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Toronto’s Glass Condos…Beware!

Many of the glass condominium towers filling up the Toronto skyline will fail 15 to 25 years after they’re built, perhaps even earlier, and will need retrofits costing millions of dollars, say some industry experts.

Buyers drawn to glass-walled condos because of the price and spectacular views may soon find themselves grappling with major problems including:

Insulation failures.

  • Water leaks.
  • Skyrocketing energy and maintenance costs.
  • Declining resale potential.

Glass condominiums — known in the industry as window walls — have floor-to-ceiling glass, so essentially the window becomes the wall. Window walls generally span from the top of the concrete slab right to the bottom.

One developer calls glass-walled condos “throw-away buildings” because of their short lifespan relative to buildings with walls made of concrete or brick.

“We believe that somewhere between, say, five and 15 [years], many, many of those units will fail,” said David House of Earth Development, which bills itself as a socially responsible property developer. House, who also has experience in the standard development industry, spoke to CBC as part of a special three-part series on the issue that starts Monday at 5 p.m. and 6 p.m. on CBC News Toronto.

No other city in North America is building as many condo towers as Toronto, where they have reshaped the skyline, overshadowed once-prominent buildings such as the Rogers Centre and, in many areas, blocked Lake Ontario from view. About 130 new towers are now under construction.

Not energy-efficient

Glass walls have been popular among developers and consumers alike because they’re cheaper than more traditional materials and make a good first impression. But they aren’t energy-efficient and come with a hidden price that could soar down the road, engineers say.

‘Throwaway buildings’

Floor-to-ceiling glass walls heat up and swell in the summer, freeze and contract in winter, and shift with the wind, engineers say. The insulating argon gas between the panes escapes, the seals are breached and the windows are rendered useless against the city’s weather.

Eventually, the glass walls — the skin of these condo high rises — might have to be replaced entirely, with condo owners picking up their share of the multimillion-dollar costs.

“Now is about when we should start seeing trouble with 1990s buildings, with the glass starting to get fogged up, the rubber gaskets and sealants starting to fail,” said John Straube, a building science engineer at the University of Waterloo.

Condo owners file suit

Complaints and lawsuits have already begun.

David House of Earth Development calls glass-walled condo towers throw-away buildings. (CBC)

Condo owners in a tower off Front Street are suing the developer, Concord, claiming the window-wall system in the nine-year-old building near the Rogers Centre has defects and water is seeping through.

CBC called Concord to discuss the lawsuit, but there has been no response as of Monday.

Toronto is also seeing the high cost of retrofitting a highrise. At First Canadian Place, a retrofit will take three years and $130 million to complete.

Halsall Associates says the cost of re-skinning a residential tower could be $5 million to $10 million.

“But that is the actual removal and replacement only – there is nothing in there related to additional security costs or relocation costs for residents,” says structural engineer Sally Thompson.

Straube said many condo owners have no idea about the expenses they’re in for and don’t ask the right questions.

“Do you want a building that is going to appreciate over the long term? Do you want a building that will be comfortable and energy-efficient? If so, you need to ask tougher questions of the marketplace.”

CBC Toronto investigates condos

John Lancaster begins a series Monday at 5 p.m. and 6 p.m. on CBC News Toronto, and Mary Wiens on Metro Morning, about the city’s glass-walled condos — their short-term durability and their long-term costs.

Windows tempt buyers

The glass walls that undermine a condo’s durability and energy efficiency are a key part of the attraction when potential buyers first step into those sunlit spaces overlooking the city.

“To walk in and see trees, and just to see the city — it’s a wonderful thing,” said Kamela Hurlbut during a recent tour of a condo with her husband, Jason.

For first-time buyers like the Hurlbuts, who eventually hope to own a detached house, a condo also seems the only affordable home-ownership option. Their estate agent, Linda Pinizzotto, emphasizes long-term costs as she tries to warn the couple away from glass walls.

“As time goes on, what they have to be concerned about are maintenance fees,” Pinizzotto said. “There’s certainly a lot more care and requirements in the building if they have floor-to-ceiling windows.”

Glass-walled condos meet the requirements of the Toronto building code, although the code does not specify how long a building should last. Energy-efficiency is also a fuzzy area, since condos aren’t rated that way.

“We don’t have energy-efficiency ratings on condominiums and that’s too bad, because we get them on dishwashers, refrigerators, and they only cost a few hundred dollars,” said Ted Kesik, a professor of building science at the John H. Daniels faculty of architecture, landscape and design at the University of Toronto.

Janice Pynn, president of the Canadian Condo Institute, isn’t sure energy efficiency is a big factor for condo buyers initially — even for buyers who care about not wasting energy.

“People talk that they want it, but when it comes down to what it’s going to cost them, it doesn’t even come into the equation,” says Pynn, whose Simerra Property Management company manages 250 condos across the GTA.

