In The Know

Each week a new industry-related question will be posted by our very own directors: Andrew Furino of Capital Mortgages Inc., Nick Talib of Lend at Ease and Taylor Lewis of Paradigm Quest Inc.. Be sure to check back weekly!

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The Voice – July 29, 2021

Q- Does a Mortgage Brokerage require a separate Mortgage Administrator’s licence if it administers funds?

Yes, if a Mortgage Brokerage administers funds it must apply for a Mortgage Administrator’s licence.

 

 

Source FSRA/FSCO

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Q- Does a Mortgage Brokerage require errors and omissions insurance?

The Voice – July 22, 2021

Q- Does a Mortgage Brokerage require errors and omissions insurance?

Each Mortgage Brokerage requires errors and omissions insurance with extended coverage for fraudulent acts. Under the MBLAA, brokerages must have errors and omissions (E&O) insurance covering a minimum of $500,000 in respect of any one occurrence and $1 million in respect of all occurrences in a given year involving the corporation or any mortgage broker or agent authorized to deal or trade in mortgages on its behalf. If the brokerage is also applying for an administrator licence, the administrator must also have errors and omissions (E&O) insurance in the amounts noted above to separately cover the administrator licence.

 

Source FSRA/FSCO

Q- What are the requirements for a Mortgage Brokerage Licence?

The Voice – July 8, 2021

Q- What are the requirements for a Mortgage Brokerage Licence?

Under the Act, each Mortgage Brokerage:

Must be incorporated or formed in Canada (for partnerships and corporations), or if a sole proprietor be a resident of Canada.

Is required to have a mailing address in Ontario that is suitable for receiving registered mail.

Must have errors and omissions (e & o) insurance which also covers fraudulent acts up to a minimum of $500,000 for any one occurrence and $1 million for all occurrences during a 365-day period.

Must designate a Principal Broker on its application.

Is required to have its Mortgage Brokerage licence issued in the Brokerage’s legal name, or in both its legal name and one other name that is registered under the Business Names Act.

Along with its sole proprietor, partners or officers and directors (as applicable), must meet the suitability requirements that are listed in the regulations.

 

Source FSRA/FSCO

Q- What is a Switch/Transfer?

The Voice – July 1, 2021

Q- What is a Switch/Transfer?

 A Switch/Transfer allows borrowers to transfer their existing mortgage from one lender to another. There are a variety of reasons one might do this however usually it is because one lender has a lower rate than the borrower’s current lender. A Switch/Transfer allows the borrower to bring the current amortization and balance to the new lender. Although this would be breaking the terms of the borrower’s previous lender and subject to any penalty, the new lender may allow an additional amount up to $5,000 to be added to the mortgage amount in order to pay an incurred penalties and legal fees. Although the addition of up to $5,000 (lender dependent) this would not be considered a refinance.

 

And yes, switch and transfer are interchangeable terms.

Q - What is the difference between a Variable and an Adjustble Mortgage Rate?

The Voice – June 24, 2021

Q – What is the difference between a Variable and an Adjustble Mortgage Rate?

A Variable Rate Mortgage (VRM) and an Adjustable Rate Mortgage (ARM) do share similarities; the main similarity being that the interest rate and payment is based on the current prime rate.

A VRM is one where the interest rates change as the market prime rate changes however the monthly payments remain the same whereas with an ARM, the monthly payments change as the market prime rate changes.

 

Naturally, the VRM rate will allow for predictability as the payments remain the same for the duration of the term. If the prime interest rate decreases, although the payment remains the same more of the payment will go towards paying down the principal; if the prime rate increases, more of the mortgage payment will go towards paying interest costs.

 

The ARM products automatically adjust payments with changes to prime rate as the lender needs to ensure that the borrower maintains the original amortization schedule. If the prime interest rate increases, payments will increase. Conversely, if the prime rate decreases, payments will decrease as well.

 

With both options the borrower can convert their mortgage to a fixed term at any time.

Q - What is a co-brokered transaction?

The Voice – June 17, 2021

Q – What is a co-brokered transaction?

Co-brokered transactions are an essential part of our business – although your brokerage isn’t putting the transaction together or has a limited hand in the transaction, ALL related parties in the transaction (brokerages) are responsible for the transaction to ensure that the lender and the borrower were provided suitable products and client.

Keeping documented information about the transaction is highly recommended.

Q - What are the Regulations/Requirements surrounding public relations materials?

The Voice – June 10, 2021

Q – What are the Regulations/Requirements surrounding public relations materials?

There are many ways to advertise – it is always wise to have your brokerage review your ads before they go out for circulation – omitting to disclose mandatory information such as but not limited to brokerage name, license number, agents licensed name and their title.

Commentary: Being in a pandemic means setting the right expectations…it determines your client’s experience.

The Voice – June 3, 2021

Commentary: Being in a pandemic means setting the right expectations…it determines your client’s experience.

Over the last 14 months we have seen the most disruptive period that I hope to ever see.  At the same time, the Covid 19 pandemic has contributed to what is one of the strongest value growth periods in Canadian real estate.  And it is being experienced outside of the traditional Toronto and Vancouver markets.

