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Tips to repairing bruised credit

by Neil Sharma 09 Nov 2018 MBN

The importance of a high credit score is, unfortunately, lost on many borrowers, but with a little discipline and dedication, they can get back on track.

Everything from paying extra fees to larger down payments are some of the consequences borrowers with bruised credit contend with, and according to CanWise Financial’s President James Laird, it’s imperative that clients are taught the finer points of responsible payment.

“If it’s not a bankruptcy sheet and not a consumer proposal, we most commonly see borrowers who have balances over their limit, so while it’s somewhat counterintuitive, get a higher limit because it helps your credit score if your spending habits don’t change,” he said. “Someone who spends the exact same amount of money—let’s say $2,200 with a $10,000 limit—you have an excellent score, but if your limit is $2,000 your credit is being severely damaged.”

Speaking of counterintuitive, Laird advises clients trying to rehabilitate their credit not to make payments before the end of the month. If it’s paid too quickly, it’s like the money was never owed in the first place.

“Sometimes we see the most organized people pay off their credit card right before the month turns over, and in that case, credit companies will stop reporting to the bureau,” continued Laird. “If you pay it off the same month you spend it, it’s like you’re not paying any money. Let the month turn over and make your payment during the interest-free period—like within 10 days or whatever you have—because you have to show that you owe a bit and that you’re diligent at making payments. If you pay it off before the end of the month, it’s like you never owed the money.”

In the case of bankrupts, their credit facilities will have been closed down, and Laird recommends getting two new ones that report to the credit bureau so that rehabilitation can begin.
“It’s important to get new credit facilities up and going as soon as possible after you’ve had an issue,” said Laird. “We recommend that if someone has gone through bankruptcy or a consumer proposal, they can still get a prepaid VISA, and most of those report to the bureau, and that will start repairing your credit score.”

Daniel Johanis, a Rock Capital Investments broker, always reminds clients with bruised credit that their utilization must be 50-70%.

“If it hits 90% or higher, it’s showing the bank that your ability to repay outstanding debt is challenged because you’re at the point where you’re a higher risk for missing a payment or not meeting your monthly debt obligation.”

For borrowers well on their way to repairing bruised credit but who may have been hit with by an unforeseen, and expensive, circumstance, Johanis recommends making a call to the bank or credit holder.

“Making a simple call and saying ‘I’m behind and I need to get caught up, so can we figure out a repayment plan?’ is surprisingly effective,” he said. “They’ll often work with you because they don’t want you to default. It’s always worth giving the credit holder a call to see if they can do anything. It buys you time.”

Related Post: Debt will remain a fixture of many Canadians’ lives for a long time

BoC should begin slowing down on its rate hikes – analyst

by Ephraim Vecina 05 Nov 2018 MBN

With employment data seeing respectable and consistent gains across the board, the Canadian economy has entered a stage where additional interest rate hikes may come less frequently, according to CIBC Capital Markets chief economist Avery Shenfeld.

In its latest trade numbers release late last week, Statistics Canada said that while slightly lower wage growth and export strength also featured in the bureau’s latest report (covering September), the Bank of Canada should not view this as sufficient cause for yet another rate increase.

“On balance, this isn’t the kind of data the BoC will need to advance a rate hike into December,” Shenfeld explained in an investor note, as quoted by Bloomberg. “But there’s still another jobs report due before that decision date.”

Canada Mortgage and Housing Corporation’s former chair Robert Kelly believes that rising interest rates will be manageable even for beleaguered households, as long as these hikes remain “marginal”.

“I personally don’t think there will be a lot of impact in terms of housing prices as rates slowly edge up,” Kelly said in an interview. “The only real issue will occur in the next downturn when people realize how much debt they’ve taken on.”

Read more: BoC doublespeak on rate hikes muddies the waters – DLC’s Cooper

The debt spree that Canada has enjoyed in the last few years of record-low rates might prove to be yet another burden on households should the economy become more sluggish than anticipated, Kelly warned.

