This is another move in the planned expansion of our group to become the foremost mortgage brokerage working in The Beaches and Leslieville areas of Toronto.  David’s contacts, experience and communication skills represents another building block for our firm and we are happy to welcome him to the team.

Last Friday Finance Minister Jim Flaherty had suggested Canada Mortgage and Housing Corporation could be pulled out the mortgage insurance business. No hint as to his timetable was offered, but he said as long as “affordable mortgage insurance is available” it’s “not essential” it be offered by the government.

This comes as Ottawa puts CMHC under closer scrutiny and tighter control, in light of how big a player the agency really is in the overall Canadian economy. Through CMHC and its two private-sector competitors (backed 90% by the government) Canadians are approaching $1 trillion in exposure to insured mortgages.

Oversight of CMHC is being moved to the country’s top banking regulator, The Office of the Superintendent of Financial Institutions. Control shifts from the federal human resources department to the finance department, which gets representation on the agency’s board through a deputy minister.

Finance Minister Jim Flaherty said that this will “contribute to the stability of the housing market and benefit all Canadians”.

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Interest rates haven’t moved much over the past week. Most of the current best rates are still available, although there are fewer lenders offering those rates.

The Bank of Canada has made it clear it intends to run its own course when it comes to interest rates. Its latest policy announcement all but stated it is looking to start making increases by the end of this year.
A number of factors stand between the Central Bank and its willingness to raise rates: weaker than expected job numbers in the U.S., lower than expected inflation in Canada and simmering concerns about Eurozone debt.

Off the radar for the past several weeks, Europe is returning as an ominous blip. People simply aren’t prepared to accept the austerity measures they’re told are necessary. In Spain debt continues to get more expensive. If a Greek-style bailout becomes necessary it would clean-out the E.U.’s rescue fund. In France the anti-austerity Socialist candidate has won the first round in the presidential election. And in the Netherlands the prime minister has resigned over his inability to win support for an austerity budget.

All that being said, a couple lenders have increased their market leading low rates this week.  No signs of wide spread rate increases occurring.  More like some lenders adjusting their rates back into the competitive fold.  It’s not an uncommon tactic that lenders hold out lower rates longer than the rest of the pack in an attempt to bring in some new business.

The Canadian economy is pulling ahead due to lower borrowing costs that are fuelling household spending and business investment.  Exports are still weak and higher oil prices are not providing the expected benefits, according to the government’s Monetary Policy Report.

Inflation is expected to firm up, but stay within the government’s target range.

The government is still saying that household debt is still the number one threat to the Canadian domestic economy.  There is increased concern over the use of home equity lines of credit and the ATM effect on household net worth.  As homes increase in value, homeowners are quick to spend the appreciation they have experienced.  Eventually, as the economy starts to soften, there is concern that debt levels will be too much and payments too high as rates inevitably increase.  This has prompted calls for tighter rules around this form of lending.

The net effect of all this was no change to rates, but some analysts are looking for an increase in prime before the end of the year, most likely in Q4.  Once that happens, any benefit that could have been achieved with today’s variable rates is basically eliminated.  All the more reason to go with something more secure like the 3, 4, or 5 year rates that are being offered today.

For those of you looking for more peace of mind, the 10 year rate 3.89% offers a great rate for an extended period of time.  I’m not usually an advocate of 10 year rates, but for those who are really risk averse, this is not a bad option, not bad at all by historical standards.

I’d be happy to discuss these options with you, as well as determining if it makes sense to renegotiate your current interest rate before they increase a bit farther down the road.

Household debt in Canada continues to cause concern. In the past week both the Bank of Canada governor Mark Carney and the economic think-tank, The C.D. Howe Institute, commented in very clear terms.

In a report entitled The Rise in Consumer Credit and Bankruptcy: Cause for Concern?, The C.D. Howe points out that consumer credit accounts for about 45% of household interest payments. The report raises concerns about the sustainability of household finances and the risks to the broader economy. It cautions that Canadian consumers are vulnerable to any sharp rise in interest rates or an economic downturn.

The report echoes what Bank of Canada Governor Carney has been saying for months, and what he repeated in an interview with the Canadian Press. Carney pledged an intervention if there are “exceptional circumstances”, such as household debt threatening financial stability. He also indicated those “exceptional circumstances” are not far off. Carney warned that 10% of Canadians (20% of mortgagors according to CAAMP) are vulnerable to the inevitable normalization of interest rates. Interest hikes combined with a drop in home prices would be enough stall consumer spending and trigger an economic slowdown.

What I later learned once I explained this to the referring realtor is that there are also commercial units within this building.  It was something to the tune of 60% residential and 40% commercial.  The other two insurers took no exception to the building but given that I was battling a condition on financing deadline, this wasn’t the best news to hear.

The worst part of this is that I look the bad guy when I’ve done all that I can to follow up and push the deal along.  The client and the referral partners can’t understand why this wasn’t caught earlier, and quite frankly, nor can I.

