Falling in love

Have you fallen in love with a house?

Have you ever fallen in love only to be disappointed? This week a family was looking to purchase a home.  They were pre-approved by a mobile mortgage specialist at a major bank for up to $235,000.  The real estate agent and family continually stayed in touch with the mobile mortgage specialist to make sure everything was okay as they had made 7 offers on homes. They finally had an offer accepted on the 8th home they offered. It was accepted by the seller and they had 48 hours to arrange their financing, but they were pre-approved – so what could go wrong?

In actual fact they weren’t pre-approved, based on credit history and obtaining proper employment information up front. They could have been steered in a path to strengthen their position or look for a smaller home.  Imagine the realtor’s disappointment when they found they couldn’t get an approval.  They had just spent hours upon hours with this family, not only wasting their time and the family’s time but also the time of other realtors and sellers of homes.

My advice to realtors is this:

1 Be confident in asking the purchasers if the bank, mortgage professional, or mortgage broker actually reviewed their credit score and credit history with them.

2 Did they also ask for their employment letters, pay stubs?

3 Did they verify the down payment? (some down payments don’t qualify)

If they didn’t ask for this information, your purchasers may fall in love only to have their heart broken.  Don’t let it happen, make sure they are really pre-approved.

New Mortgage Rules – Part 3

For those that heard the news this week, Finance Minister Flaherty decided to make some more changes to “cool” the housing market.  At first glance this got a lot of press but when I really looked at it and considered the impact in our Winnipeg market, this will likely affect 2 – 3% of people with or looking for a mortgage.

Those most affected will be first time home buyers looking to purchase at the maximum of the range they can afford.  These people may be left with no options other than a 5 year term to qualify.  Let me explain, today if you wanted a variable rate mortgage or a term less than 5 years for a $200K mortgage, your qualifying payment would be $1090.  If the same consumer on a $200K mortgage, decides to take a 5 year mortgage, their qualifying paymnet would be $910, a difference of $180.  On a $300K mortggage, the difference is $269.  These amounts are due to the fact that amortizations have been reduced from 35 years to 30 years(only for those with less than 20% down payment)  For those purchasing in a hot market like Winnipeg with less than 20% down payment, you need to be aware of all these changes and how it will impact your purchasing power.   The importance of a proper pre approval is even more important when you are competing against other home buyers.  If you don’t have a proper preapproval, you may end up falling in love with a home only to find out you don’t qualify in the end.  I have seen this too much when consumers are pre qualified at the bank.  In essence the bank doesn’t obtain the information and documentation necessary to help the consumer and instead gives them an large amount that they don’t necessary qualify for.  An Accredited Mortgage Professional will work with you to make sure you have no surprises or disappointments.

These rules come into affect on March 18, 2011.  Please contact me if you require further clarification.

Let’s hope that future government intervention applies to credit cards and unsecured lines of credit.  Home purchase is very stringent and structured with documentation and qualification standards however, credit cards do not require the same type of standards.  Once a consumer moves into their house, assuming they qualify at the maximum amount, they can go out and obtain thousands in additional credit card limits and all they would need is a good credit score to qualify.  How can that be responsible?  If the government is really trying to protect consumers from themselves, let’s look at credit card debt next time.

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Crystal ball repairs not needed

Over the last few years I have been asked to make predictions on interest rates by the press and consumers.  Since my Crystal Ball has been broken for many years I have been reluctant to stick my neck out and instead take the wishy-washy answer of  “it depends”.  Most people don’t like the answer I give, but then it leads to a discussion about them.

The 3 questions I ask consumers before considering a variable rate mortgage are highlighted in this article at CTV News . This really helps me to understand their interest rate risk tolerance.  If there is some tolerance to risk, the second part is the “Numbers.”  I love numbers and have been tinkering to develop a tool to help every consumer assess their current situation and come up with a comparison of Fixed vs Variable Rate based on their situation.  We recently stumbled across a spreadsheet that will help us do the same calculation.  With the last 5 consumers I have compared the fixed vs variable rate calculations with, all have found the information very useful in helping them make a decision.

This was a recent interview Rob Carrick conducted with Will Dunning – Economist for Canadian Association of Accredited Mortgage Professionals which outlines the numbers of Canadians at risk if interest rates increase featured at Globe and Mail.