 

Our lenders have faced the same disruption.  Normal turnaround times have been equally disrupted as they continue to manage remote work processes.  Add to that the sheer volume of deals and they are even further challenged. Setting expectations with your clients based on how things worked before the pandemic may be setting the stage for a negative experience for all.  For your client, for the lender and for yourself.

 

A few examples from the lender world today:

  • Best rate lenders in the market – some lenders are now 3 to 4 weeks to get an approval.
  • Exception approvals – just getting exceptions approved can now take a minimum of 3 to 5 business days
  • Appraisals – in my market we are lucky to be able to get an inspection scheduled, the report completed and sent to a lender in under two weeks
  • Condition management – many lenders have been forced to prioritize by closing date and may not get to your file until 5 days before closing

Setting the appropriate expectations with your client’s up front can be the basis of a positive client experience.  A positive client experience can determine the referrals you will get from that client. Clients have no idea how our processes are being affected so being honest up front can save a lot of challenging calls and e-mails down the road.

Commentary: Disclosures & Information About the Brokerage

The Voice – May 27, 2021

Commentary: Disclosures & Information About the Brokerage

Whether you represented a specific lender more than 50% of the time, the number of lenders the brokerage worked with, whether the brokerage was a lender during the previous fiscal year, these are criteria that should always be consistent throughout all the disclosures during the reporting year.

Commentary: Non-conforming loans…not just in the alternative space

The Voice – May 20, 2021

Commentary: Non-conforming loans…not just in the alternative space

In June of 2012 the Office of the Superintendent of Financial Institutions (OSFI) set rules for all Federally Regulated Financial Institutions (FRFI’s) in regard to ‘non-conforming’ mortgages.

Contrary to what may be generally understood, OSFI did not say to the lenders that you cannot do them.  They simply established guidelines (65% LTV maximum for example) Should a mortgage application fall outside of the lenders standard underwriting guidelines, they may still make that exception to approve and fund it.   That FRFI (can be any Bank) has to disclose their ‘non-conforming’ mortgages as a percentage of their overall book of business and be able to justify that decision to OSFI should they question.

Look at it form a the Bank’s perspective.  They are limited to the amount of ‘exceptions’ they can approve.  Likely, those exceptions will be saved for their branch network and mobile mortgage sales force.  Mortgage brokers and agents are third party originators, and those exceptions simply may not be made available to us.

So, if you have ever had a file that you knew was not going to meet the general “A” space criteria, got an approval from an Alternative lender and then lost it to a branch…this may be why.

Commentary - Things to Consider When Selecting a Private Lender

The Voice – May 12, 2021

Commentary – Things to Consider When Selecting a Private Lender

Private lenders have different experience – some have never lent money against real estate.

The ideal process should have an evaluation method for each category:

1) Experienced lender – create a criteria guidelines with clear expectation from the lender; rate of return, maximum Loan To Value, desired appraisers, type of clients they are seeking, etc…

You always want to have a documented exit strategy to demonstrate to the lender how they will be getting their investment back.

 

2) New lender – along with what was mentioned above, take the time to explain the risk to your lender from the get go. You will need to first evaluate if your prospecting lender is qualified to lend money on real estate and also evaluate that they have sufficient funds to fall back on.

An inexperienced investor seeking to lend their entire savings into a real estate investment may not be suitable.

It would be ideal for you and your brokerage to create some guidelines around private lender (experienced and novice) to adequately determine the suitability along with risk tolerance.

Q - What is a Mortgage Brokerage

The Voice – May 6, 2021

Q – What is a Mortgage Brokerage?

A – A Mortgage Brokerage is a corporation, partnership or sole proprietorship that authorizes or allows licensed Mortgage Brokers and Mortgage Agents to deal in mortgages on its behalf.

Source FSCO/FSRA

Q - What types of licences are required under the Mortgage Brokerages, Lenders and Administrators Act?

The Voice – April 28, 2021

Q – What types of licences are required under the Mortgage Brokerages, Lenders and Administrators Act?

A – Under the MBLAA, there are four (4) types of licences:

  • Mortgage Brokerage
  • Mortgage Administrator
  • Mortgage Broker
  • Mortgage Agent

Source FSCO/FSRA

Commentary – Regulatory Intervention in the mortgage market

The Voice – April 15, 2021

Regulatory Intervention in the mortgage market…some perspective.

With the recent announcement from OFSI about re-visiting the Mortgage Qualifying Rate for conventional mortgages, it may help to put some perspective on this.  Since 2008, there have been roughly 19 ‘changes or adjustments’ that have affected almost every aspect of our business.  Some were minor and others incredibly significant.

I recall a conversation I had with a CEO from one of the mono-line lenders during the most significant changes in 2016.  They, at the time, did not know if they would be able to continue offering mortgages the day after the changes were introduced.  Some pretty heady stuff….

