Underwriting delays are widespread!

 

 

 

 

 

 

 

 

With so many people rushing to lock in fixed rates, many lenders are seeing record volumes.  As a result, underwriting delays are widespread.  

In many cases, application turnaround times are five or more business days.  Reports of certain low-rate lenders with two week backlogs in their queues. Also with many Realtors in Alberta insisting that their buyers are Pre-Approved it is creating a log jam for lenders. If you have all of the required documentation it is much easier for the lender to issue a quick pre-quilification certificate.

 

Remember that all high ratio deals are subject to CMHC and Genworth approval regardless of your pre-approval. It is important to note that CMHC and Genworth do not do Pre-Approvals and only work on live files.  

Normal approval times vary, but have traditionally been 1-2 days, sometimes even same-day. 

Application Tips:

• If you are purchasing a property and need to lift conditions quickly, make sure to keep the above in mind. Service levels are high so plan ahead 
• If you want a highly competitive rate, ask the property vendor for five days minimum to arrange financing.  (Consulting a mortgage planner beforehand will help you gauge the required approval time.) Often you will be able to submit a rate hold for 120 days without an application
• If you need a pre-approval, be prepared to wait 5+ business days in many cases.
• Have your documentation (job letter, pay stubs, etc.) on hand to minimize approval time.
• If you are just looking for a rate hold, often a name and number can secure your rate for up to 120 days 

On the plus side, once your application is submitted to a lender, that lender will guarantee you get that day’s rate if you are approved.  This generally applies regardless of how long it takes for the lender to issue an approval.

www.canadianmortgagetrends.com

Bank Of Canada To Buy More Mortgages

Remember a few weeks back that the Bank Of Canada would purchase mortgage securities worth $25 Billion from the crown owned and controlled CMHC (Canadian Mortgage and Housing Corporation)?

Well today it was announced that the Bank of Canada will increase the amount of mortgage securities to $75 Billion total to help the floundering Canadian housing market.

Although on paper this looks impressive, the fact is clear that CMHC who the government is purchasing the securities from is 100% crown backed, they are simply pushing around paper on balance sheets. The commercial banks should follow suit and lower there risk models and allow more cash flow into the would-be-homeowners.

The Government collects the funds to purchase the mortgages by issuing bonds with an average rate of return today at 2.7% and will buy the mortgages that should yield a return of 3.78%. It certainly would be nice to have access to the collective clout of the Government, sure would make your returns more impressive!

Here is the article from the Vancouver Sun

Interest Rates to Fall? Will the Bank Of Canada cut again? Will the major banks follow?

In todays Vancuover Sun Eric Beauchesne puts forth the idea that even with the plunge in energy prices and a rapidly destabilizing economy the Bank Of Canada will not wait to see the September inflation report issued by Stats Canada and cut rates a further quarter of a percent.

The outlook remains bleak for the economy, which has been hammered by the US Credit Crunch effectively cutting off Banks supply of funds. Later this week we are going to see the release of the key retail and wholesale data for the Canadian markets from August, and the effects of Auto Sales and large ticket items are going to felt.

 

It will be interesting to see if the major Canadian banks lower there key lending rates to match the pending Bank of Canada Rate change. As we saw earlier this month the banks were extremely hesitant to pass along all of the rate reduction to consumers and only did so after the Federal Government committed to purchasing 25 Billion in Mortgage related securities from CMHC and other institutions.

Here is the article from the Vancouver Sun,

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http://www.canada.com/vancouversun/news/business/story.html?id=7d420fda-c86b-4c0a-8a84-d4bc0d4abe24 

“The bottom line? Interest rates are coming down

Inflation not expected to pose an obstacle to cuts

Eric Beauchesne

Canwest News Service

Monday, October 20, 2008

 

With the plunge in energy prices and a rapidly weakening economy, inflation shouldn’t pose any obstacle to further interest-rate cuts this coming week, and for some time to come.

But the Bank of Canada won’t even wait to see the September inflation report, being issued by Statistics Canada, before cutting interest rates further Tuesday, according to analysts who expect another cut of at least a quarter point.

Despite a surprise half-point reduction earlier this month, in coordination with reductions by central banks around the world, markets are pricing in at least another quarter-point reduction Tuesday.

“The global financial crisis has taken its toll on the Canadian economy, justifying the need for more monetary stimulus,” Scotia Capital said Friday, noting that among other things “retail sales are now barely growing.”

The Bank of Canada will issue a brief statement on Tuesday explaining its interest-rate decision, which will be followed by a more detailed explanation and update of its economic forecasts in its Monetary Policy Report on Thursday and at a news conference by bank governor Mark Carney.

“Look for the Monetary Policy to noticeably downgrade the outlook for Canadian economic growth, and clip the inflation projection,” said BMO Capital Markets economist Douglas Porter.

Support for further rate cuts will likely also come from other domestic economic reports, including August wholesale sales today, and retail sales on Wednesday, both of which are expected to have been driven down by both weaker sales, especially for autos, as well as lower energy prices.