Canadian’s have been very responsible and should be able to weather any rate increases in the future.  A small percentage could get caught if they don’t act soon.  With fixed rates dropping and variable rates increasing the spread between the two is returning to normal.  This means the savings in Variable rate mortgages is not as a large as it once was and presents more risk if rates increase.  Trust the advice of an Accredited Mortgage Professional, let us give you a no obligation assessment of your situation to help you with the decision of fixed or variable.

No Crystal Ball needed!

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The essay mortgage!

Back after a hectic summer, and after spending parts of weeks in 2 U.S. markets and learning more about the U.S. real estate market, I am extremely thankful for what we have.  You may have heard about recent comments relating to a housing bubble in Canada, but many experts do not agree.  With talk of this it allows me to reflect on my recent conversations with US citizens, many of whom have been affected.  With home equity being wiped out and negative equity positions, many Americans are faced with challenging decisions.  A short sale stays on your record for 2 years and a foreclosure 5 years in the US.  With those decisions in front of you, many are forced to make tough decisions.  Could this happen in Canada?  In this world anything is possible but how likely is it?  Speculation was rampant in the US during the height of the boom, there was an assumption that housing values would keep increasing even though people didn’t qualify.

Ahhhh, there’s a word of importance, qualify.  The definition of qualify is: to be or make someone suitable .  This is where the U.S. market suffered one of it’s mistakes.  How could someone who doesn’t qualify to make payments on a mortgage actually get a mortgage.  For those that took advantage of this situation, they were able to buy big homes and other toys while those who knew better sat back and were patient.  Those are the Americans now in default and in most cases owing more than their homes are worth.

This is where I find the story turns to humorous.  Take a look at this article written by the NY Times where a client applied for a mortgage with Wells Fargo, a lender that used to be in Canada!  http://bucks.blogs.nytimes.com/2010/08/23/wells-fargos-odd-mortgage-essay-question/?scp=5&sq=TARA%20SIEGEL%20BERNARD&st=cse The poor couple was treated like 3rd rate citizens and asked to complete an essay in order to obtain a mortgage, even being requested to ask for their “family plans”.  Based on the past indescretions of lenders they have swung the pendulum in the other direction to the point of hilarity.  Please read this article and let me know what you think.

Back to work, I have an essay to prepare!

Media’s fear mongering

At a glance in the Winnipeg Free Press on July 8 is an article titled, “Manitoban’s vulnerable to mortgage-rate increase, poll finds”.  Now I know newspapers have to sell copies and they use blood and guts to do it, but really!  They quoted 82% of consumers in the most affordable major market in Canada would have a “problem” if rates increased by 1.5%.  What a bunch of hooey from a flawed survey sponsored by the same newspaper.  Did they define what the “PROBLEM” would be? NO  Did they find out what their existing rate is?  NO

At first glance I thought why would people feel this way because I don’t see that type of concern when I am talking to clients.  Off I go to Probe Research who conducted the survey, to find out more.  The first thing I see is most Manitobans would face financial distress with a 1.5% rise in rates.  Here is the definition of distress:  to afflict with great pain, anxiety, or sorrow; trouble; worry; bother.  If households feel they have a minor problem (49%) with rates increasing, that does not seem like it equals distress!

Although semantics might seem rather picky, the reality is most consumers do not have an interest rate that will be 1.5% higher than their existing rates for another 3.5 years.  For the last 1 1/2 years we have seen rates fall and most consumers are aware of this.  They purchase knowing very well that their interest rate is on sale and there won’t be any sale prices when their mortgage renews.  Almost all consumers in Manitoba I have dealt with know this and are very prudent in their decisions.  I have not seen many at maximum debt service ratios and those that do, usually have a much higher earning potential in the near future.  For those that have elected to take a Variable Rate Mortgage, they have factored in the rate they are willing to accept without causing any distress in their financial situation.

If you want to see a much more detailed and thorough report of the impact of interest rates on Canadians and Manitoban’s, just check out the report produced by CAAMP Economist Will Dunning , pages 35 – 37 and you will get a different story of tolerance in risk for mortgage holders.

Give Manitobans more credit than this survey would contend.  The headline should read, “Most Manitobans Prudent in their Mortgage Decisions”, but that doesn’t sell papers!

Why I do what I do!

The first question of a prospective clients mouth is “What is your best rate?”.  This always leads to a discussion and I never really answer the question right off the hop because I’m not wired that way.  I saw a recent stat that says 10% of consumers shop based on rate and 90% shop based on value, I need to hang out more at Starbucks because those consumers are looking for value, it’s definitely not price.