Prior to October 2008…and this is for A business

  • No down payment needed – financing to 100%
  • Maximum amortization was 40 years.
  • Refinance transaction could go to 95% LTV.
  • With Beacon score above 680 there was no GDS required and TDS was 49%
  • Minimum beacon score at CMHC was 580

Since then, we have had changes to every aspect to our prime lending.

  • No more 100% financing
  • No more “free” down payment programs funded by cashback
  • No more ‘borrowed’ down payments
  • Refinance dropped to 80% LTV
  • Supervision of CMHC moved from the federal Human resources Minister to OSFI – this was actually very significant
  • Introduction of the Mortgage Qualifying rate for all.
  • GDS and TDS moved to as low as 35% / 42%
  • Amortizations reduced to as low as 25 years
  • Basel Accord (I, II and III) addressing global liquidity and cash reserves of all federally regulated financial institutions
  • OSFI B20 and B21 affecting Federally Regulated Financial Institutions and Insurers
  • Fundamental changes to what can be securitized through the Canada Mortgage Bond and Mortgage-Backed Securities operate – the life blood of raising funds for mortgages in Canada.  In my opinion, the most significant change of all.

But one thing you can count on in our industries resilience.  Our lender partners, their investors, the brokers and agents and our industry organizations have all been in a constant period of change since 2008.  In each case, we have adapted to those changes and continued to thrive.

Simply stay focused on meeting each client’s individual need and we will succeed.  We may not be doing it the same way we did, but is that really a bad thing?  I do not think so.

Q – Why is it important to have an 'exit strategy' for private deals?

The Voice – April 8, 2021

 

Q – Why is it important to have an ‘exit strategy’ for private deals?

A –For the most part, private transactions are a temporary solution for your client.

Because this type of transaction is usually more expensive to a borrower, it is always wise to have an exit strategy.

What happens at the end of the term? Are you able to place them with an alternative lender?

If you action plan falls into place, then you should have the opportunity to place in a better financial situation.

The best practice is at the time of reviewing this option with your client is to have a documented exit strategy that you will be reviewed; and have them acknowledge the plan of action to get from a private transaction to an alternative transaction (if that is the next step).

Q – What are the 5 C's of Credit?

The Voice – April 1, 2021

 

Q – What are the 5 C’s of Credit?

A – Back to a new reality. 

When was the last time you heard of anyone talking to you about the Five C’s of credit? Hard to remember isn’t it. 

Years of economic boon had made everything affordable even at higher prices. Houses, cars, toys all of it. With lenders aggressively seeking to lend you money and rates at alt time lows, we grew our economy simply by spending. Today we hear of economic moderation, out of control consumer spending and artificially low interest rates. We hear doom upon gloom. 

The reality is that if you meet the test of the Five C’s of credit you will likely be fine. This is not new. Over the years those ‘tests’ had been relaxed to get the “money out the door”. Nothing wrong with that at all but all good things must come to an end. With the current stress tests and enhanced due diligence, it is a good time to revisit the “5 C’s” of credit 

So let’s take a look at the reality of the Five C’s.

Credit 

Represents accumulated experience of the client’s habits in performing credit obligations. Provides a record of past credit experience. If there is a problem, a full and satisfactory explanation should be received. This repayment history accounts for 

Capacity 

Will the client be able to repay the loan? What are the financial circumstances of the client? Has the client thought about or reviewed their budget to determine his/her ability to repay the loan? Are sources other than employment income depended upon to make these payments and are these sources stable? 

Collateral 

Collateral may make the loan safe, but not necessarily sound. It provides incentive for the client to repay the loan. It provides a means of at least partial recovery if a loan defaults. Collateral should not be considered as a source of repayment.

Capital 

Capital provides a cushion for repayment in the event of the client having a financial setback. Indicates an ability and willingness of the client to save and accumulate assets. It confirms that the borrower manages his/her financial affairs adequately and within his/her income. Lack of accumulated worth could be a danger signal unless the applicant is fairly young. 

Character 

Will the client be willing to repay the loan? Does the client have a sense of responsibility for his/her obligations? How has this sense of responsibility been demonstrated?

Q – Why is it important to conduct self-audits?

The Voice – March 25, 2021

A – Time can be a challenge when running your own business, but running it according to provincial regulations, can bring some doubt.

Your brokerage’s policies and procedures must cover a wide range of required sections mandated by the Mortgage Brokers, Lenders and Administrators Act 2006 (MBLAA) and additional sections that will enforce compliance within your brokerage.

Tips:

  • Try selecting a section of your policies and procedures periodically and testing it against your processes to ensure that the controls are properly in place and ensuring that they are always active – this can save you from any future risky exposure and headaches.
  • It is always prudent to be proactive when adding to your policies and procedures. Sometimes adding to your policies and procedures after the fact of uncovering a risk can already be damaging enough.
  • Conduct compliance training with your brokerage or teams on various sections from the policies and procedures – this only enhances the requirements to follow the rules and serves all members your team as a refresher.

Remember Policies and Procedures aren’t just a “must have” they are also a “must apply”.

