Archive for the ‘Mortgages’ Category
National housing agency deserves a fair shake
Stephen Dupuis – Toronto Star
It’s not my job to defend the Canada Mortgage and Housing Corporation, but when I read articles criticizing CMHC that make quantum statistical leaps while ignoring important facts as well as relevant differences between Canada and the U.S., I feel compelled to write.
Among the many positive roles that CMHC performs as Canada’s national housing agency, it insures mortgages against default by the borrower. Over the years, CMHC has helped millions of first-time homebuyers get over the initial downpayment hump. Virtually every buyer that CMHC has ever insured has eventually progressed into the conventional mortgage market and ultimately reached the goal of being mortgage-free.
Despite the fact that there is no evidence to suggest that Canadians are about to default en masse on their insured mortgages, the critics have been taking random pot shots at CMHC with the most recent attack published in this very paper last Sunday.
The critics tend to look at what has happened in the U.S. housing market, which is rife with foreclosures, as their critical point of departure. They are forgetting or ignoring a couple of very important differences between Canada and the U.S.
Yes, U.S. homeowners got caught by the double whammy of increasing interest rates and decreasing house prices, but they could scarcely afford the homes they had purchased in the first place.
The sad truth is that all parties (lenders, brokers, insurers) in the U.S. system invented ingenious ways to artificially lower the monthly carrying cost of homes while at the same time ignoring the rigours of income verification. That’s a double whammy of a different sort.
When you put both double whammies together, you have a situation where millions of Americans are “under water” in terms of the value of their home relative to their mortgage.
Here in Canada, we did not go down the path of “mortgage innovation,” although we were tempted. Fact is, our own federal government made sure that we would not do so by restricting mortgage financing rules not once, but twice in the last few years. More importantly, our lenders and insurers have continued to insist on full review and verification of every mortgage insurance application against standards set out by CMHC.
The other thing that amazes me about the CMHC critics is the complete lack of evidence of a mortgage default problem in Canada. Mortgages in arrears in Canada are less than one half of one%, according to the Canadian Bankers Association. That’s a miniscule number and outright defaults would be an even smaller subset, which means that CMHC is far from over-exposed.
In my view, the reason there are so few mortgages in arrears in Canada has as much to do with the fact that our lenders and insurers have been cautious, as it does with the fact that our homebuyers tend to think of mortgage burning parties as a good thing, continually striving towards that goal by paying down their mortgages as quickly as possible.
It’s worth noting that 40% of our homeowners nationally don’t even have a mortgage, so we obviously don’t need to worry about them. According to the Canadian Association of Accredited Mortgage Professionals, the average equity of Canadians with mortgages is 53%, so I don’t see much to worry about there either.
I firmly believe that when times get tough, Canadians first priority is to work as hard as possible to protect the heart of the Canadian dream – their homes.
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Contact the Jeffrey Team for more information - 416-388-1960
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Audit reveals privacy breaches by mortgage brokers
A privacy audit by the Office of the Privacy Commissioner of Canada says several mortgage brokerages “failed to go far enough” to protect the personal information of their clients.
The Office of the Privacy Commissioner of Canada (OPC) says the audit was launched after the brokerages reported 14 data breaches in the space of a few months in mid-2008. In each case, someone impersonating an experienced mortgage agent downloaded credit reports for people who hadn’t even applied for a mortgage. As a result, the personal information of thousands of people across Canada was compromised.
“The breaches prompted the brokerages to take some positive steps to better protect personal information. However, our audit found that those changes did not go far enough,” says Privacy Commissioner Jennifer Stoddart. “As a result, the personal information of clients – not to mention any number of other people with absolutely no connection to the brokerages – was left at risk.”
The audit also raised concerns about data security, haphazard storage of documents containing personal information; inadequate consent by clients; and a general lack of understanding about, and accountability for, privacy issues.
The audit is described in the commissioner’s 2009 Annual Report to Parliament on the Personal Information Protection and Electronic Documents Act (PIPEDA).
Mortgage brokers obtain credit reports from credit reporting agencies in order to assess an individual’s eligibility for a mortgage. Credit reports contain extensive personal information that can be used by criminals to commit identity fraud.
Following the breaches, the five audited brokerages significantly tightened their practices for hiring agents, says OPC in a news release. “However, the audit found there was a lack of adequate controls to restrict agents’ access to credit reports. Specifically, the web-based tool used to obtain credit reports doesn’t allow brokers to limit the number of credit reports an agent can download. In addition, there are no technological controls to monitor for, and raise the alarm about, suspicious activity,” says the release.
