 2009

Mortgage Brokers Find a Larger Niche

Buyers Market; Field widens as competition from banks fades away
Derek Sankey, Canwest News Service Published: Monday, March 30, 2009

More than a decade ago, Bob Alexander was working as a professional accountant when he walked into a bank to get a mortgage. When he got turned down, he was completely baffled.
"My friend told me I should go see a broker," Mr. Alexander says. It was a perception that was prevalent at the time: Mortgage brokers were seen as the place you went when the banks turned you down.
Mr. Alexander went to see a broker, secured a mortgage and bought a home. He was so intrigued by this often-misunderstood field that he decided to switch careers and become a broker himself.
"Ten or 15 years ago, mortgage brokers used to be the lenders of last resort," says Jim Murphy, president and chief executive of the Canadian Association of Accredited Mortgage Professionals (CAAMP), the organization that certifies the AMP designation.
"The mortgage broker channel has grown enormously," Mr. Murphy says. "I think the consumer sees it in a much more positive light."
In fact, about 30% of all mortgages in Canada today are secured through mortgage brokers, according to a study from CAAMP. There are 3,800 certified professionals with the AMP designation working across Canada.
When CAAMP introduced the certification four years ago, Mr. Alexander-- whose been a broker for eight years now -- decided to earn his designation.Banks used to compete directly with brokers, using their own sales forces to go out and source new leads. The brokers, meanwhile, would charge their own clients a fee to find them a mortgage.
Now, most banks have chopped those sales forces and instead enjoy a more mutually beneficial deal with brokers, who no longer charge the client a fee.
Mr. Alexander, like other AMP brokers, provides his services free to the client. The lending institution pays him a finder's fee based on the size and type of the mortgage he secures for his clients."Lenders out there realize it was actually more efficient to get rid of their in-house sales force and use an independent person like myself to source their leads," says Mr. Alexander, who works for Canada Mortgage Direct in Calgary. "The finder's fee I'm paid is roughly the same across all lenders, so I'm not incented to take you to Lender A over Lender B."No longer are brokers seen as the last resort, but just another player in the market working to find you a competitive mortgage.
It's important for clients to know they're dealing with someone qualified and experienced.The AMP designation requires two years of industry experience, an entry-level certification course plus 10 hours of continuing education every 12-month cycle to remain current."It's really important because a mortgage is the biggest financial investment most people will make in their lives, so they want to make sure the [broker] is knowledgeable, trained, knows the issues and the market and is able to give the consumer good advice," Mr. Murphy says.
Since brokers such as Mr. Alexander have access to 40 lenders offering upward of 400 different products, the field has evolved in recent years to become a viable option for anybody seeking a competitive mortgage.
While he works with the big five banks in Canada, he also taps into other lending institutions such as First National Financial LP and Australian based lending giant Macquarie Financial (Canada) Ltd.When anybody walks into Mr. Alexander's office, his job is to match your credit level -- A, B, C, or D-- with an appropriate lender that caters to the same type or types of customers.
What has changed in recent months, due to the economic recession, is there are fewer D level lenders around, especially the U. S. banks that ventured north prior to the subprime market collapse last year."As a result of the U. S. subprime fallout, a lot of the Dlevel lenders have vanished," Mr. Alexander says. "A lot of fringe clients are finding it much more difficult to get a mortgage than [it was] two years ago."Even some of the A-level lenders now require more documentation and verification than previously. "We've seen a general tightening [of credit] right across the board," he says.
Mr. Murphy says in any kind of economy, it's important for potential homebuyers to realize -- and utilize -- the new brand of mortgage professional.Mr. Alexander agrees, but cautions people to do a little research, make sure they're comfortable with the person across the table and ask questions.

Article link

Monday, March 30, 2009

An Unfortunate Sign of the Times...