When I entered this business I came into it because I want to make a difference in people’s lives through education and communication of my previous experience and knowledge.    To me it’s not about the transaction of a mortgage it’s the life long relationship of purchasing a home and future homes, thereby fulfilling goals and dreams, I love this business.  I see many people advertise on a rate that seems unreasonable only to deliver no value, just a product.  If that’s what you as a consumer want, I’m not your guy, it’s the way I am wired.

I conducted my first Mortgage University course last night because it’s what I love to do, educate and inform consumers.  The best sense of accomplishment I get is when a consumer has had no surprises through the whole process.  So many consumers come to me with inaccurate information from family, friends, etc, that the best way to help them is educate them.  I plan to continue my focus on education so that I can “Make a Difference”.

I would like to thank a friend of mine who recommended a specific website that awakened and help me understand “why I do what I do”.  This website has a video which he recommended I watch.  He gave me enough teaser information to peak my interest.  This video is Anthony Robbins whom many people know.  I have seen him in person and never left with much information, I was unimpressed as he just seemed to try to motivate.  This presentation and video Anthony gave is the most relevant piece of work of his to me.  I hope you have the same takeaway.

Thanks Darren Sawchuk, a friend is someone who knows you better than you know yourself, for that I am grateful!

The party is over

Based on some information from Benjamin Tal, Senior Economist at CIBC, shared with us this week, one thought remains…if Prime Rates increases by 2.75% to 3% higher (target rate 5-5.25% Prime rate) by the end of 2011 and the US housing market remains in the crapper, how can we have such a difference in Prime rates and still have a solid economy in Canada?   Benjamin said Canada will be going “solo”, not sure if that bodes well for us.

Other things I learned from Benjamin:

1)  Strategic Defaults – US homeowners not electing to pay their mortgages because their home value is lower than their mortgage.  The Americans always come up with terms to make lack of financial knowledge sound sexy.  Who remembers sub-prime, NINJA loans, and the list goes on)  Click on Strategic defaults to find out the size and magnitutude of this potential problem in the US.

2)  10 Millions (yes million) have a negative equity position of greater than 20%.  What this means is that if your home is valued at $300,000, over 10 Million would have mortgages over $375,000 and greater on that same home…yikes!

3)  US Labour Market is still a long way from full employment.  April stats show the U.S. at 9.9% unemployment rate and that is only for the reported ones.  The Canadian unemployment rate in April was at 8.1%, we aren’t much different here, but when you consider population differences here, there are alot of unemployed Americans, how long will it take to dig out of that one?

4)  Greece is an indication of what to expect for other countries, taxes will increase/government spending will reduce.  I knew I shoud have been paying attention in that Economics class, I would have never thought Greece would have such an impact on all of us.  There is no doubt all countries have been spending like banshees to keep their economies going, but like any good party, there is the next morning.  Benjamin is simply stating our “next morning” is coming, brace yourself for tax increases and reduced government spending.

5)  Average home prices are overshooting by up to 7%.  Let me think this through, when there are 20 people bidding on the same home, doing this for 2 years or more, the prices may be a tad bid inflated…I buy that.  Good thing it’s only 7%, not over 20% like 10 million Americans.  The good news for Winnipeggers  is our Average home price is $207,342 vs $341,893 for the rest of the Canada, large urban markets have seen huge increases in prices the overshooting might be more in those markets according to my opinion.

6)  53% of homes have a mortgage.  Funny thing is Will Dunning, Economist at CAAMP said that 60% of homeowners have a mortgage, with average equity of 53% in his recent report.  In any event, a lot of people don’t have mortgages, good news for those that will inherit these properties over time, bad news for economic activity as most are sitting on the “dead equity” in their home.  I have a mattress that could use some stuffing too!

7)  Supply is rising while demand is falling.  This is the part of the Economics class I wasn’t blipping in, I understand this.  The temporary euphoria of low rates to stabilize the economy created a lot of home buying to take advantage of these rates, it only makes sense that when all the talk about rates increasing comes along, demand starts falling as most have jumped in the pool already, those with their toes in the water will have to make a decision if they like the temperature very soon.

8)  The Bank of Canada is taking interest rates to normal vs worrying about target inflation rate.  With inflation at 1.8% vs a 2% target rate the Bank of Canada will make a decision next week for the short term on rates.  It is hard to remember normal when that hasn’t been around for close to 2 1/2 years.  Thanks for the wake up call on the word “NORMAL”.

Benjamin, thanks again, you are a wealth of knowledge always keen to share your insights and perspectives.  the message for all of us, get ready for interest rate hikes, the party is over!