If you haven’t yet purchased your policies and procedures manual from CMBA, contact us to purchase your exclusive copy today.

Q – What is a Mortgage Qualifying Rate?

The Voice – March 18, 2021

A – Mortgage Qualifying Rate (MQR)…a history

We are all very familiar with the Mortgage Qualifying Rate (benchmark Rate) and the stress test applied to getting our clients approved.  We thought that a history of how this was introduced may help in better conversations with our clients.   It all stemmed from a fear that the Canadian consumer would be put in a very bad situation should interest rates rise and they had to renew or refinance.  There was – and still is – a fear of over indebtedness.

On April 19, 2010 CMHC introduced a Qualifying Interest Rate which was to be used to assess borrower eligibility.  It stipulated that all insured mortgages with a fixed term of less than 5 years and all variable rate mortgages had to qualify at the benchmark rate or the contract rate plus 2% whichever is the greater.

“CMHC defines the benchmark rate as the Chartered Bank Conventional Mortgage 5-year rate that is the most recent interest rate published by the Bank of Canada each Monday”  It can be found here: https://www.bankofcanada.ca/rates/banking-and-financial-statistics/posted-interest-rates-offered-by-chartered-banks/

With the introduction of OSFI B-20 Guidelines in 2012, the Mortgage Qualifying Rate would now be applied to all conventional mortgages with a fixed rate term of less than 5 years and all variable rate mortgages.

Then in October of 2016 the Department of Finance directed CMHC to ensure that all insured mortgages must qualify at the contract rate plus 2% or the 5-year Benchmark rate whichever is the greater.  This preceded the changes to Low Ratio Mortgage Insurability rules in November 2016 that may have been the most pivotal changes for our lenders and how they raise funds.  That is a topic for another day…

Finally, in January 2018 we came to where we are today.  All mortgages are now being underwritten based on the contract rate plus 2% or the benchmark rate whichever is greater.

It is sometimes forgotten that the “stress test” for mortgage qualifying started 11 year ago this April.  Yes, it has had an impact and we may deal with that daily.  But the ‘doomsday’ scenarios that played out in commentaries and opinion throughout the industry in 2010, 2012, 2016 and 2018 never materialized.

The only thing we can count on is that things change.  That is why our value is more important than ever to the Canadian Mortgage Consumer.

Q – What is Mortgage Loan Insurance?

The Voice – March 11, 2021

A – Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment starting at 5%* — with interest rates comparable to those offered with a larger down payment. To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. The premium is based on the loan-to-value ratio (mortgage loan amount divided by the purchase price). The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.

Q – What is a HELOC?

The Voice – March 3, 2021

A – A Home Equity Line of Credit, or HELOC, is a loan in which the lender agrees to lend a maximum amount within an agreed period, where the collateral is the borrower’s equity in their house.

Q – What is a bridge loan?

The Voice – February 25, 2021

A – A bridge loan is a temporary financing option designed to help homeowners “bridge” the gap between the time your existing home is sold and your new property is purchased. It enables you to use the equity in your current home to pay the down payment on your next home, while you wait for your existing home to sell

Q – What is the average closing cost?

The Voice – February 11, 2021

A – Closing costs typically range from 3% to 6% of the home’s purchase price.1 Thus, if you buy a $200,000 house, your closing costs could range from $6,000 to $12,000. Closing fees vary depending on your state, loan type, and mortgage lender, so it’s important to pay close attention to these fees.

Q – What is a Credit Score Based On?

The Voice – February 4, 2021 

A – A credit score is based on credit history: number of open accounts, total levels of debt, and repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.

Q – What is APR?

January 28, 2021

A – An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.

Q - What is a mortgage discharge

January 21, 2021

A – A mortgage is a loan secured by property, such as a home. When you take out a mortgage, the lender registers an interest in, or a charge on, your property. This means the lender has a legal right to take your property. They can take your property if you don’t respect the terms and conditions of your mortgage contract. This includes paying on time and maintaining your home.

When you pay off your mortgage and meet the terms and conditions of your mortgage contract, the lender doesn’t automatically give up the rights to your property. There are steps you need to take. This process is called discharging a mortgage.

A mortgage discharge is a process involving you, your lender and your provincial or territorial land title registry office.

This process varies depending on your province or territory. In most cases, you work with a lawyer, a notary or a commissioner of oaths. Some provinces and territories allow you to do the work yourself. Keep in mind that even if you do the work yourself, you may have to get documents notarized by a professional such as a lawyer or a notary.

Q - What is the difference between a Mortgage Broker & a Mortgage Agent?

January 14, 2021

A- A Mortgage Broker is either a firm or individual who is licensed to work on mortgages and employ other mortgage agents. In contrast, a Mortgage Agent works on behalf of the firm or individual with the Broker’s license.

Q - What is FSRA?

January 7, 2021

A – The Financial Services Regulatory Authority of Ontario (FSRA) is an independent regulatory agency established to replace the Financial Services Commission of Ontario (FSCO) and the Deposit Insurance Corporation of Ontario (DICO). The agency is flexible, self-funded and designed to respond rapidly to an evolving commercial and consumer environment. In this capacity, FSRA will promote high standards of business conduct, foster a sustainable, competitive financial services sector, respond to market changes quickly, promote good administration of insurance and pension plans and encourage innovation.