According to the article in the Globe and Mail, some borrowers who bought homes and/or arranged mortgage financing with sub-prime lenders during the height of the boom may not be able to renew their mortgages. Since the global credit crisis hit, many sub-prime lenders no longer have access to funds to lend out. These mortgage loans were sub-prime and therefore riskier and many sub-prime mortgage lenders have had their sources of funding dry up. If the sub-prime lender doesn’t have the funding to renew the mortgage, the property has lost value (in a negative equity situation), and the borrowers don’t qualify at a regular lender then the mortgage may not be able to be renewed. If the mortgage cannot be renewed the homeowners will be forced into foreclosure (even if they were making all of their mortgage payments).
This is a really unfortunate situation for everyone involved. According to the article, some of these sub-prime mortgage lenders are lobbying Ottawa for some help. Let’s see what happens!
Read the Globe and Mail article here...

Wednesday, March 25, 2009

How Not to Borrow

The always outspoken Garth Turner recently posted a blog entry "How Not to Borrow". According to Garth, Canadians should choose a variable rate mortgage right now. The current variable rate mortgage is 3.30%, the five year fixed is 4.05%. It's not a huge spread, but a saving nonetheless.
I think the choice between a variable or fixed rate mortgage is an individual one. Yes, it has been proven that variable rate mortgages save you money over the long term. But, in the past, variable rate mortgages were always discounted off of the prime lending rate...today there are no more discounts. Borrowers pay prime plus 0.80% for a variable mortgage.
If you are a first time homebuyer with a minimal down payment or someone with a very tight budget, variable may not be the best choice. Yes, yes I know. You can always just call your lender and switch to a fixed rate at any time! The catch with a variable rate mortgage is that some legwork is required! You have to be committed to keeping an eye on the market and your mortgage so you can figure out the best time (if any) to switch over to a fixed mortgage. Many people don't have the time or gumption to do this. Variable rates move with prime and your mortgage payment changes right along with it. If you are someone who doesn't like surprises or has an air tight budget this may not be the way to go.
Read Garth's blog entry HERE.

Monday, March 23, 2009

Pay Up or Get Out: MACLEANS

When did things change so drastically? Debt used to be a dirty word in Canada. Yet, over the past few decades it seems it's become necessary to survival. I found this article in the most recent issue of MACLEANS magazine. It discusses the reality of debt in the average, middle class, Canadian lifestyle.
According to the article's author, Jason Kirby, in the past "people spent years saving to buy a house and keep their mortgages to a minimum, and families that did find themselves in hock scrimped and saved to fight their way out. But, starting in the 1990's our attitude to debt changed. As interest rates fell and soaring house prices made everyone feel richer, our nation of savers became a nation of borrowers".
The article goes on to point out that Canadians are now in more debt than their southern neighbours! The average debt carried by Canadian households has jumped by a staggering 71% since 1990.
The good news? The recent economic downturn has exposed the unrealistic lifestyles many Canadians have been trying to live and will hopefully bring forth more responsible borrowing and debt loads. And who knows? We may even begin to save again...

Click HERE to read the full article...

Thursday, March 19, 2009

Buy, Sell, Rent?

The real estate market is changing making it confusing for people to know what to do. Is it a good time to buy or sell? Should you just wait it out and rent for a while? Here's a clip shown on The Hour last night. It features an interview with Don Campbell, a Canadian Real Estate Investment Specialist. He seems to have a realistic outlook on the real estate market in Canada. He knows which areas of the country will be hot, says Canada is the best country in the G7, and that things really aren't that bad. I really agree with Don's take on the market. No doom and gloom here!

Watch the video HERE!

Wednesday, March 18, 2009

Suze Orman on The Hour

I love Suze and I love The Hour! Here are a few videos of Suze apprearing on the show. Suze has great advice on money and the economy. Even though a lot of her advice is geared towards Americans, it's still very applicable to Canadians. Enjoy!

