CMHC Sends Another Message

ince 2008 the nation’s largest mortgage default insurer has been on a mission to reduce its risk exposure. Yesterday that mission continued with CMHC announcing that it would stop insuring both second homes and self-employed borrowers without traditional proof of income.

Canadians have used these two programs for the last nine and seven years respectively.

But these are not the only adjustments CMHC has in store. It put the market on notice that “This is the first set of changes” we should expect, as a result of its internal insurance business review.

Thankfully, at least one private insurer is not making knee-jerk changes because of this news.

Andy Charles, CEO of Canada Guaranty, told CMT:

“We are currently reviewing the announcement and potential implications…(The) overall materiality of the change is modest but indicative of an evolving market dynamic…(We have) no current plans to alter our product offering but, as indicated, are reviewing…"

 

What’s behind CMHC’s announcement?

• Terminating these programs appears to be a business decision by CMHC.
• Sources tell us that the insurance regulator, OSFI, was not behind this decision. (OSFI doesn’t generally impose product restrictions on individual institutions.) Moreover, there is no indication that this news is directly related to the recently released B-21 guidelines.
• We’re also awaiting comment from the Department of Finance. In recent years its leadership has clearly indicated a desire to see less government involvement in the mortgage market. (CMHC is 100% backed by the federal government.)

• CMHC says these two programs only accounted for a combined 3% of its unit volume.
• It claims this should not have “a material impact” on the housing market. (Mind you, this is yet another instance where CMHC is withdrawing and/or limiting its programs. All of these “immaterial” changes may ultimately combine to slow the market further.)
• There is no word yet on whether the second-largest insurer, Genworth Canada, will follow suit. It’s in its quiet period before earnings so it couldn’t comment.
• Even before this news, it was clear in talking with CMHC sources that it plans to meaningfully reduce its insurance business. This will create further opportunities for private insurers and self-insured lenders (e.g., Equitable Bank, Home Trust, Optimum Mortgage, certain credit unions, private lenders, mortgage investment corporations, etc.)

Borrower impact

• The last day to submit CMHC-insured “stated income” and second home mortgage applications is May 29 (but many lenders may set a cut-off date earlier than this.)
• The majority of Canada’s 2.7 million self-employed borrowers prove income in traditional ways (for example, using a 2-year average of income from their NOAs, grossed up by 15% to account for write-offs)
• Self-employeds who can’t prove income traditionally, and Canadians who buy a second home with less than 20% down, will be left with these options:
• Prime lenders who insure through private insurers (assuming the privates keep their “low-doc” and second home programs intact)
• Non-prime institutional lenders, who finance up to 85% loan-to-value (less in non-urban areas) at higher interest rates
• MICs and private lenders who finance up to 80% with even higher rates and fees
• Private lenders who offer second mortgages in urban areas above 80% loan-to-value
• Anyone with a CMHC-insured residence will no longer be able to obtain, or co-sign for, an additional CMHC-insured mortgage. There are two exceptions:
• Bulk-insured mortgages are not affected by this particular rule (“The rules apply to all transactionally insured homeowner mortgages, both high and low ratio,” says CMHC spokesperson Charles Sauriol. “The rule does not apply to loans that are bulk insured — (i.e., CMHC's Portfolio insurance product.”) Lenders purchase bulk insurance on mortgages with 20% equity or more, typically so they can resell these mortgages to investors.
• CMHC-insured rental mortgages are also unaffected (“There is no limit on the number of CMHC-insured rental mortgages a borrower may have,” Sauriol adds.)

9 things FSBO companies don’t want consumers to know

1. They charge upfront (in most cases thousands). Agents don’t.

When it comes down to it, listing with an agent shouldn’t cost you a cent. I know you probably read that a few times. Agents don’t charge upfront, we only charge when results are provided. This gives you an advantage in more than one way. On the other hand I have heard of individuals paying upwards of $2,000 upfront just for a sign and a spot on a website, only to end up having their house listed and sold by an agent.

2. They aren’t held to any code of ethics.

Real estate agents across Canada are held to a strict code of ethics by CREA. They take the liability if something goes wrong. They are also held to higher standards in advertising and they have duties to you as a client.

3. Just because you’re a real estate professional does not mean you’re rich or overpaid.

This has been the fuel for many slanderous ad campaigns released by popular for sale by owner websites over the years. The truth of the matter is, if it was that easy and they got paid a “small fortune” to sell a house, everyone would get into the business. Selling homes is hard work. Agents often find themselves working for free and hoping to receive a commission.

Consider this situation: A buyer has his agent show him 30 houses over the course a month. The agent spends hours of his time to assist the buyer. The buyer decides not to buy. The agent has worked for free and lost money on expenses. This is a common situation.

4. They can’t put your home on the MLS system.

This system was built by Realtors for Realtors. No one is allowed to list a property on it unless they have a license to trade in real estate. These websites will just refer you to an agent (how ironic), often one from the other side of the country, to put your home on the MLS and nothing else. In most cases the listing won’t even be on your local MLS board, making it sometimes hard to find.

5. They actually petition agents to sell their houses.

After years of bashing the profession, certain for sale by owner websites are now calling on agents to come to their rescue, so they can take credit for selling homes. Tell me another business model where you ask your competition to do the work for you. This is really an admission of one thing – serious buyers go to an agent. Why? Because it will cost you nothing to buy through an agent.

6. They don’t have a real estate license.

This is something a lot of people do not realize. These so called “private sale” websites are just that. They are not licensed to trade in real estate or to give you real estate advice. They can’t even advise you on how to price your property because doing this would fall under an agency relationship and would be considered trading in real estate. That requires a license. These parameters are set in place to protect you, the consumer.