“It really is ‘Can I afford to buy this?’ not ‘What am I willing to pay to have a green building, or a building in the long term, that will be far more economical, and cost-saving and for the environment?’ They’re just not asking those questions.”

Article courtesy of CBC news

Canada Bubble Seen As IMF Risk With Record Low Rates: Mortgages

Jan. 17 (Bloomberg) — Kevin Lau, a Toronto-based technology consultant, says he can’t wait to take advantage of the lowest mortgage rates in Canadian history to buy a second condominium and rent his current home.

Lau, 28, plans to get another mortgage and refinance his C$160,000 ($157,000) home loan after Bank of Montreal, Toronto- Dominion Bank and Royal Bank of Canada cut borrowing costs last week.

“It’s always tempting when the credit is available at much lower rates than they ever have been,” Lau said. “The fact that house prices have been going up and continue to go up much faster, you need to really take advantage of it.”

Banks are competing to offer mortgages at rates as low as 2.99 percent as their funding costs drop on investor demand for the relative safety of Canadian bonds amid Europe’s fiscal crisis. That’s fueling real estate purchases, potentially inflating a housing bubble and adding to record household debt, which the International Monetary Fund says poses a risk to the nation’s economy.

“It could increase the housing bubble,” said Sheryl King, head of Canadian economics at Bank of America Corp., who estimates the country’s housing prices are overvalued by about 10 percent. “The lower interest rates are, the more speculative demand you will have in the market.”

Credit easing by central banks and commercial lenders around the world is sparking a household debt surge in haven countries such as Canada and Norway, which escaped the last housing crisis by steering clear of subprime mortgages that escalated the U.S. slump.
Bank of Canada Rate

The Bank of Canada today kept its benchmark lending rate at 1 percent, extending a record period of unchanged rates to counter economic risks posed by Europe. The central bank will probably maintain the key overnight rate at 1 percent until the first quarter of 2013, according to forecasts from economists compiled by Bloomberg.

At the same time, record-low bond yields have prompted the country’s commercial lenders to drop mortgage rates to entice borrowers ahead of the spring home-buying season. Canadian bonds have rallied as investors are drawn to the country’s AAA rated debt after France, Spain and other European nations were downgraded by Standard & Poor’s.

Bank of Montreal, Canada’s fourth-biggest bank, dropped the rate for a five-year fixed-rate mortgage by 50 basis points, or 0.5 percentage points, to 2.99 percent on Jan. 12, the lowest in its 195-year history. Toronto-Dominion and Royal Bank, Canada’s two-biggest lenders, followed suit the next day with the same rate on a fixed four-year loan. Canadian Imperial Bank of Commerce, the fifth-biggest bank, matched the offers yesterday.

Market Correction

“This type of pricing obviously makes headlines, so you’re starting to see other lenders now jockeying for position,” Rob McLister, a mortgage broker who runs the Canadian Mortgage Trends website from West Vancouver.

The heads of Bank of Montreal and Royal Bank warned as recently as last week that housing markets in Toronto and Vancouver are at risk of a correction, particularly for condominiums.

“Investor-owned condo properties have got to be a cause for concern, just because of supply and demand,” Bank of Montreal Chief Executive Officer William Downe said Jan. 10 at a banking conference in Toronto. Royal Bank CEO Gordon Nixon said “there’s no question” that the condo markets in Vancouver and Toronto are the most vulnerable in the country.
Price Gains

Canadian home sales last year increased 9.5 percent to C$166 billion, the Canadian Real Estate Association said yesterday, as home prices rose 7.2 percent. Toronto-Dominion Bank estimated in a Dec. 22 report the average Canadian home is overvalued by about 10 percent.

The average resale price rose 0.9 percent in December from a year earlier to C$347,801, the smallest monthly increase since October 2010, the real estate group said.

Other reports last week showed strength in the housing market, with new home construction increasing 7.9 percent in December and residential building permits rising 6.9 percent in November.

Canadian home prices fell by 8.5 percent between August 2008 and April 2009, but have since increased by 22 percent, according to the Teranet Home Price Index. By comparison, U.S. home prices fell by 33 percent between July 2006 and March 2011, and have since increased by 1.9 percent, according to the S&P/Case-Shiller Composite-20 Home Price Index.
Plunging Rates

Mortgage rates have also plunged in the U.S., with the average rate for a 30-year fixed loan dropping to 3.89 percent last week, the lowest in records dating to 1971, Freddie Mac said in a statement.

“While the expectation is that housing will stay strong, it could slip out of control if the Canadian economy’s growth falters due to a new U.S. recession,” said Scott MacDonald, head of research for MC Asset Management Holdings LLC in Stamford, Connecticut.

Canadian household debt rose to a record 153 percent of disposable income in the third quarter of 2011 as borrowing increased, Statistics Canada said Dec. 13. That contrasts with 146 percent in the U.S., and a projected 204 percent this year for Norway.