“Canadians, historically, were debt-averse. That’s no longer the case,” Kelly stated “My key ratio that I look at is personal debt-to-disposable income. In the year 2000 it was about 100%. Now it’s getting closer to 170%.”

“That 170% cent is now the highest of the G7. So, that implies [that] the next downturn could be a little tougher on housing than in other major industrialized countries.”

Household debt a major risk for Canada and other leading economies

by Ephraim Vecina30 Oct 2018

The Canadian economy is among the countries most exposed to a major risk of household debt reduction because of potential changes to tax regimes that could bite into investment volume, coupled with relatively sluggish housing markets.

According to Morgan Stanley’s Household Deleveraging Risk Indicator, other significant contributors to the Canadian situation are weaker credit growth, declining home prices, and rising interest rates.

Other developed countries facing similar predicaments are Sweden and Norway. Australia was rated by the multinational investment bank as the economy most at risk due to these trends.

Read more: Two Thirds of canadians regret their debt

“These economies now face a crucial juncture as housing markets weaken, forcing a reappraisal of leverage and wealth, and global financial conditions tighten, increasing the consumption drag from debt service and rising savings,” Morgan Stanley strategists warned, as quoted by Bloomberg.

The bank’s report noted that household debt in the 10 largest developed economies now represents approximately 160% of income, a dramatic upsurge form the 98% over the past 20 years or so.

“The increasingly proactive use of macroprudential tools and greater inflation-target flexibility in some countries will lead to more gradual rate-hiking cycles, with lower neutral rates in the medium term,” Morgan Stanley stated.

Related stories: Canada’s oldest home owners are on a mortgage spree

This segment now accounts for nearly half of all first-time buyers

by Ephraim Vecina 23 Oct 2018 MBN

Hopeful youngsters in the 25-34 age bracket now account for nearly half (49%) of Canada’s first-time buyers, according to the CMHC’s annual Mortgage Consumer Survey.

Meanwhile, 40% of first-time buyers are married, while 22% are newcomers to Canada. Fully 80% are in full-time employment, and 26% have household incomes ranging from $60,000 to $90,000.

Millennials have emerged as a significant market force in recent years, but a market environment characterized by restrictive rules and interest rate hikes has made ownership increasingly unattainable for the segment.

“The government’s recent policies stifled the hopes of aspiring homeowners,” Mortgage Professionals Canada board member Mark Kerzner said earlier this month.

“Our members have seen, firsthand, a significant portion of aspiring Canadians who have been pushed out of the market.”

Read more: Housing misery is the Canadian young adult’s lot – study

Indeed, the results of an Angus Reid Institute survey released in August indicated that a significant proportion of Canadian millennials prefer to rent or live in another arrangement, describing their ownership experiences and attempts as “uncomfortable” and “miserable”.

The consequent popularity of rental housing among millennials has pulled down vacancy rates to historic lows while heating up rental price growth, MPC stated.

“I would suggest that the Liberals are acutely aware that millennials are a large voting demographic … and individuals whose interest they are looking to protect long-term,” MPC president Paul Taylor warned.

Related stories: Did the market kill millennial home ownership?

Mortgage professionals take stress test case to Ottawa

Myke Thomas  The Kingston Whig Standard

The Office of the Superintendent of Financial Institutions’ (OSFI) is looking to further reduce mortgage financing.

OSFI has introduced a number of measures designed to slow down the rapidly rising costs of housing in overheated Canadian markets such as Toronto and Vancouver.

The latest move will affect underwriting that over-relies on the equity of a property, without due consideration to the borrower’s capacity to pay. As OSFI says in a newsletter, “there continues to be evidence of mortgage approvals that over-rely on the equity in the property (at the expense of assessing the borrower’s ability to repay the loan). OSFI will be taking steps to ensure this sort of equity lending ceases.”

Mark Herman, a Calgary mortgage broker with Mortgage Alliance, is wondering why OSFI is making the move.

“The new mortgage lending rules (B-20 and B-21) have pretty much shut down banks equity lending products. Most of all of our lenders have phased out their equity-based lending and there are only a few left,” says Herman.