7. You pay them so you can do all the work.

Since these companies are not licensed to trade in real estate they are not permitted to represent you in a real estate transaction. This means they can’t answer buyer inquiries for you, show your home, host open houses, handle paper work, mediate negotiations, advise you on market conditions…and the list goes on and on.

8. Privates sales carry a stigma and uncertainties that make buyers uncomfortable.

Ever gone to view a private sale as a buyer? Then you know it can be extremely uncomfortable and limiting to view someone’s house with them in it. It can be even more uncomfortable to negotiate with them. On top of all this, private sales beg the question, why didn’t they use an agent? Is there something wrong with the house? If they are trying to cut costs now, did they cut costs/corners with repairs?

9. Agents don’t hate for sale by owners.

These companies would have you believe that agents think FSBOs are ignorant. This isn’t the case. We get why you would want to go this route. It can be done, but just because you can do something doesn’t mean you should. Like many DIY projects you are putting yourself at risk. In this case you are taking a risk with the biggest investment of your life. It will not be an easy process.

In the end, in today’s buyers’ markets you need an agent who will work tirelessly for you to get your home noticed above the thousands of others on the market.  Just remember that limited service will always equal limited results and if it seems too good to be true, it is more times than not.

How to rent student housing all year-around

People often ask about how long leases are for students. There is a misconception that you can only rent places out for the school term, from September to April and that they sit idle for the summer. Unfortunately, the mortgage payments, utilities, property management and other associated costs don't stop for the summer.
We rent all our houses out from May 1st to April 30th for a full 12 months and there are a few tricks to achieve this. Your rental ad should be placed at the start of December if you are looking to get your house filled for May 1st. Students will first look at properties closest to the college, and then work from that parameter. The houses in closest proximity and in best condition will rent first. If your house isn't fully rented by the end of December, continue to advertise into January until it's filled. Tips to achieve year-round rental:• Buy a house in a desirable location for students• Make sure property is above average compared to other student rentals in the area • Find out where the best place is to advertise and then write great ads - Kijiji/ Off campus housing etc.• Ensure ads are kept refreshed and consider paying for top result status if necessary• Organize all showings at the same time to create competition and a sense of demand• Ensure showings are re-confirmed and all necessary directions are provided (sometimes students forget and need to be reminded) So if you still have some rooms empty for May 1st, now's a good time to ramp up your marketing and get them rented for 12 months.

Court ruling affects landlords and tenants

A recent decision by the Ontario Superior Court in Covers v. Bumbia has significant implications for Ontario landlords when it comes to renting out apartments and condos.
A little history ... it is illegal for Ontario landlords to request or accept anything more than first and last month's rent upfront from a new tenant. If brought before the LTB (Landlord and Tenant Board), the landlord would in all likelihood be ordered to pay back the tenant anything over and above the first and last month's rent. Covers v. Bumbia changes the rules. Without getting into the facts of the case itself, the salient points of the decision are as follows: 1. Landlords can now legally accept more than first and last month's rent as long as the tenant offers it 2. Landlords can now legally accept a security deposit as long as the tenant offers it 3. Landlords still cannot advertise or request more than first or last month's rent or a security deposit Practically speaking, this ruling is very positive for all Ontario Landlords as it will allow them to expand their rental pool demographic. For instance, in my personal experience, I have had prospective tenants who were in special situations such as being new to the area or to the country (with no employment) or being relatively well off (with no employment). One of my screening rules has always been that a tenant has to be employed. This new ruling could change that as now a prospective tenant can offer first and last upfront, along with a few more months as a show of good faith, which would likely get them an approval, assuming all the other requirements are met. Other jurisdictions have long held that landlords could legally ask for security deposits to cover any potential damage repairs and cleaning costs once the tenant moves out (which I think just makes sense). For landlords, this may be the first step towards introduction of the security deposit and it becoming the norm in Ontario. This could also have drastic implications for those who are reluctant to rent to students for fear of a damaged apartment. Now, students can alleviate that fear by offering to provide a security deposit upfront. On a side note, I have no doubt that we will be seeing a lot of cases before the LTB which will hinge on whether the tenant offered to pay the extra month’s rent / security deposit v. whether the landlord requested it. If you are a landlord, my advice to you would be if you do accept more than first / last month's rent or a security deposit from a tenant going forward, make sure that the tenant explicitly puts it in writing that they are offering it to you, and it is NOT being requested of them.

New home buyers more prepared for ownership

The next generation of home buyers may face bigger sales prices but they are willing to save and sacrifice to pay the high price of ownership.

Investors who are concerned about the future pool of buyers can finally take a breather. The next generation of buyers are more financial savvy and equipped to take on the market.That is according to a new national survey by Genworth Canada. Potential home buyers are working harder and saving for longer to secure a down payment and remain confident about the long-term benefits of property ownership."Despite tighter mortgage qualification criteria over recent years, survey results point towards positive trends in homebuyer behaviour," said Stuart Levings, Chief Operating Officer of Genworth Canada. "With a stable economy and real estate market, Canadians appear to have more confidence in the value of homeownership and see their goals of homeownership and financial well-being as more achievable."Indeed, 53 per cent of the 1,507 Canadians surveyed said they are worried that they are missing out on the perfect house today because they do not have enough saved for a down payment.A majority of respondents say they expect house prices to rise in the next 12 months, with most expecting to save for between one and four years to save for their down payment. Nine out of ten agree that owning their home means more work and effort, but would rather own than rent. More buyers are getting their finances in order to make their case for lending more favourable. The proportion of potential buyers who say they don’t know their credit rating has declined from 32 to 23 per cent, while 51 per cent said they pay their credit cards off in full each month.