Norway, whose oil wealth is attracting investors to its government bonds, may suffer a collapse in its housing market that would be “dangerous” to the economy, Robert Shiller, the co-creator of the S&P/Case-Shiller home-price index said Jan. 12 in an interview in Copenhagen.

“It looks like a bubble to me, so the collapse of that bubble, that’s dangerous to any economy,” said Shiller, who is also an economics professor at Yale University.
Economic Risk

The Bank of Canada said last month that consumer debt is the main domestic risk to financial stability, predicting the burden will keep setting records as income growth lags behind borrowing.

Finance Minister Jim Flaherty tightened lending rules a year ago, shortening the maximum amortization period for government-insured mortgages to 30 years from 35 years, and lowering the maximum amount homeowners can borrow against the value of their homes.

He may be forced to take additional steps to ensure banks don’t bloat household debts that are threatening the recovery, said King at Bank of America.

“If we are in a competitive environment like this, rates are going to continue to go lower,” King said in a telephone interview from Toronto. “There is no other way to control it other than more regulation of the mortgage market.”
IMF Report

The IMF agrees, saying Canadian authorities may need to take more measures to rein in household debt, which along with high house prices pose a risk to the nation’s economy.

“Adverse macroeconomic shocks, such as a faltering global environment and declining commodity prices, could result in significant job losses, tighter lending standards, and declines in house prices, triggering a protracted period of weak private consumption as households reduce their debt,” IMF staff wrote in the annual assessment of the country’s economy last month.

The commercial banks say the low rates are a reflection of falling bond yields, and will help consumers pay off debt faster. The 10-year yield touched 1.837 percent on Dec. 16, the lowest level in data compiled by Bloomberg going back to 1989 as Europe’s crisis drives demand for Canada’s AAA rated bonds. The premium to equivalent-maturity U.S. Treasuries is seven basis points, compared with 32 basis points on Sept. 5, the most in 2011.

‘Not an Invitation’

“Low rates are absolutely not an invitation for Canadians to overextend themselves,” Farhaneh Haque, director of mortgage advice at Toronto-Dominion, said in an interview from Toronto. “If you look at the low rates, you could look at them for the interest savings that will help you get debt-free faster.”

Bank of Montreal’s mortgage offer is limited to 25-year amortizations to ensure consumers pay off their loans faster, the lender said. About 22 percent of Canadian mortgages have amortization periods of more than 25 years, according to a survey by the Canadian Association of Accredited Mortgage Professionals.

“We’re giving a low rate with a shorter amortization to help people reduce their debt quicker,” said John Turner, Bank of Montreal’s national director of specialized sales and investment lending. “It’s about doing prudent things for customers that want to be debt-free sooner.”

Reduce Risks
Part of Bank of Montreal’s motivation may be to reduce risks by drawing more people into fixed-rate mortgages, where the rate is guaranteed for the full term, King said. About 60 percent of mortgages in Canada are for fixed terms, according to the CAAMP survey. The remainder are adjusted and so-called variable, tied to the prime lending rate, which rises and falls with the Bank of Canada rate.

“Variable has been the story for the last couple of years,” King said. Banks “are worried about the fact that households are taking on too much risk.”

Lau says he’s aware of the risks, yet can’t resist the low rates to add to his real estate investments.

“I read that the three banking chiefs are saying that housing prices have to go down, and now here they’re offering the lowest mortgage rates we’ve seen in a long time, which sparks people to actually want to purchase more places,” Lau said. “I don’t know what to believe.”

Doug Alexander and Sean B. Pasternak, ©2012 Bloomberg News

2011 RRSP Deadline

The deadline for making a 2011 RRSP contribution is February 29, 2012.

Making that contribution can save you anywhere from hundreds in taxes to over $10,000 depending on your province and tax bracket. Plus, you’ll enjoy the tax-deferred long-term growth of that investment while it sits in your RRSP.

The challenge for some, however, is not having enough money to make an RRSP contribution. According to Investors Group, 58% of those not investing in an RRSP say it’s because they don’t have the funds.

One possible solution if you’re cash strapped is an RRSP loan. Another is a cash back mortgage. We examine the pros and cons of each here…

Cash Back mortgages give you anywhere from 1-7% of your mortgage in cash on closing. You can take that cash and immediately make an RRSP contribution with it.

RRSP loans are a little different. They’re basically just straight loans secured against your investments instead of your house.

Each has its relative benefits…

Cash Back Mortgage Advantages

  • Monthly payments are typically lower on the funds borrowed for your RRSP contribution (That’s because the amortization period of a mortgage is usually longer than an RRSP loan.)
  • Most, but not all, mortgages compound semi-annually. RRSP loans often compound monthly, which is slightly more costly (Albeit, the difference is far from enormous.)