“The few programs that still exist fall into a low documentation qualifier and they still require a 35 percent to 50 percent downpayment and are usually combined with high-net worth buyers and or a substantial investment portfolio to qualify.”

“Overall, there are very few customers that actually do fit into the few equity programs that are left. We don’t think this next OSFI Memo is going to change the existing mortgage lending landscape very much at all.”

Certainly not as much as the B-20 and B-21 rules, which, better known as the stress test, imposed new restrictions on government insurance for low-ratio mortgages and issued new reporting rules for primary residence capital gains exemptions.

In its newsletter, OSFI says the B-20 guidelines have yielded positive results, including lower average loan-to-value ratios for mortgages, and fewer mortgages being approved for over-leveraged individuals.

Nowhere in the newsletter did OSFI mention the unintended consequences of B20.

However, high-ranking members of Mortgage Professionals Canada (MPC), the association representing brokers, took that story to more than 50 Members of Parliament and senior government officials on October 16.

Their mission was to update decision-makers on the continued negative impact of the stress test and how recent federal mortgage rule changes are hurting Canadians. MPC members brought industry concerns on housing affordability, availability and accessibility being seen in regions across the country.

“Fewer Canadians now are able to obtain the mortgage they need to acquire a home, and many sellers now find fewer buyers to sell their home to,” said Paul Taylor, president and CEO of MPC. “As we first outlined at the time of the mortgage rule changes, it’s now clear that our concerns regarding the cumulative impact of said changes are decreasing competition and increasing costs for consumers.”

MPC acknowledges the government’s intent of the regulations and is not calling for B20 to be abolished, but rather that it takes into account all Canadian housing markets are not the same as Toronto and Vancouver.

The new rules have made it harder for Canadians to achieve homeownership, whether they be millennials, single parents or recent immigrants, said Mark Kerzner, MPC board member.

“We ask that the government reconsider and recalibrate these policies to ensure the Canadian Dream is as achievable for this generation as it was for their parents and grandparents,” said Kerzner. “We have outlined five clear asks that reflect the growing national evidence being felt by Canadians from coast to coast, which includes uncoupling the stress test from the Bank of Canada five-year benchmark rate and be set to 0.75 percent above the contract rate set by the lender, as well as changes to the B-20 stress test.”

As pointed out in the PwC Canada/Urban Land Institute 2019 Emerging Trends in Real Estate report, “A key issue with the federal government’s approach is that Canada doesn’t have just one national housing market. And since each local market is unique — with its own issues, challenges and opportunities — applying one approach across Canada falls short.”

The annual report is compiled by interviewing a broad cross-section of people involved in every aspect of real estate, from financial institutions, builders, developers and property management companies to lenders, brokers, advisers and consultants.

“Interviewees lamented that all sorts of government regulations are already posing challenges for all real estate sectors, with many saying that they expect affordability will only get more difficult for most people,” says the report. “Also contributing to the challenge is the fact that the actions taken so far have addressed the demand issues but not the real issues on the supply side.”

Governments need to change the way they look at housing, say people interviewed for the report.

“Bureaucracy is not responsive or helpful,” one interviewee said. “The impact is to put even more pressure on supply and, therefore, put more pressure on increasing prices.”

“While high demand and limited supply are the main forces at play in these expensive markets, government development charges, taxes and levies also are significant factors in the cost of homeownership,” says the report.

“The average government charge for a single-detached home is about $186,300 (in Toronto) or almost 22 percent of the price of an average new home, according to a May 2018 report from the Building Industry and Land Development Association.”

Hopefully, the Members of Parliament and senior government official who sat down with MPC members will see the need for action.

Interest rate could hit 6% by 2020

by Neil Sharma Oct 2018 MBN

Interest rates could hit 6% by 2020, according to Moody’s Analytics.

The prediction, using RPS data, is based on policymakers realizing plans to quell housing bubbles in Toronto and Vancouver, as well as on rising interest rates.