Thursday, March 12, 2009

5 Tips To Get Your Mortgage Approved!

With mortgage rates and home prices falling and inventory way up, it's a home buyer's market in Alberta. But the US housing crisis and the global recession has made Canadian lenders more selective about who gets mortgage financing. Remember, obtaining a mortgage is privilege, not a right. A little more preparation on your part could be the difference between approval and rejection.
Here are five things you could do to help your chances of getting approved:
1. Because your credit rating will affect the mortgage terms and rate that the lender offers you, make at least the minimum payment by the due date on your outstanding bills. Better yet, pay your bills off in full every month and reduce the number of unnecessary credit applications. For example, credit card kiosks at the airport or malls will do credit checks on you when you apply, which can negatively affect your credit score. One of the many advantages of working with a mortgage broker is that s/he will share your credit rating with you before approaching lenders.
2. Know the total amount you are willing to spend on your mortgage per month. This amount should include mortgage payment, property tax payment, home insurance, utilities, and any applicable condo fees, purchase closing costs, and other associated fees.
3. Have proof of your employment history.
4. Have your personal information handy, such as social insurance (SIN) number, date of birth, contact information and three-year history of residences.
5. Have your basic net worth information available, including an account of any assets and liabilities.

Source: http://www.amba.ca/Default.aspx?tabid=272#5%20tips

Wednesday, March 11, 2009

The Mortgage Broker Advantage

Here's a little video from the Alberta Mortgage Brokers Association on the advantage of using a mortgage broker!

View the video HERE.

New housing prices drop most in Western Canada: StatsCan

According to Stats Canada, the prices of new homes have dropped most severely in Western Canada in recent months. Is this really news to anyone?

According to the government agency, the prices of new homes decreased by 0.6% between December and January.

For the full article, posted on the CBC's website click HERE.

Tuesday, March 10, 2009

February 2009 Market Activity Report

The Realtors Association of Edmonton recently released their market activity report for February 2009. The article states that the total amount of residential sales (MLS listed) were 1,075 in February. The average price of a single family home was $347,309, the average condo sold for $226,857 and duplex/rowhouses sold for an average of $309,180.

Read the entire market activity report HERE!

A More Prudent Society

Why are Canadian banks doing fine while other financial institutions around the globe are falling apart? Here is a very interesting article by BMO Chief Economist, Sherry Cooper. In the article she describes the problems with the U.S. housing market and why Canadians are much better off.

American's have more incentives to be debt ridden than Canadians. Americans receive tax breaks on their mortgage interest costs and property tax bills. As Canadians, we've long complained about this difference and have wished we could be more like our neighbours down south. We now realize that these tax incentives were part of what caused the meltdown across the border. No longer are Canadians ashamed of their ultra conservative culture. Our banks are doing just fine and sure, the housing market has cooled but is nowhere near the state of the real estate market in the U.S. We are a prudent and conservative society, and finally, proud of it, thank you very much. Read the full article HERE.

Wednesday, March 4, 2009

February '09 CAAMP Statistics

Here's the February 2009 edition of the CAAMP statistics. CAAMP (Canadian Association of Accredited Mortgage Professionals) is a national association and publishes this great statistics page every month which shows a quick overview of the real estate market across Canada. The stats include a one year history of the Bank of Canada rate announcements, Government of Canada bond rates, total new housing starts across the country (compared to one year ago) as well as the change in Canadian house prices in each major city over the last year.
If you want to stay on top of the real estate market this is a great resource!

Review CAAMP's statistics HERE.

Tuesday, March 3, 2009

Banks Cut Prime Rate by 0.50%!

Earlier today the Bank of Canada lowered it's key lending rate by 0.50%. The Canadian chartered banks quickly moved to match the rate decrease by the same amount. This means that at most financial institutions in Canada prime is now 2.50%. An unbelievably low rate, especially for all of those homeowners with variable rate mortgages!
Read the full story HERE.

Monday, March 2, 2009

Fixed or Variable?

Here is a video clip from BNN that argues the age old question...should you do a fixed or a variable rate mortgage? This video is really good as it takes into consideration the current economic market and argues the pros and cons of both choices! Watch the video here.