I’m not sure what the solution to this dilemma is, but it would be helpful if the insurers provided a listing of properties that they won’t insure so we can save this last minute issue.  Something on their website that we can check quickly and easily.  Or, put better safeguards in place to catch this in advance rather than allow me and my client to waste valuable time as the file is reviewed and underwritten.  Finding this out at the 11th hour before the financing condition expires doesn’t allow much opportunity to implement a plan “B” option and leaves the client and referral partner feeling a bit bitter about the process.  Had this been caught earlier, we could have redirected the deal to another insurer well in advance of the financing condition expiring and reduced the stress levels that became heightened as a result of this oversight by the insurer.

Below are some key changes taken from the budget:

- Gradually raise the age of eligibility for Old Age Security from 65 to 67 beginning in 2023.

- Contain no new taxes or tax increases.

- Tell consumers to complain directly to food companies about product labelling.

- Eliminate the penny.

- Eliminate 19,200 government jobs over three years, including 600 senior executives and 7,200 through attrition.

- Reform regulation in the resource industry, including amending the Canadian Environmental Protection Act.

- Allow Canadians to claim more goods duty-free at the border. The limit after 24 hours goes from $50 to $200.

- Cap EI premium rate increases to 5 cents a year until the fund is balanced again.

- Cut $2.1 billion from the Department of National Defence over the next three years.

- Cut funding to the CBC by 10 per cent over three years totaling $115 million.

- Cut funding to Elections Canada by $7.5 million a year starting in 2012–13.

- Give $5.2 billion over 11 years to the Canadian Coast Guard.

- Give $67 million to the National Research Council to refocus on “business-led, industry-relevant research.”

- Streamline overall regulatory reviews of major economic projects.

- Provide $275 million to build and renovate schools on reserves.

- Pass legislation to create standards for First Nations education.

- Refund $130 million in application and processing fees to skilled foreign workers stuck in immigration limbo.

- Raise the retirement age of public servants from 60 to 65, for new employees beginning in 2013.

- Increase employee-contribution levels to pension plans for those working in Canadian Forces, RCMP, Public Service Commission and parliamentarians.

- Make the Governor General pay income tax beginning in 2013.

- Shut down the Public Appointments Commission, Assisted Human Reproduction Canada, and the National Round Table on the Environment and the Economy.

- Sell official residences abroad, generating $80 million in revenue.

- Standardize all government emails to one system.

- $205 million over one year for Hiring Credit for Small Business.

- Give $50 million over two years to Youth Employment Strategy.

- Give $150 million over two years on Community Infrastructure Improvement fund

- Give $105 million next year to Via Rail for operational and capital projects.

- Give $101 million over next five years for Esquimalt Graving Dock.

- Give $50 million over two years to protect wildlife at risk.

- Provide $450 million for sports facilities in the Greater Toronto Area for the 2015 Pan American and Parapan American Games.

- Give $8 million to clean up low-level radioactive waste in Port Hope and Clarington, Ont.

- Provide $44 million over two years to the Canadian Grain Commission to reform their funding model.

- Provide $13.5 million over two years to improve pipeline safety.

- Give $35.7 million over two years to improve tanker safety and inspections, emergency preparedness related to oil spills and updated charts for shipping routes.

- Announce a new global commerce strategy in 2013 that sets trade priorities.

- Provide $9.6 million over three years to the RCMP to fight counterfeiting.

- Give $ 99.2 million over three years to help the provinces create permanent flood mitigation measures.

- The Government has found $5.2 billion in ongoing savings from departmental spending or less than two per cent of federal program spending.

Rates remained relatively unchanged last week aside from another lender cancelling their 2.99% promotional rate and another changing the criteria for qualifying.

This week all eyes are watching the Federal Budget announcement on the 29^th to see if there will be any changes to mortgage rules in Canada.  Remarks from Finance Minister Jim Flaherty last Thursday seem to indicate that he is in favour of letting the market take care of itself and ignoring bank requests to step in since they are the ones who ultimately control who they lend to.  Given the recent rate wars, he has little time for their plight.  Click here for the article outlining the potential changes being considered.

The only step the government that is seen as definite is to leave the cap on CMHC insurance as it is, currently at $600 billion.  CMHC is citing that by increasing the cap it starts to put too much risk on the Canadian taxpayers, when the banks should be the ones paying for the added risk.  The general tone is that they are going back to their roots, providing insurance to Canadians buying their primary residence with less than 20% down.  Their appetite for rentals and low-ratio insured deals is declining and we’re already seeing that in the marketplace now.

The other newsworthy item will be to watch and see if Bank of Montreal (BMO) will extend their 2.99% promotional rate past the 28^th.  Given that bond yields have increased materially since the original launch of this promotion, it’s my expectation that the rate will cease and other lenders will quickly follow suit since they are all noting how thin the margins are on these mortgages.

Royal Bank of Canada (RBC) announced today that they are increasing their 5 year posted rate to 5.44% as of Thursday, the day after the BMO rate promotion is expected to expire.  This is probably the indicator that we are all waiting for and will likely signal the end of the rate wars.

As events unfold, there will be updates to this page.