“Two macroeconomic projects now dominate housing markets in Canada,” said Andres Carbacho-Burgos, a Moody’s economist. “The first is that the [Bank of Canada] will continue to tighten short-term interest rates through 2020 in order to head off inflation and also maintain the value of the Canadian dollar relative to its U.S. counterpart.

“With some lag, monetary tightening will pull up mortgage rates. The five-year mortgage rate is now at about 4.4% after bottoming out at 3.6% in mid-2017; the Moody’s Analytics baseline projection is that it will continue to increase until it levels off at about 6% in late 2020.”

Prolonged North American Free Trade Agreement negotiations have only deferred the Bank of Canada’s rate hiking mandate, but with the federal government this week finalizing a new deal, the United States-Mexico-Canada Agreement, there will almost certainly be a hike on Oct. 24.

“Overall, when it comes to the new USMCA, it’s going to affect the housing market because interest rates are bound to go up,” said Samantha Brookes, founder of Mortgages of Canada. “The Bank of Canada was holding back the rate until there was an agreement. Now, we’ll get increases based on the way the economy has been performing, and what that means for Canadians is interest rates will go up and prices will continue to adjust.”

That will likely make conditions favourable for buyers as the market continues recovering from the shock of so many changes.

“I believe it will probably take until 2020 until we see some light at the end of the tunnel,” she said. “But that’s based on the correction that’s been happening over the last year. People need to be more creative with how they’re purchasing.”

This could give further rise to co-ownerships in the housing market.

“It’s becoming more and more popular,” said Brookes. “Be creative and you’ll still be able to get in. We all know real estate is still the number one investment, and it will be time to hold onto that investment rather than flipping it for a quick buck. It’s too risky for that right now, so buy and live in your home for a few years until the market corrects.”

Tories plan to make B-20 election issue

by Neil Sharma 01 Oct 2018 MBN

The Conservative Party of Canada will make B-20 a hot button issue during next year’s election.

The party’s Deputy Shadow Minister for Finance has already tabled two motions, both of which were rejected by the Liberals, to study B-20’s effects. Refusing to go quietly, MP Tom Kmiec has vowed to put the mortgage stress test back on the agenda in time for the Oct. 2019 federal election.

“It will be an election issue, absolutely,” Kmiec told “I’m willing to use procedural tools to get this study done. I’m not necessarily saying to get rid of B-20 completely; I’m saying take a look at the data and then make a decision on it. I’m asking the Liberals to provide any internal documents they have showing why the mortgage rules were introduced in the first place.”

With the Bank of Canada raising interest rates, mortgage qualification has become even more onerous and Kmiec says it’s only going to get worse.

“This is an affordability issue. The Bank of Canada is raising interest rates, and I don’t fault them for it, but rules like B-20, and then provincial rules, are compounding and making it unaffordable for young people to get into their first home,” he said.

“There was a 63% jump in mortgage originations among 73- to 93-year-olds in the first half of this year, which is unusual for the pre-war generation to suddenly take out a whole bunch of mortgages for no apparent reason after B-20 was introduced. It only makes sense when you notice that mortgage originations among millennials are down 19% and Generation Z mortgage originations are down 22%. Are the B-20 mortgage rules causing Canadians to go to their grandparents to take out mortgages for them in their names?”

If that is indeed the case, Kmiec notes that, in the event of a grandparent’s death, messy estate complications will ensue.

According to Victor Peca, a mortgage broker and founding partner of Monarch Mortgage Group, the Liberal Party has deluded itself into believing B-20 is impacting the country positively. However, that isn’t the worst of it.

“The B-20 rules aren’t working because I see a lot more deals coming to me with fraud,” said Peca. “B-20 isn’t stopping that; it’s making it more pronounced because it’s harder to get a mortgage. When someone wants to buy a home, they’ll do whatever it takes to get that picket fence.”

Kmiec has started a website to pressure the Liberals into studying B-20’s effects. He claims the Liberals told him B-20 wouldn’t be examined without more data, which he says has since become plentiful. Having participated in filibustering the electoral reform committee, the Liberals might have underestimated Kmiec’s resolve, not to mention indefatigability.