The OPC says among the other risks to personal information highlighted in the audit:
- Some brokers stacked files containing personal information on the floor or on desks within accessible offices. One had overflow storage in an unsecured parking arcade.
- Brokers lacked shredders capable of securely destroying documents. One broker was re-using the reverse side of old, filled-out mortgage applications in order to print out new applications.
- Credit reports were sometimes obtained prior to consent from a client being recorded and there was no ability for clients to opt out of secondary uses of their personal information, such as marketing.
- There was a lack of training about privacy responsibilities and many agents did not know to whom they should turn with a privacy-related question. In one case, a broker franchisee stated that his organization’s chief privacy officer was located at the brokerages head office when, in fact, he was the chief privacy officer.
One of the five audited brokerages is no longer in the mortgage broker business. The four others still operating stated they would implement all of the recommendations in the OPC’s audit report.
“In the wake of our audit, we have ongoing concerns about the controls and safeguards in the way in which credit reports are obtained. We are following up with the company that provides this tool to mortgage brokers, with industry associations and with Canada’s credit reporting agencies to discuss best practices for the exchange of personal information,” says Elizabeth Denham, the assistant commissioner. “We are also continuing to work with mortgage broker associations to develop guidance documents that will help them meet their obligations under Canadian privacy law.”
The Canadian Association of Accredited Mortgage Professionals (CAAMP) said it “acknowledges and supports the findings, and is committed to working closely with the OPC to investigate and resolve these problems.”
“CAAMP’s membership takes privacy policies very seriously and intends on following the important recommendations put forward by the OPC,” says Jim Murphy, president and CEO. “CAAMP has an ongoing commitment to improving the information-handling procedures of mortgage brokers and their agents to ensure continued client protection.”
CAAMP says “The vast majority of mortgage professionals have implemented stringent and effective privacy standards.”
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New rules cuff some mortgages to banks
Marcel Beaudry, vice-president of ING Direct, says there is no question the new rules will have an impact on consumers looking to switch banks
Garry Marr, Financial Post
A headlock would be the wrestling term to describe the hold Canadian banks will have on some consumers because of new, more strict mortgage rules.
We are already seeing the impact of the changes that came into effect on April 19, but were put in place well in advance by Canadian financial institutions. Consumers are increasingly selecting fixed-rate mortgages of five years or more because it’s easier to qualify for them.
On mortgages for terms of four years or less, including variable-rate mortgages, consumers must be able to pay based on the five-year fixed posted rate, which is now 6.1%. Go longer and you can use the rate on your contract, as low as 4.6%. No more than 32% of your gross income can cover principal and interest, property taxes and heat.
Peter Vukanovich, president of Genworth Financial Canada, the largest private provider of mortgage-default insurance, says only 5% of new high-ratio mortgages are going variable versus 15% just six months ago.
But there is another wrinkle to the new rules: Anybody shopping around for a better rate has to requalify based on their current credit situation. Stay with the same bank and there’s no check.
“It’s definitely a headlock and not a loophole because a loophole you can get out of,” says Vince Gaetano, a mortgage broker with Monster Mortgage.
There is a large percentage of Canadians who get a renewal notice from their bank and just sign on the dotted line. The Canadian Association of Accredited Mortgage Professional has found only 22% of Canadians switch banks at renewal time. A significant portion of the remaining 78% are sheep being led around by their financial institutions.
Those looking for some choice may find what was good enough to get into the market a month ago may not meet the test today.
Consider that as recently as two years ago, consumers were able to buy a house with no money down and a 40-year amortization schedule. If that consumer was making regular monthly payments, they would have paid down only 4.7% of their principal after five years. Today, that customer would still be high ratio and subject to requalifying if they switched banks.
“It’s not all of them, but a majority of first-time buyers with just 5% down or less won’t be able to qualify if they go to another bank,” Mr. Gaetano says. Many of those buyers were qualifying based on the three-year rate – about 200 basis points lower than the current qualification rate.
If house prices went down, something many in the real estate community have suggested could happen, that would be an even bigger blow for consumers. It would mean an even larger percentage of homeowners would still be considered high ratio upon renewal because they wouldn’t meet the test of having 20% equity in their home.
Martin Beaudry, vice-president of lending at ING Direct, says there is no question the new rules will have an impact on consumers looking to switch banks, but noted anyone who had a 40-year amortization and changed institutions also had to requalify and there hasn’t been a huge impact.
“There will be a segment of the population tied down by the new rules to their bank,” Mr. Beaudry says.
That’s a position nobody should be in.
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Contact the Jeffrey Team for more information - 416-388-1960
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