The newly created agency protects Ontarians by regulating credit unions and caisses populaires.

Q - What is “Interest Rate Differential” IRD

December 16, 2020

A – Interest Rate Differential (IRD) The IRD is a compensation charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges.

Q – What is a Private Mortgage

December 10, 2020

A –  Compared to more conventional mortgage types, private mortgages are a unique financing option for the thousands of mortgage applications that do not fall within the banks’ parameters. Private mortgages are typically short-term (1–3 years), interest-only loans, secured through an individual investor or institution—instead of through a bank or chartered financial institution. This means you get fast financing, skipping the red tape, and the lengthy approval process of big banks.

More importantly, private mortgage approval is based on the property’s value, not on your credit score or income. That makes private mortgages a viable option for people with a below average credit rating, little down payment, or those who can’t provide traditional proof of income.

Q – What does Collateral Mortgage mean?

December 3, 2020

A – A collateral mortgage is a re-advanceable mortgage product, meaning that your lender can lend you more money as your property value increases without having to refinance your mortgage.

Q – What are the 5 C's of Credit?

The Voice – April 1, 2021

 

Q – What are the 5 C’s of Credit?

A – Back to a new reality. 

When was the last time you heard of anyone talking to you about the Five C’s of credit? Hard to remember isn’t it. 

Years of economic boon had made everything affordable even at higher prices. Houses, cars, toys all of it. With lenders aggressively seeking to lend you money and rates at alt time lows, we grew our economy simply by spending. Today we hear of economic moderation, out of control consumer spending and artificially low interest rates. We hear doom upon gloom. 

The reality is that if you meet the test of the Five C’s of credit you will likely be fine. This is not new. Over the years those ‘tests’ had been relaxed to get the “money out the door”. Nothing wrong with that at all but all good things must come to an end. With the current stress tests and enhanced due diligence, it is a good time to revisit the “5 C’s” of credit 

So let’s take a look at the reality of the Five C’s.

Credit 

Represents accumulated experience of the client’s habits in performing credit obligations. Provides a record of past credit experience. If there is a problem, a full and satisfactory explanation should be received. This repayment history accounts for 

Capacity 

Will the client be able to repay the loan? What are the financial circumstances of the client? Has the client thought about or reviewed their budget to determine his/her ability to repay the loan? Are sources other than employment income depended upon to make these payments and are these sources stable? 

Collateral 

Collateral may make the loan safe, but not necessarily sound. It provides incentive for the client to repay the loan. It provides a means of at least partial recovery if a loan defaults. Collateral should not be considered as a source of repayment.

Capital 

Capital provides a cushion for repayment in the event of the client having a financial setback. Indicates an ability and willingness of the client to save and accumulate assets. It confirms that the borrower manages his/her financial affairs adequately and within his/her income. Lack of accumulated worth could be a danger signal unless the applicant is fairly young. 

Character 

Will the client be willing to repay the loan? Does the client have a sense of responsibility for his/her obligations? How has this sense of responsibility been demonstrated?

Q – Why is it important to conduct self-audits?

The Voice – March 25, 2021

A – Time can be a challenge when running your own business, but running it according to provincial regulations, can bring some doubt.

Your brokerage’s policies and procedures must cover a wide range of required sections mandated by the Mortgage Brokers, Lenders and Administrators Act 2006 (MBLAA) and additional sections that will enforce compliance within your brokerage.

Tips:

  • Try selecting a section of your policies and procedures periodically and testing it against your processes to ensure that the controls are properly in place and ensuring that they are always active – this can save you from any future risky exposure and headaches.
  • It is always prudent to be proactive when adding to your policies and procedures. Sometimes adding to your policies and procedures after the fact of uncovering a risk can already be damaging enough.
  • Conduct compliance training with your brokerage or teams on various sections from the policies and procedures – this only enhances the requirements to follow the rules and serves all members your team as a refresher.

Remember Policies and Procedures aren’t just a “must have” they are also a “must apply”.

If you haven’t yet purchased your policies and procedures manual from CMBA, contact us to purchase your exclusive copy today.

Q – What is a Mortgage Qualifying Rate?

The Voice – March 18, 2021

A – Mortgage Qualifying Rate (MQR)…a history

We are all very familiar with the Mortgage Qualifying Rate (benchmark Rate) and the stress test applied to getting our clients approved.  We thought that a history of how this was introduced may help in better conversations with our clients.   It all stemmed from a fear that the Canadian consumer would be put in a very bad situation should interest rates rise and they had to renew or refinance.  There was – and still is – a fear of over indebtedness.

On April 19, 2010 CMHC introduced a Qualifying Interest Rate which was to be used to assess borrower eligibility.  It stipulated that all insured mortgages with a fixed term of less than 5 years and all variable rate mortgages had to qualify at the benchmark rate or the contract rate plus 2% whichever is the greater.