The bottom line is interest rates are coming down.

“Inflation concerns have been trumped by the credit crisis and enhanced risks of a global recession,” said CIBC economist Kirshen Rangasamy. “Declining energy prices should keep a lid on headline inflation over the rest of the year, and give the Bank of Canada ample room to provide further stimulus if necessary.”

Don’t bank on a quick retreat in inflation, however.

CIBC projects that prices edged up last month, leaving the inflation rate at 3.4 per cent, down only a notch from 3.5 per cent in August and still well above the Bank of Canada’s two-per-cent target.

“Gasoline prices continued to trend lower in September, albeit at a slower pace,” Rangasamy said, adding that downward pressure on inflation likely came from autos as well. “Those price declines should, however, be balanced out by higher prices for education, food and imported goods.”

Despite a dearth of U.S. economic reports in the coming week, the eyes of most analysts, here and elsewhere, will still be focused on the U.S. looking, hopefully, for signs of at least some stability in volatile and deeply depressed stock markets.

The only major U.S. economic report doesn’t come out until Friday, but it may contain a glimmer of hope, and from a surprising quarter: that country’s devastated housing market, the source of the whole financial and economic mess that the world now finds itself in.

Indications are that there may have been a moderate two-per-cent upturn in sales last month, noted BMO Capital Markets economist Sal Guatieri.

“The good news is that home sales appear to have stabilized this year after sliding deeply the previous two,” Guatieri said.

© The Vancouver Sun 2008

How a lender looks at a Mortgage Application

Everyone always seems to be quite curious when it comes to the mortgage application, how do the Blue power suits come up with what a ‘good’ application is? and were does my application stack up to this standard?
Just think about how you would feel if someone was to ask you for a loan. You would consider how long you have known them, are they punctual, do they move around a lot -good with there obligations, do they live within there means….. What you are doing is creating a picture of how likely you will see your hard earned money again! Lenders call this the Five C’s of credit. Today I would like to talk about what each of these components mean and how it is my job to position your application in the best of light to the lenders.

 

Character is the general impression you make on the potential lender. Imagine if you were lending money to a friend, how well you think that they will be willing to repay the loan thinks like your educational background and experience in business will be reviewed. The length of time at your current employment and your current residence will be considered. The longer you have been at both, the higher you will score on the character scale. One important thing to note is that with the large percentage of Lower Mainland residents that are now self employed, if you worked in the same business for several years as an employee and now you are business for self, Genworth and CMHC have programs that will look at your previous employment background, as most traditional institutions require 2-3 years as business for self.

 

Collateral is what the loan is secured upon; Mortgages are a part of the banks Real Estate Secured Lending department. In real estate transactions this generally means the property that you are looking to purchase or a property you are using as collateral (such as a Home Equity Line Of Credit). If for some reason, you cannot repay the mortgage, the bank wants to know that the real estate the mortgage was taken out for is good and marketable real estate. A real estate appraisal will determine the value for the property in today’s market. The appraisal will also indicate to the lender the type of property being financed and any deficiencies that may affect the ability to re-sell, in case of default. A property that is located in a North Vancouver is considered a better risk than a farm in rural parts of the Province. Simply, there are more buyers for the home in the city than for a rural farm and therefore is easier to re-sell.
Capital is the money you personally have invested in the purchase, otherwise known as your down payment. The more of your own money you invest as a down payment, the more likely that you will do all you can to maintain your payment obligations. Banks want to see a vested interest in the property that you are acquiring; this is why rates and insurance premiums are generally higher for a rental property as it is not occupied by the purchaser who is comfortably living in another location. Capital is also reflected by your ability and willingness to save money and accumulate assets. The higher your net worth, the more you have as a cushion for repayment in the event you run into a financial set-back.
Credit is the evaluation of your habits in performing credit obligations. The information about your credit history is stored at the “credit bureau” and indicates how well you paid your bills over the last 6 years. All major credit cards, auto loans, leases etc. are reported to the credit bureau. A lender will evaluate your ability to maintain your obligations and try and determine how well you live within your means. Some individuals make the mistake of not paying the minimum monthly obligations on loans and credit cards with the expectation of making a larger payment the following month. These missed payments appear on their credit report branding them as chronic “late-payers” for the next 6 years. In Canada we use an empirical system of your score which is called the Beacon score, in the US it is referred to as a FICO score, they are on a scale from 400-900 the higher your score the more favorable your application will be.  

Capacity to repay the loan is probably the most critical of the five factors. The lender will want to know exactly how you intend to repay the loan. The lender will consider your income as it relates to the loan that you are applying for. Does the monthly carrying costs of the loan represent less than or equal to 32% of your total monthly income? If it is, the probability of you successfully repaying the loan is fairly high. Prospective lenders will also want to know about any other sources of income you may have to repay the loan, if your steady income stream is interrupted. Some of the institutions such as TD Canada Trust allow you to use rental income to offset this obligation, either directly or as supplemental income, please send me a email if you have any questions regarding this policy, it is a important tool that can make or break a transaction.