RRSP Loan Advantages

  • You can sometimes borrow more for your RRSP with an RRSP loan than with a cash back mortgage, depending on the mortgage amount and lender.
  • Unlike a cash back mortgage, there is no clawback of cash to worry about (If you break a cash back mortgage early, you typically must pay back a pro rata portion of the cash you received. Beware that some lenders make you pay it all back, even if you’re just a few days until  maturity.)

Another key differentiator between these two options is the interest rate.

Rates on RRSP loans currently range from roughly 3-7% depending on institution, loan size, qualifications, term, etc. That means you’ll pay roughly $200-$550 interest per year for every $10,000 borrowed.

Cash back interest rates are usually 0.40% to 2.00% more than a regular fixed mortgage. That translates to about 3.60% to 5.29% today. The actual rate depends on the mortgage term, lender and cash back amount, among other things.

Despite the higher-than-normal mortgage rate, people often forget that the effective rate of a cash back mortgage is substantially lower. That’s because the lender is handing you cash up front, which reduces your overall borrowing cost.

In fact, for large mortgage amounts and shorter terms, you’ll occasionally find effective rates that are actually lower than a regular mortgage.

Once you solidify your interest rate, you’ll need to determine your payback period. In other words, how long will it take you to repay the money borrowed for your RRSP contribution?

Key Point:  RRSP loans are meant to be short-term. That can’t be stressed enough. Otherwise, the borrowing costs eat up the gains.

Even if you’ve used a cash back mortgage and amortized your RRSP contribution over 25 years, you absolutely and unequivocally need the discipline to pay back the RRSP portion quickly (usually within 1-3 years, depending on the rate, RRSP return, amount of tax refund, etc.).

With the interest rate and payback period determined, you can then compare the interest cost to your gain. That gain includes both the RRSP tax deduction and your projected investment growth. This, in part, will confirm if borrowing for your RRSP is worth it.

Assuming you do borrow to contribute, you can generally expect a tax refund. Use that refund wisely. Financial advisers often recommend one of three things:

  • Prepaying your RRSP loan with it (Doing so lowers your interest expense, which is not tax deductible)
  • Using it to pay off high-interest debt
  • Using it to make an RRSP contribution for the current year

Before we wrap things up, it’s worth mentioning one other alternative to a cash back mortgage: a regular refinance.

Rates on a regular refinance are generally (but not always) less than the effective rate of a cash back mortgage. But a refinance comes with issues of its own.

You will:

  • Need enough home equity to refinance.
  • Face default insurance premiums if your loan-to-value (LTV) is over 80% (85% LTV is the limit if you want the best rates.)
  • Pay a penalty if you have to break a closed mortgage early. (Mortgage penalties often ruin the math and make borrowing for an RRSP contribution uneconomical via a mortgage.)
  • Pay legal fees to refinance. (By comparison, legals are often paid by the lender when you “switch” into a cashback mortgage at maturity. Lenders occasionally cover legals on regular refinances as well. (Just watch out that they don’t charge you an offsetting rate premium in return.)

Whether RRSP borrowing (of any kind) is right for you depends on your tax bracket, contribution room, ability to handle more debt (even if short term), risk tolerance, time till retirement, and likely payback period, among other things. An independent financial advisor or accountant are good sources to help you sort it out.

Fourth Quarter Earnings

The fourth quarter earnings season brought good tidings to certain banks, including TD and RBC who saw profits double.

In the Big 6 banks’ lending segments, however, many continued to report declining loan margins as Canada’s low rate environment persists.

Below are various mortgage tidbits that we pulled from the major banks’ Q4 reports:

Bank of Montreal 

Net income: $897 million (+21% Y/Y)

Earnings per share: $1.34 

  • Revenue increased a paltry 1.1%, helped by volume growth across most products but offset by lower deposit spreads in a low interest rate environment, competitive mortgage pricing and lower mortgage refinancing fees. (Source)
  • Total personal lending balances (including mortgages, Homeowner ReadiLine® and other consumer lending products) increased 5.3% year over year while lending market share decreased (again). (Source)
  • Net Interest Margin (NIM) decreased 4 bps Q/Q due to lower deposit spreads and mortgage refinancing fees (Source)
  • BMO’s says its residential mortgage portfolio stands at about $42 billion, representing about 7.5% of the Canadian residential mortgage market. (Source)


Net income: $794 million (+59% Y/Y)

Earnings per share: $1.89 a share 

  • Residential mortgages increased by $6.0 billion, or 6%, and constitute 69% (2010: 67%) of the total consumer loan portfolio. (Source)
  • Growth was hurt by lower spreads in deposits and mortgages (Source)
  • Tom Woods, Sr. VP, Risk Management, CIBC, said: “We’ve insured 77% of our managed portfolio and 66% of our own portfolio with over 90% of the insurance being provided by CMHC. (Source)
  • The average loan-to-value of CIBC’s insured portfolio, based on August home price data, was 49%.(Source)
  • “For a good portion of the quarter, the prepayment fees collected from customers were actually lower than the actual breakage cost to the bank. This was largely due to the interest rate environment and should be a factor for the industry as a whole.” – David Williamson, Sr. VP, Retail and Business Banking (Source)
  • “On the asset pricing, there are competitive pressures, primarily, I’d say on our mortgage books and that’s having an impact…the spreads of the mortgages that are rolling off are more robust than the mortgages that we added onto the books currently.” – David Williamson, Sr. VP, Retail and Business Banking (Source)
  • Here’s a prior related story: CIBC Revises Mortgage Strategy