“If it comes down to it, I’m happy to use up every two-hour time limit on every single committee until we agree to do a mortgage study,” said Kmiec. “I’m not asking for the moon, either. All I want are a few meetings in Ottawa where we can invite people with data who can then tell us what’s happening with the market.”
Related stories:
OREA joins chorus calling for stress test’s annulment
Government declines B-20 subcommittee to avoid embarrassment, claims industry vet

Canada’s oldest home owners are on a mortgage spree

by Ephraim Vecina Sep 2018 MBN

Reports of Canadians’ debt difficulties abound, but if the latest data from TransUnion is any indication, the eldest don’t seem to be slowing down in their borrowing any time soon.

TransUnion findings revealed that in the first quarter of 2018, the volume of mortgages issued to Canadians in the 73-93 age bracket dramatically increased by 63% on a year-over-year basis.

To compare, activity in the baby boomer demographic (54-72 years old) went up by a relatively meek 18%. Millennials and first-time home buyers had it significantly worse, with originations down by 19% in the 24-38 segment and 22% in the 18-23 age bracket.

TransUnion Canada director of financial services research and consulting Matt Fabian noted that these numbers might indicate the more pronounced impact of harsher mortgage rules among younger buyers.

Read more: Canada’s seniors prefer to stay put in their homes – poll

“The stress-testing rules are about affordability,” Fabian told Global News, adding that the oldest Canadian home owners have benefited from substantial equity gains in recent years, and thus don’t have to worry much about numbers such as loan-to-value ratios.

However, despite the vibrant borrowing among the elderly, this demographic still accounts for a miniscule portion of total Canadian mortgage activity. Overall new mortgage volume in Q1 2018 still declined by 3.4% year-over-year, following a more serious 8% annual shrinkage in the period between October and December 2017.

Related stories:
Survey reveals seniors’ feelings about selling their homes
‘Lifestyle mortgages’ for savvy seniors

ARMCHAIR MAYOR: York Plaza could be a great civic square


On Oct. 22, Ottawa residents elect a new city council. To help local candidates as they campaign, the Citizen features some ideas that would make the city a better place. Today, Allan Teramura and Jill Stoner explore one feature European cities have that we could emulate.

Ottawa is a unique Canadian city, and perhaps its most unique feature is the Rideau Canal, with its magical attraction in both winter and summer, transcending the seasons. Yet Ottawa is missing one crucial urban feature: a large, open civic space, like Toronto’s Nathan Phillips Square, Montreal’s Place des Festivals, and Vancouver’s Robson Square.

These kinds of venues, inspired by plazas and squares found in virtually every European city, enhance public life and help to reinforce international identity. Urban squares are where people celebrate together, conduct commerce and gather for the simple pleasure of being in the company of fellow citizens. These are spaces of spontaneity and joy; no great city is complete without one.

And Ottawa has such an opportunity, nearly ready-made. As a main component of Ottawa’s ByWard Market, York Street possesses the exact proportions of Rome’s famous Piazza Navonna, where at all times of day and night one finds a lively and eclectic mix of commerce, entertainment and food. With simple modifications, York Street can be transformed from what is essentially a large parking lot into a similarly vibrant and iconic public space for Ottawa.

Last winter, the City removed 20 parking spaces at the west end of York, paved the area and installed a large OTTAWA sign and some simple low-cost furniture to test this vision. The sign almost instantly became a “selfie” spot for young people, and even in winter the chairs were often occupied. It is easy now to imagine the entire street cleared of cars, re-surfaced with architecturally unique pavers from building edge to building edge. The new plaza will become a barrier-free urban living room, flexibly furnished and generously proportioned for a wide variety of both inventive and ordinary activities.