“CMHC defines the benchmark rate as the Chartered Bank Conventional Mortgage 5-year rate that is the most recent interest rate published by the Bank of Canada each Monday”  It can be found here: https://www.bankofcanada.ca/rates/banking-and-financial-statistics/posted-interest-rates-offered-by-chartered-banks/

With the introduction of OSFI B-20 Guidelines in 2012, the Mortgage Qualifying Rate would now be applied to all conventional mortgages with a fixed rate term of less than 5 years and all variable rate mortgages.

Then in October of 2016 the Department of Finance directed CMHC to ensure that all insured mortgages must qualify at the contract rate plus 2% or the 5-year Benchmark rate whichever is the greater.  This preceded the changes to Low Ratio Mortgage Insurability rules in November 2016 that may have been the most pivotal changes for our lenders and how they raise funds.  That is a topic for another day…

Finally, in January 2018 we came to where we are today.  All mortgages are now being underwritten based on the contract rate plus 2% or the benchmark rate whichever is greater.

It is sometimes forgotten that the “stress test” for mortgage qualifying started 11 year ago this April.  Yes, it has had an impact and we may deal with that daily.  But the ‘doomsday’ scenarios that played out in commentaries and opinion throughout the industry in 2010, 2012, 2016 and 2018 never materialized.

The only thing we can count on is that things change.  That is why our value is more important than ever to the Canadian Mortgage Consumer.

Q – What is Mortgage Loan Insurance?

The Voice – March 11, 2021

A – Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment starting at 5%* — with interest rates comparable to those offered with a larger down payment. To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. The premium is based on the loan-to-value ratio (mortgage loan amount divided by the purchase price). The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.

Q – What is a HELOC?

The Voice – March 3, 2021

A – A Home Equity Line of Credit, or HELOC, is a loan in which the lender agrees to lend a maximum amount within an agreed period, where the collateral is the borrower’s equity in their house.

Q – What is a bridge loan?

The Voice – February 25, 2021

A – A bridge loan is a temporary financing option designed to help homeowners “bridge” the gap between the time your existing home is sold and your new property is purchased. It enables you to use the equity in your current home to pay the down payment on your next home, while you wait for your existing home to sell

Q – What is the average closing cost?

The Voice – February 11, 2021

A – Closing costs typically range from 3% to 6% of the home’s purchase price.1 Thus, if you buy a $200,000 house, your closing costs could range from $6,000 to $12,000. Closing fees vary depending on your state, loan type, and mortgage lender, so it’s important to pay close attention to these fees.

Q – What is a Credit Score Based On?

The Voice – February 4, 2021 

A – A credit score is based on credit history: number of open accounts, total levels of debt, and repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.

Q – What is APR?

January 28, 2021

A – An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.

Q - What is a mortgage discharge

January 21, 2021

A – A mortgage is a loan secured by property, such as a home. When you take out a mortgage, the lender registers an interest in, or a charge on, your property. This means the lender has a legal right to take your property. They can take your property if you don’t respect the terms and conditions of your mortgage contract. This includes paying on time and maintaining your home.

When you pay off your mortgage and meet the terms and conditions of your mortgage contract, the lender doesn’t automatically give up the rights to your property. There are steps you need to take. This process is called discharging a mortgage.

A mortgage discharge is a process involving you, your lender and your provincial or territorial land title registry office.

This process varies depending on your province or territory. In most cases, you work with a lawyer, a notary or a commissioner of oaths. Some provinces and territories allow you to do the work yourself. Keep in mind that even if you do the work yourself, you may have to get documents notarized by a professional such as a lawyer or a notary.

Q - What is the difference between a Mortgage Broker & a Mortgage Agent?

January 14, 2021

A- A Mortgage Broker is either a firm or individual who is licensed to work on mortgages and employ other mortgage agents. In contrast, a Mortgage Agent works on behalf of the firm or individual with the Broker’s license.

Q - What is FSRA?

January 7, 2021

A – The Financial Services Regulatory Authority of Ontario (FSRA) is an independent regulatory agency established to replace the Financial Services Commission of Ontario (FSCO) and the Deposit Insurance Corporation of Ontario (DICO). The agency is flexible, self-funded and designed to respond rapidly to an evolving commercial and consumer environment. In this capacity, FSRA will promote high standards of business conduct, foster a sustainable, competitive financial services sector, respond to market changes quickly, promote good administration of insurance and pension plans and encourage innovation.

The newly created agency protects Ontarians by regulating credit unions and caisses populaires.

Q - What is “Interest Rate Differential” IRD

December 16, 2020

A – Interest Rate Differential (IRD) The IRD is a compensation charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges.

Q – What is a Private Mortgage

December 10, 2020

A –  Compared to more conventional mortgage types, private mortgages are a unique financing option for the thousands of mortgage applications that do not fall within the banks’ parameters. Private mortgages are typically short-term (1–3 years), interest-only loans, secured through an individual investor or institution—instead of through a bank or chartered financial institution. This means you get fast financing, skipping the red tape, and the lengthy approval process of big banks.