National Bank of Canada

Net income: $294 million (+2% Y/Y)

Earnings per share: $1.74 a share

  • Residential mortgages were up by 12% Y/Y, totalling $28.4 billion as at October 31, 2011, including securitized mortgages (Source)

Royal Bank of Canada

Net income: $1.6 billion (+43% Y/Y)

Earnings per share: $1.07

  • Residential mortgage volume grew 7% Y/Y (Source)
  • Residential mortgages comprise two-thirds (65%) of RBC’s $253 million retail lending portfolio (Source)

Scotia Bank 

Net income: $1.24 billion (+11% Y/Y)

Earnings per share: $1.07

  • Q4 residential mortgage balance: $142.2 billion, up 3% Q/Q and up 8.8% Y/Y (Source)
  • Mortgage market share in Q4 2011 was 20.3%, unchanged Q/Q, but down from 20.5% in Q4 2010. That’s not factoring in securitization, says Scotia. (Source)
  • “In the mortgage portfolio, the (margin) pressure has been downward, because as we got mortgages that have matured, they are maturing and renewing at smaller margins.” – Rick Waugh, President and CEO (Source)
  • “What we have seen in the last six to seven weeks, is that there is a little more normality coming back into the mortgage market, particularly on the two-year and five-year segment. So that’s I think one of the areas that we expect to stabilize and see stabilization in terms of income.” – Rick Waugh, President and CEO (Source)

TD Bank 

Net income: $1.57 billion (+58% Y/Y)

Earnings per share: $1.69 

  • Its Canadian residential mortgage balance stood at $72.8 billion in Q4, up from $70.6 billion in Q3. (Excluding securitized residential mortgages/HELOCs that are off TD’s balance sheet:  $67 billion) (Source)
  • “From a margin point of view, we were down about 6 basis points quarter-on-quarter, which is more than we thought … I would say that we had about 2 points of decline from competitive pressure notably on the real estate secured lending products and that’s sort of inclusive of a mortgage breakage …” – Timothy D. Hockey,  TD Bank Group President and CEO (Source)
  • “…whenever we have a mortgage client, we have more than four other products with that client. When we don’t have a mortgage with the client then we have approximately two products with that client.” – Bharat B. Masrani – President and CEO, TD Bank (U.S.)

Canada’s New Real Estate Rules For Home Buyers

The Canadian Government has recently implemented new real estate rules for home buyers every Canadian should learn about and understand. These new rules are designed to discourage potential home buyers from acquiring a mortgage they could never afford to repay in the event there was an increase in interest rates. Finance Minister Flaherty announced Canada will stop supporting mortgages that have an amortization period of more than 30 years. The government will be reducing the maximum amortization period from 35 to 30 years for government-backed insured mortgages that have loan to value ratios over 80 per cent. The reason for the reduction is to make it easier for mortgage holders to pay off their household debts earlier and reduce the interest on their loan amount. The most significant part of the new rules is they only apply to buyers requiring government-backed mortgage insurance.

Mr. Flaherty also announced the Federal Government will be reducing the maximum borrowing amount for refinancing mortgages from 90 per cent to 85 per cent of the value of the home. As well, Mr. Flaherty declared the government will be withdrawing government insurance backing on home equity lines of credit (HELOC).

Regarding mortgages for first time buyers, it will not matter what mortgage rate you select since borrowers will have to meet the requirements for a five(5)-year fixed rate mortgage. As a result, if interest rates increase, the rule will prepare borrowers for the higher rates. If you are a first time borrower, it will be much more difficult to qualify for a mortgage.

First time home buyers will have to make some personal financial changes before they apply for a mortgage. For instance, they will have to pay off outstanding debts such as credit card bills and personal loans. Creating a monthly budget will help teach people how to live within their means. Learning not only how to pay off outstanding debt, but also how to reduce monthly expenses is very worthwhile for developing a long term plan of proper fiscal money management. It can be very helpful to work with a credit counsellor to help establish a sustainable budget and develop a plan to pay off outstanding debts and not incur any additional debt in the future.

The decline in the economy these past few years has a tremendous impact on millions of Canadians. For many people, it has become very difficult to manage their debt and save for their future. The Canadian Government’s changes to the mortgage insurance guarantee will go into effect March 18, 2011. The withdrawal of government insurance backing on home equity lines of credit will go into affect April 18, 2011. The Government says the changes are being implemented to help Canadians manage household debt more effectively and improve their financial situation for retirement. The best thing potential first time homebuyers can do is make the essential financial changes now that will teach them better money management so they will be prepared to add a mortgage to their debt.