Transforming York Street to York Plaza can support the safety, vitality and economic sustainability of the entire neighbourhood. In summer, additional outdoor tables to serve nearby restaurants, casual seating for clients of take-out joints, and landscaping to provide shade are all elements that can easily and economically be brought to the plaza. In winter, programming such as a Christmas Market, restaurant-style outdoor fireplaces, hot chocolate kiosks, and Winterlude-related events will ensure that the plaza is active year-round. Additional, affordable food vendors can help reinforce the ByWard Market’s identity as a destination for local, high quality produce, while also providing start-up commercial opportunities for Ottawa residents.

Everyone’s first question is likely about the negative effects of removing parking from this commercial district. To be sure, such moves require careful consideration. Yet on a typical weekend, there are hundreds of available parking spaces within the ByWard Market area. This was true even when the parking spaces on York were displaced by Inspiration Village during the summer of 2017. And the city continues to encourage and support use of public transit, with a new light-rail station two blocks from York on Rideau Street set to open next year.

Decades ago, the idea of plowing snow off seven kilometres of the Rideau Canal for no other reason than to create a venue for ice skating was no doubt greeted with skepticism. Yet today, the skateway is perhaps the most iconic element of Ottawa’s international identity. York Street’s transformation is another such opportunity to capitalize on a piece of our existing urban fabric.

Throughout North America, cities are thinking past the outdated practices of excessive street parking and asphalt lots, and modifying these urban spaces to better serve local practices and local desires. Philadelphia’s “The Porch” and Toronto’s “Sugar Beach” are both the result of trading car space for public space.
Great cities seize opportunities and embrace visionary ideas, and York Plaza is in the wings just waiting to happen. In no time, it will be hard to imagine Ottawa without it.

OREA joins chorus calling for stress test’s annulment

by Neil Sharma 19 Sep 2018 MBN

Ongoing negotiations for a new North American Free Trade Agreement highlight a looming crisis for Canadian homeowners.

“Every economist may not agree on the timing, but interest rates are heading up, which means mortgage rates are heading up, and if you add 200 basis points onto every increase, you’re really pushing a lot of first-time homebuyers out of the market and impairing the dreams of move-up buyers who have kids and want a little more space,” said Ontario Real Estate Association CEO Tim Hudak.

That OREA has joined a growing a chorus of mortgage and real estate professionals who believe the stress test should be rescinded is unsurprising. Led by Hudak, OREA has championed helping first-time homebuyers attain homeownership, however, that buying cohort has arguably been B-20’s greatest casualty.

Additionally, in spite of the Canada Mortgage and Housing Corporation’s amendments to qualification guidelines for the self-employed, the stress test remains insurmountable for a great many.

“Our point of view at OREA reinforces the federal government to take a second look at the stress test because every time the interest rate goes up, the stress test goes up 200 basis points above that, making it even harder to get a mortgage and penalizes millennials, new Canadians and entrepreneurs trying to get into the housing market,” continued Hudak. “We certainly support government programs that encourage responsible and sustainable borrowing, but this pile-on of all kinds of new rules, regulations and taxes harms aspiring homeowners and sets back the potential of our economy.”

Hudak is the former leader of the Progressive Conservative Party of Ontario, and he joins the Conservative Party of Canada’s Deputy Shadow Minister for Finance in calling on the Trudeau government to annul, if not at least study, the stress test.

“The new stress test is going to block up to 60,000 Canadians from being able to buy a home,” MP Tom Kmiec previously told “About 100,000 Canadians will probably fail the stress test and won’t be approved to borrow from a federally-regulated lender and that will push them to the unregulated lenders. We know from a CIBC Capital Market report that 47% of all mortgages need to be refinanced in 2018. In the year they knew there would be so many people refinancing, they still imposed the stress test. That was irresponsible and unfair.”

The NAFTA negotiations have hitherto curbed rising interest rates, but, according to Hudak, the entire episode has shed light on a problem that will soon loom large.

“In an era of rising interest rates, whether that rise is stalled by uncertainty in NAFTA or not, we need to drive home the importance of revisiting the stress test,” said Hudak. “It doesn’t make sense to keep piling up more expensive mortgages on top of rising rates from the Bank of Canada.”

Related stories: Debt will remain a fixture of many Canadians’ lives for a long time

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