More importantly, private mortgage approval is based on the property’s value, not on your credit score or income. That makes private mortgages a viable option for people with a below average credit rating, little down payment, or those who can’t provide traditional proof of income.

Q – What does Collateral Mortgage mean?

December 3, 2020

A – A collateral mortgage is a re-advanceable mortgage product, meaning that your lender can lend you more money as your property value increases without having to refinance your mortgage.

Q – What are the 5 C's of Credit?

The Voice – April 1, 2021

 

Q – What are the 5 C’s of Credit?

A – Back to a new reality. 

When was the last time you heard of anyone talking to you about the Five C’s of credit? Hard to remember isn’t it. 

Years of economic boon had made everything affordable even at higher prices. Houses, cars, toys all of it. With lenders aggressively seeking to lend you money and rates at alt time lows, we grew our economy simply by spending. Today we hear of economic moderation, out of control consumer spending and artificially low interest rates. We hear doom upon gloom. 

The reality is that if you meet the test of the Five C’s of credit you will likely be fine. This is not new. Over the years those ‘tests’ had been relaxed to get the “money out the door”. Nothing wrong with that at all but all good things must come to an end. With the current stress tests and enhanced due diligence, it is a good time to revisit the “5 C’s” of credit 

So let’s take a look at the reality of the Five C’s.

Credit 

Represents accumulated experience of the client’s habits in performing credit obligations. Provides a record of past credit experience. If there is a problem, a full and satisfactory explanation should be received. This repayment history accounts for 

Capacity 

Will the client be able to repay the loan? What are the financial circumstances of the client? Has the client thought about or reviewed their budget to determine his/her ability to repay the loan? Are sources other than employment income depended upon to make these payments and are these sources stable? 

Collateral 

Collateral may make the loan safe, but not necessarily sound. It provides incentive for the client to repay the loan. It provides a means of at least partial recovery if a loan defaults. Collateral should not be considered as a source of repayment.

Capital 

Capital provides a cushion for repayment in the event of the client having a financial setback. Indicates an ability and willingness of the client to save and accumulate assets. It confirms that the borrower manages his/her financial affairs adequately and within his/her income. Lack of accumulated worth could be a danger signal unless the applicant is fairly young. 

Character 

Will the client be willing to repay the loan? Does the client have a sense of responsibility for his/her obligations? How has this sense of responsibility been demonstrated?

Q – Why is it important to conduct self-audits?

The Voice – March 25, 2021

A – Time can be a challenge when running your own business, but running it according to provincial regulations, can bring some doubt.

Your brokerage’s policies and procedures must cover a wide range of required sections mandated by the Mortgage Brokers, Lenders and Administrators Act 2006 (MBLAA) and additional sections that will enforce compliance within your brokerage.

Tips:

  • Try selecting a section of your policies and procedures periodically and testing it against your processes to ensure that the controls are properly in place and ensuring that they are always active – this can save you from any future risky exposure and headaches.
  • It is always prudent to be proactive when adding to your policies and procedures. Sometimes adding to your policies and procedures after the fact of uncovering a risk can already be damaging enough.
  • Conduct compliance training with your brokerage or teams on various sections from the policies and procedures – this only enhances the requirements to follow the rules and serves all members your team as a refresher.

Remember Policies and Procedures aren’t just a “must have” they are also a “must apply”.

If you haven’t yet purchased your policies and procedures manual from CMBA, contact us to purchase your exclusive copy today.

Q – What is a Mortgage Qualifying Rate?

The Voice – March 18, 2021

A – Mortgage Qualifying Rate (MQR)…a history

We are all very familiar with the Mortgage Qualifying Rate (benchmark Rate) and the stress test applied to getting our clients approved.  We thought that a history of how this was introduced may help in better conversations with our clients.   It all stemmed from a fear that the Canadian consumer would be put in a very bad situation should interest rates rise and they had to renew or refinance.  There was – and still is – a fear of over indebtedness.

On April 19, 2010 CMHC introduced a Qualifying Interest Rate which was to be used to assess borrower eligibility.  It stipulated that all insured mortgages with a fixed term of less than 5 years and all variable rate mortgages had to qualify at the benchmark rate or the contract rate plus 2% whichever is the greater.

“CMHC defines the benchmark rate as the Chartered Bank Conventional Mortgage 5-year rate that is the most recent interest rate published by the Bank of Canada each Monday”  It can be found here: https://www.bankofcanada.ca/rates/banking-and-financial-statistics/posted-interest-rates-offered-by-chartered-banks/

With the introduction of OSFI B-20 Guidelines in 2012, the Mortgage Qualifying Rate would now be applied to all conventional mortgages with a fixed rate term of less than 5 years and all variable rate mortgages.