Article Source: http://EzineArticles.com/5807780

If you are looking for a mortgage broker in Toronto, Dino Nunno can help, visit us today at www.torontomortgagegroup.com

What is a High Ratio Mortgage?

High ratio mortgages are available for traditional residential homes, investment properties, and multi-unit residential complexes such as apartment buildings. On residential homes, a high ratio mortgage is one that exceeds 80% of the associated real estate security for qualified income applicants. For those self-employed borrowers seeking financing on low-doc programs, a high ratio mortgage is deemed to be any loan in excess of 75% of the real estate security.

A High ratio mortgage, or insured mortgage as they are sometimes referred to, are considered riskier than their conventional mortgage cousins as there is a reduced amount of equity available should the borrower default on the mortgage payments. In some cases, as a result of looser borrowing standards in the 21st century, some borrowers may have a high-ratio loan that exceeds the value of their real estate security.

As a result of this higher risk, in Canada all of the traditional mortgage lenders are required to insure all of their mortgage loans that exceed the conventional mortgage maximums. The result has been a reduction in the required capital reserves banks set aside to cover losses on such mortgages, despite their higher risk, as the various high ratio mortgage insurance companies such as CMHC, GE, and AIG have agreed to re-imburse the original mortgage lender for any losses on insured mortgages.

In 1946, CMHC was founded to expand the demand for housing in Canada and the accessibility of homeownership for less well-to-do borrowers. The result was a half-century housing boom that saw a continued decline in the size of downpayments, and the advent of leveraged investment properties.

High ratio mortgages have become much more prevalent in the mortgage industry. These mortgage products cater to those borrowers who have steady cash flow, but are unable to save for a large down payment or those who may have recently entered the job market (eg: recent graduates

These insured mortgages are now available for first mortgages, second mortgages, and even secured lines of credit. Even borrowers with slightly blemished credit, or unusual income situations, may qualify through a mortgage broker in Toronto and Canada’s non-bank mortgage lenders.

FACTOID:The invention of the mortgage insurance platform was a key enabler in the securitization process, as insured mortgage loans have become a low risk investment for many institutional and private investors around the world. In Canada, the majority of these mortgage loans were historically funded and packaged by CMHC, and then securitized through the Canadian Mortgage Bond (CMB) program.

TIP: The invention of high ratio insurance has allowed investors to purchase income producing property with substantially reduced equity, thus increasing their returns as a result of leverage. While such strategies do carry inherent risks, they have become the cornerstone of many investors wealth generation strategies.

Article Source: http://EzineArticles.com/1482790

Spam Bill C-28

Canada recently enacted a new anti-spam law called Bill C-28. It’s expected to come into force later this year.

Proponents say C-28 will lighten the spam load on all of us.

At the same time, it could turn many businesspeople into spammers themselves!

As a mortgage broker in Toronto, for example, it’s not uncommon to send out e-mails or newsletters to current or former clients. In some cases, you may not have had contact with a client for years.

If that kind of scenario applies to you, C-28 will change your email habits. For brokers, mortgage specialists and lenders, it pays to know the implications in advance.

Here are a few key points about Bill C-28:

  • It was formerly known as the Fighting Internet and Wireless Spam Act” (FISA)
  • Royal Ascent was granted in December and it’s anticipated to come into force in late summer/early fall.
  • Enforcement is overseen by the CRTC, Competition Bureau and Office of the Privacy Commissioner
  • Violators could see fines as high as $1 million for an individual or $10 million per violation for an organization
  • The bill is broadly-defined to include all commercial electronic messages, which include email, SMS text, sound, voice or image messages.

“It’s going to have a significant impact on the mortgage broker side of things, but also for anybody who sends messages that have a commercial purpose, in whole or in part,” said Nicole Kutlesa, a senior associate with Osler, Hoskin & Harcourt LLP in Toronto.

“It introduces an entirely new standard in terms of consent that we didn’t have in Canada previous to this legislation.”

The key to this legislation is that is introduces a standard of express, or “opt-in” consent, Kutlesa says. “That’s pretty significant and different from what companies are doing today.”

Here’s how it works:

If you have an existing business relationship with a client (eg. you’ve sold them something or have brokered their mortgage), you are permitted under this legislation to send commercial electronic communications to that person for the duration of the working relationship, even if the messages are unrelated to the deal.

For brokers, Kutlesa said the business relationship would last for the duration of the mortgage term, as long as it’s not renegotiated early elsewhere.

At the end of the business relationship, you still have up to two years to send them commercial communications without the need for further consent.

By the end of the second year, however, you’ll need the express consent from that client that they want to continue receiving your communications. The exception is when you’ve engaged in another commercial activity with that client, in which case consent can be implied under the legislation. Kutlesa said this can be done in the form of a check-box embedded in the communication, though it’s important the box is left blank until it is checked by the client (hence the “opt-in” criteria).

