Two steady housing years ahead: CMHC

Canada's housing market has two good years ahead of it yet, Canada Mortgage and Housing Corp. said Monday, with low interest rates and a "moderately" expanding economy keeping price corrections at bay. The Crown corporation – which insures Canadian mortgages – has had a consistently rosier view of the market than many private sector forecasters. Canadian banks have recently issued reports probing the consequences of cheap money, and trying to predict whether there is a bubble in prices that will eventually pop and cause prices to crash. They are particularly concerned about Vancouver and Toronto, where some have predicted price corrections of up to 10 per cent because of overbuilding in the condo market. But CMHC said Monday Canadian markets would "remain steady in 2012 and 2013. "With the Canadian economy set to expand at a moderate pace and mortgage rates expected to remain low, activity levels in 2012 in both new home construction and sales of existing homes will stay close to levels seen in 2011," said Mathieu Laberge, deputy chief economist. Also in the forecast: "Housing starts will be in the range of 164,000 to 212,700 units in 2012, with a point forecast of 190,000 units. In 2013, housing starts will be in the range of 168,900 to 219,300 units, with a point forecast of 193,800 units. Existing home sales will be in the range of 406,000 to 504,500 units in 2012, with a point forecast of 457,300 units. In 2013, MLS sales are expected to move up in the range of 417,600 to 517,400 units, with a point forecast of 468,200 units. The average MLS price is forecast to be between $330,000 and $410,000 in 2012 and between $335,000 and $430,000 in 2013. CMHC's point forecast for the average MLS price is $368,900 for 2012 and $379,000 for 2013. The moderate increases in the average MLS price are consistent with the balanced market conditions that occurred in 2011, and that are expected to continue in 2012 and 2013."

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STEVE LADURANTAYE - The Globe and Mail

Mortgage Lending Tightens...

It's going to be tougher for the self employed, new immigrants and higher-risk borrowers to get a mortgage as concerns continue to mount over the state of Canada's housing market. CIBC's wholesale mortgage arm, FirstLine, quietly announced Tuesday that it will no longer accept new applications from "stated income"; homebuyers who can't prove they have the annual net income to qualify for home loans. FirstLine also set a $1 million cap on what it will lend for a home purchase. The major change in policy, which is bound to pique the interest of other major lenders, came on the same day it was revealed that the Canada Mortgage and Housing Corp. could be forced to cut back on the mortgages it insures. The moves are seen as among the clearest indications yet that Canada's hot housing market and record levels of household debt are a concern far beyond just the Ottawa offices of Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney.

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CMHC Backing Fewer Loans

Canada Mortgage and Housing Corp. is cutting back on mortgages it insures as the Crown corporation edges closer to a $600-billion cap imposed on it by the federal government. A CMHC spokesman confirmed that it had approached a number of lenders at the end of 2011 about reducing its "bulk or portfolio insurance" after third-quarter results showed the agency had committed to back $541-billion in mortgages. CMHC, which guarantees mortgages held by financial institutions, is ultimately backed by the federal government and needs approval to go over the $600-billion limit — something that would create greater risk for taxpayers should the housing market collapse. "CMHC has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance." said Charles Sauriol, a spokesman for the Crown corporation, in an email. "To ensure equitable access to portfolio insurance within CMHC's annual limits, an allocation process is being established which has caused some delays. Portfolio insurance provides lenders with the ability to purchase insurance on pools of previously uninsured low ratio mortgages and does not impact CMHC's transactional business." Financial institutions are required to have mortgage-default insurance when a consumer has less than 20% equity. However, the banks have been seeking insurance on loans with even high downpayments — something not required by law — so they can securitize those bulk lending loans, thereby getting them off their balance sheets and reducing their capital requirements. In those cases in which the loans to value is less than 80%, the bank pays the insurance charge instead of the consumer.

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Mortgage Options for the Self-Employed

If you're self-employed, you may have a more difficult time obtaining financing for your real estate purchases than you encountered just 18 months ago, thanks to the recent recession. And as of April 9^th, 2010, Canada Mortgage and Housing Corporation (CMHC) raised the required down payment amount, as well as decreased the percentage at which you can refinance an existing mortgage if you're self-employed. To add to the confusion, there are also new rules for those who have been self-employed for more than three years. Still, if you can prove your income, show you're up-to-date on your taxes and you have solid credit, your chances of being approved for a mortgage are greatly improved. There are essentially two types of self-employed or business-for-self (BFS) borrowers – those who can prove their income and those who cannot, and must instead use a stated-income mortgage product. But, if you have been self-employed for more than three years, you can no longer use a stated-income product. By providing the required documentation, you are more likely to be approved for a mortgage if you qualify based on your income. The trouble is that if you cannot prove your income, you pose a higher risk in the eyes of lenders. CMHC currently offers default mortgage insurance for people who have been self-employed less than three years through a stated-income mortgage product up to 90% loan to value (LTV) – meaning the down payment can be as low as 10% of the purchase price. But prior to April 9^th, 2010, the maximum LTV for self-employed individuals was 95% for purchases – meaning the down payment would have only been 5% instead of the current 10%. And if a BFS individual wishes to refinance an existing mortgage, the maximum loan amount was reduced to 85% from the previous 90% of the home's value. Regardless of the maximum LTV, however, the income amount you are stating has to make sense based on your occupation. This is important, because the chances of finding lenders to fund this type of deal are significantly boosted if the mortgage is insured. Lenders and insurers are well aware of the tax write-offs that BFS borrowers can leverage, but these deals are accepted or declined based on average incomes for specific fields, as well as your credit rating. It pretty much goes without saying that those with credit blemishes will have a tough time obtaining mortgage financing if they're self-employed.

Getting Pre-Approved

While BFS mortgage financing is viewed on a case-by-case basis, if you work with a licensed mortgage professional to obtain a pre-approval, you can be confident you have access to mortgage financing and you will know how much you can spend before you head out shopping for a property. It's important to note, however, that there is a significant difference between being pre-approved and pre-qualified. In order to obtain a pre-approval, the lender fully underwrites the deal whereas, with a pre-qualification, only the most basic details are considered. Remember that many banks will only issue a pre-qualification. Should a pre-approval and/or mortgage default insurance be unobtainable, the maximum mortgage amount you are likely to qualify for is between 50% and 75% – meaning you will need a much larger down payment.

Alternative Financing

If you do not qualify for traditional financing all is not lost, since you may be eligible for alternative – or private – funding. Mortgage professionals often have access to private investors who are willing to lend money to BFS individuals looking to obtain mortgages. Although you will pay a higher interest rate – on average about 12% – this route may enable you to acquire funds to purchase a home. It is also important to note that there are added fees involved with private funding because the deals involve a higher degree of risk. The combined lender/brokerage fee will depend on the specific deal and the risk it poses, but the figure will be disclosed upfront so you know exactly what you'll be expected to pay for these services. Another key point to consider is that private financing is equity based, meaning that the lender's decision will be based on a specific piece of real estate. Private lenders want to know that the property is marketable and that they will be able to easily sell it should the mortgage go into foreclosure. For any assistance contact a Kupina Mortgage agent. Our service and advise is free...we are here to help.

Katarina | 289.456.9149 | katarina@kupinamortgage.com