Then in October of 2016 the Department of Finance directed CMHC to ensure that all insured mortgages must qualify at the contract rate plus 2% or the 5-year Benchmark rate whichever is the greater.  This preceded the changes to Low Ratio Mortgage Insurability rules in November 2016 that may have been the most pivotal changes for our lenders and how they raise funds.  That is a topic for another day…

Finally, in January 2018 we came to where we are today.  All mortgages are now being underwritten based on the contract rate plus 2% or the benchmark rate whichever is greater.

It is sometimes forgotten that the “stress test” for mortgage qualifying started 11 year ago this April.  Yes, it has had an impact and we may deal with that daily.  But the ‘doomsday’ scenarios that played out in commentaries and opinion throughout the industry in 2010, 2012, 2016 and 2018 never materialized.

The only thing we can count on is that things change.  That is why our value is more important than ever to the Canadian Mortgage Consumer.

Q – What is Mortgage Loan Insurance?

The Voice – March 11, 2021

A – Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment starting at 5%* — with interest rates comparable to those offered with a larger down payment. To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. The premium is based on the loan-to-value ratio (mortgage loan amount divided by the purchase price). The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.

Q – What is a HELOC?

The Voice – March 3, 2021

A – A Home Equity Line of Credit, or HELOC, is a loan in which the lender agrees to lend a maximum amount within an agreed period, where the collateral is the borrower’s equity in their house.

Q – What is a bridge loan?

The Voice – February 25, 2021

A – A bridge loan is a temporary financing option designed to help homeowners “bridge” the gap between the time your existing home is sold and your new property is purchased. It enables you to use the equity in your current home to pay the down payment on your next home, while you wait for your existing home to sell

Q – What is the average closing cost?

The Voice – February 11, 2021

A – Closing costs typically range from 3% to 6% of the home’s purchase price.1 Thus, if you buy a $200,000 house, your closing costs could range from $6,000 to $12,000. Closing fees vary depending on your state, loan type, and mortgage lender, so it’s important to pay close attention to these fees.

Q – What is a Credit Score Based On?

The Voice – February 4, 2021 

A – A credit score is based on credit history: number of open accounts, total levels of debt, and repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.

Q – What is APR?

January 28, 2021

A – An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.

Q - What is a mortgage discharge

January 21, 2021

A – A mortgage is a loan secured by property, such as a home. When you take out a mortgage, the lender registers an interest in, or a charge on, your property. This means the lender has a legal right to take your property. They can take your property if you don’t respect the terms and conditions of your mortgage contract. This includes paying on time and maintaining your home.

When you pay off your mortgage and meet the terms and conditions of your mortgage contract, the lender doesn’t automatically give up the rights to your property. There are steps you need to take. This process is called discharging a mortgage.

A mortgage discharge is a process involving you, your lender and your provincial or territorial land title registry office.

This process varies depending on your province or territory. In most cases, you work with a lawyer, a notary or a commissioner of oaths. Some provinces and territories allow you to do the work yourself. Keep in mind that even if you do the work yourself, you may have to get documents notarized by a professional such as a lawyer or a notary.

Q - What is the difference between a Mortgage Broker & a Mortgage Agent?

January 14, 2021

A- A Mortgage Broker is either a firm or individual who is licensed to work on mortgages and employ other mortgage agents. In contrast, a Mortgage Agent works on behalf of the firm or individual with the Broker’s license.

Q - What is FSRA?

January 7, 2021

A – The Financial Services Regulatory Authority of Ontario (FSRA) is an independent regulatory agency established to replace the Financial Services Commission of Ontario (FSCO) and the Deposit Insurance Corporation of Ontario (DICO). The agency is flexible, self-funded and designed to respond rapidly to an evolving commercial and consumer environment. In this capacity, FSRA will promote high standards of business conduct, foster a sustainable, competitive financial services sector, respond to market changes quickly, promote good administration of insurance and pension plans and encourage innovation.

The newly created agency protects Ontarians by regulating credit unions and caisses populaires.

Q - What is “Interest Rate Differential” IRD

December 16, 2020

A – Interest Rate Differential (IRD) The IRD is a compensation charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges.

Q – What is a Private Mortgage

December 10, 2020

A –  Compared to more conventional mortgage types, private mortgages are a unique financing option for the thousands of mortgage applications that do not fall within the banks’ parameters. Private mortgages are typically short-term (1–3 years), interest-only loans, secured through an individual investor or institution—instead of through a bank or chartered financial institution. This means you get fast financing, skipping the red tape, and the lengthy approval process of big banks.

More importantly, private mortgage approval is based on the property’s value, not on your credit score or income. That makes private mortgages a viable option for people with a below average credit rating, little down payment, or those who can’t provide traditional proof of income.

Q – What does Collateral Mortgage mean?

December 3, 2020

A – A collateral mortgage is a re-advanceable mortgage product, meaning that your lender can lend you more money as your property value increases without having to refinance your mortgage.

 

CMBA Customized Policies & Procedures Manual:

All Brokerages in Ontario must have an up-to-date Policies & Procedures Manual. CMBA’s 2020 Policies & Procedures Manual includes all the Regulatory changes that have come about as of November, 2020. For more info, or to order your customized manual, contact us at deanna@cmbaontario.ca

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