What’s important in all cases is that the communication you send, be it an e-mail, e-newsletter or other electronic marketing material, needs to identify yourself, include contact information (which must be valid for at least 60 days after the message was sent) and an unsubscribe mechanism in accordance with the legislation.

“It’s very serious because the penalties under the statute are significant,” Kutlesa said, referring to the maximum fines of $1 million for individuals and $10 million for companies found in violation of the law. On top of that, the bill allows for both a private right of action (if there have been losses or damages as a result of an unsolicited message), as well as directors and officers liability.

While Kutlesa says the intent of the legislation is to crack down on real spammers, she said that doesn’t mean the enforcement authorities wouldn’t be willing to make an example of a legitimate company in violation of the legislation.

Express consent is not always required, however. There are some exceptions including:

  • On-going client support – you can continue to send communications that provide notification or factual information related to an existing client’s account.
  • Inquiries – if you receive an inquiry from someone seeking information or an estimate, you are permitted to respond.
  • Business cards – if someone has handed you their business card, which discloses their e-mail, you can send them communications relevant to their business role provided they have not otherwise indicated they do not wish to receive unsolicited messages.
  • Family – communications may be sent to people with whom you have a personal or family relationship, which is expected to be defined in the regulations to include family and friends.

The bottom line is companies are going to have to go through their databases of contacts and in many circumstances may need to get any previous clients to expressively opt in if they want to continue marketing to these contacts, Kutlesa said. She added that it’s likely companies will lose some contacts as not everyone will take the time to give their consent or may simply decline.

Rebecca Chan, a partner with Borden Ladner Gervais LLP, is also fielding a lot of questions about the new bill and recommends companies start preparing sooner rather than later.

“We are telling our clients in the financial services industry to not wait until the legislation is in force to start thinking about how to comply with it,” she said. “Mortgage brokers, like others, will need to sort out a process for addressing prospects, existing clients and past clients.”

Chan noted that the process will likely need to be sorted out with internal or external IT providers, which is why she recommends companies get an early start.

“That can’t usually be done overnight, which is why we suggest that the review process start before the in force date.”

Bank of Canada Slashes Growth Prediction

Canada’s economic growth will decelerate sharply in the second quarter of the year, according to a new report by the Bank of Canada.

The country’s central bank said it now expects Canada’s gross domestic product (GDP) to expand in the April-to-June period — but by less than half of the 4.2 per cent it projects for the first three months of 2011.

The new predictions were contained in the Bank of Canada’s monetary policy report, released on Wednesday.

The Bank now anticipates that Canada’s GDP will expand by two per cent in the second quarter, down from the 2.8 per cent which the organization had forecast back in January.

In its latest prognostication on economic growth, however, the Bank of Canada really hiked the expected expansion rate in the first quarter of 2011, to the four per cent level, up from an initial projection of 2.5 per cent back in January.

Altered view

Effectively, the Bank now expects Canada’s economy to slow between the first and second quarters of 2011 as compared with a projected acceleration in GDP growth in its January forecast.

Despite the anticipated slippage, the Bank of Canada still believes the economy of Canada and the rest of the world are recovering relatively nicely.

“The global economic recovery is becoming more firmly entrenched and is expected to continue at a steady pace,” said the Bank.

Overall, Canada’s economy will grow at a 2.9 per cent clip for all of the year, a half-a-percentage-point increase compared with the 2.4 per cent the central bank forecast at the beginning of 2011.

But, the bank now expects GDP to expand by 2.6 per cent in 2012, down slightly from January’s prediction of 2.8 per cent.

Steady as she goes

So far, the central bank is keeping its powder dry in terms of hiking interest rates.

Earlier in the week, the Bank of Canada kept interest rates steady at one per cent, arguing that the Canadian recovery has not yet ignited any inflationary fires.

Still, many economists believe the central monetary authority will begin increasing borrowing costs gradually towards the end of 2011.

“Despite the upgrade to Canada’s economic performance, today’s even-handed statement suggests that the Bank of Canada does not appear to be feeling enormous pressure to resume interest-rate hikes at this point in time … We still believe that a July rate hike is the best bet,” said Francis Fong, an economist with TD Economics.

Carney’s clouding outlook

Bank of Canada Governor Mark Carney, however, indicated that a strong Canadian dollar — the result of U.S. economic weakness and higher world oil prices — could hammer the country’s foreign exports.

“What we’re seeing on the trade side is still quite a challenging situation for our exports and it could be more difficult, which is why we’re highlighting the risk of the dollar,” Carney said at an Ottawa press conference on the monetary report.

The Canadian dollar has risen 12 per cent from a low of 92.78 cents US on May 25, 2010 to the current level of $1.039 US. Generally, a more valuable currency hurts the ability of that country to sell its goods and services abroad.

Despite Carney’s gloomy comments, some economists stuck to their predictions that the Bank of Canada probably will be looking at interest rate hikes later in the year.

“Economic conditions will require the Bank to reduce the amount of policy stimulus in order to contain upside risks to the inflation outlook,” said Dawn Desjardins, assistant chief economist at RBC Economics in a note published after Carney’s press conference.

If you are looking for a mortgage broker in Toronto, we can help. Visit us today at www.torontomortgagegroup.com

International Financial Reporting Standards

IFRS. You’ll hear more about this acronym as time goes on. It stands for International Financial Reporting Standards and it’s basically a newly-adopted set of accounting rules.

The relevance here is how IFRS will impact Canadian mortgage rates.

The first effect of IFRS that we noticed was with Home Trust’s prime mortgage rates. Home’s “A” rates have soared to 70 basis points above the market. Home Trust President, Martin Reid, explained why.

Under IFRS, mortgages that are securitized must be reflected on a lender’s balance sheet. Prior to January 1, 2011 that was not the case. (IFRS securitization guidelines don’t take effect on the big banks until November 1 of this year.)

Once mortgages come on the balance sheet, a lender (if federally regulated) must allocate capital to those mortgages to meet the regulatory asset-to-capital multiple.

For giant banks, with gobs of surplus capital, this isn’t as big an issue. For smaller lenders, it’s a serious matter because it raises capital costs notably.

Home Trust, for example, has had to allocate capital where the return is greatest. In Home’s case, that means it’s now focusing on non-prime mortgages. In turn, Home had to raise pricing on its Accelerator line of prime mortgages to account for higher funding costs resulting from IFRS.

Reid says that IFRS “will impact mortgage pricing and filter down to the consumer.”  How much, he’s not sure.

Paradigm Quest’s John Bordignon, a capital markets expert, said the big banks will be impacted less than small lenders. That’s because they have considerable excess capital and they securitize a lower proportion of mortgages than do smaller lenders.

In the end, Bordignon suggests that mortgage rates may not rise that much as a result of IFRS. He says “the mortgage market has (already) built in 20-25 bps of additional spread in anticipation of it.”

7 Ways to Better Your Credit Score

If you’re in the market for a mortgage, a car loan, or looking to rent an apartment, it may be time to check your credit score.

A credit score is an ever changing three-digit number between 300 and 900. The higher your number, the more likely you are to be approved for a loan or to negotiate a preferred interest rate. If your credit score is low, you may pay higher rates or be denied credit based on the lender’s criteria.

Your credit score is an important piece of financial information. It’s used by lenders, insurers, and landlords to gauge your credit behaviour and determine if you’re a good candidate for credit. If you’ve lost out on an apartment or been denied a loan recently, it may be your credit score that’s holding you back. But don’t worry if your score is low, there are ways to improve it. Since your credit score is recalculated continuously to reflect your recent bill payments and debt levels, your score from a month ago is probably not the same score today. Here are seven ways to raise your credit score:

1. Check your credit score at BOTH credit reporting agencies. Your credit score can vary between Canada’s two major credit reporting agencies, Equifax and TransUnion. Each agency uses different credit data as well as a slightly different credit scoring model to tally your number. If you’re being denied credit, it may be that one agency is reporting differently. Checking your credit report and score at both agencies can also help you detect any fraudulent activity or possible instances of identity theft.

2. Report and correct any inaccuracies. Don’t let your credit score suffer due to inaccurate information on your file. Be proactive and protect yourself by reviewing your credit files. If you find an inaccuracy, contact the creditor or the credit reporting agency to correct it immediately.

3. Pay all your bills on time. Lenders look for patterns and love to see a solid history of paying every bill on time. Any late credit card payments, collections, or bankruptcies can significantly lower your credit score — so be punctual with each bill payment to raise your score.

4. Watch your debt. Don’t run your credit balances close to your limit! Staying below half your available credit limit can help to improve your score sooner. For example, if you have a credit card with a $5,000 limit, try to keep the balance owed below $2,500.

5. Avoid applying for credit. When you apply for credit, a “hard query” may be made to your report by the lender to check your creditworthiness. Too many “hard queries” in a short period of time can lower your score, so stick to applying for credit only when you need it. Checking your own score won’t lower your score since this is a “soft query”. Applying for a lot of credit may be interpreted as a sign of financial difficulty, which can impact your score as well.

6. Give yourself some time. Time can improve your credit score, especially if you can establish a long history of paying bills on time and being responsible with credit. Negative factors such as bankruptcies, collections, or foreclosures drop off your report after a number of years, depending on your home province or territory.

7. Don’t close old accounts. It may seem counterintuitive to us, but unused credit is a good thing in the eyes of a credit reporting agency and lowering the amount of money you can borrow relative to your debt can impact your score.

If you are looking for a mortgage broker in Toronto, or looking to refinance your mortgage in Toronto we can help. Visit us today at www.torontomortgagegroup.com