Not all mortgage brokers are created equal.

Yesterday I got involved in a mortgage transaction gone bad. The client's original broker took the application and got a conditional approval back in early December. Since that time the client's employment changed slightly and she started working full time at her previously part time job, and part time at her previously full time job. The problem was that she gets paid cash at her now full time job. When she originally applied she did not really need her part time income to budget for the mortgage, so it didn't matter that she was getting paid cash. However, now that she gets paid cash for her Full Time job, the lender originally indicated that they could not do the mortgage without a traditional paystub. She hadn't worked at either job for more than 1 year, so she did not have any income tax documentation that she could use to verify her income.

This poor lady had just finalized her separation and then lost most of her posessions in the apartment fire in the apartment buildings on South Street in mid-January. She has been living in the Weight Room in a building her employer owns since then. And now her dream of home ownership was going down the drain and her broker wasn't helping her.

I put my thinking cap on and after a few conversations with the client, we got the last 6 months of her bank statements showing she deposited her income into her bank account along with updated employment letters from her employers. The lender recalled the employers to re-confirm her income. After numerous conversations and e-mails with the lender, a lot of begging, sweet talking, and some good luck, the lender accepted the new documentation. It also helped that 100% of our clients with that lender are excellent clients. The mortgage will be closing as originally scheduled on Monday.

I had a hard time sleeping last night worrying about this client, but I will be sleeping well tonight.

Why do Self-Employed Clients get screwed?

We see it time and time again. Clients that have been in business for a number of years and have good credit often find themselves paying a very high interest rate just because they cannot prove thier income like employed people via a paystub and employment letter.

Imagine always paying you loans and credit cards on time and are running a successful business, yet when you try to arrange a mortgage your bank demands a mountain of paperwork including 2-3 years of T1 Generals, Revenue Canada Notice of Assessments, and so on to verify your income. Or, you turn to a finance company where they don't require so much paperwork, yet you end up paying 18% to 19%! At these rates you'll never pay off your mortgage.

Fortunately, we have a couple of lenders that realize that clients who are self-employed, and have managed their credit wisely, deserve to get low rates just like everone else with good credit. By demonstrating a good credit record clients do not need to provide any income documentation, they only need to prove they have been in business for at least 2 years via a business license or Registry of Joint Stocks.

We have a client that we just refinanced his high interest finance company mortgage and consolidated some of his high interest credit cards and have reduced his monthly payments by over $1500 per month!!

A mortgage I am working on today - Mr. X

I have a client, I'll call him Mr. X, that through a series of unfortunate events, finds himself with horrible credit and Revenue Canada judgements just as his mortgage is coming up for renewal. If we cannot find a mortgage lender to finance him he will either have to sell his home, or face foreclosure!

The good news he has built up some substantial equity in his home. This is his only bright spot. I may be able to find a Private Lender that will help him keep his home, financing up to 75% of the appraised value. The interest rate will be high, but it beats forclosure or having to pay real estate fees and then have to pay rent.

I hope my friend, Ken Wood, at Promediate Debt Solutions will be able to help him negotiate down the $30,000 he owes Revenue Canada.

I will update you as things progress.

US Tightens Mortgage Requirements

I don't claim to be an expert on US based mortgage programs, but I was watching the news yesterday and the News on TV had a story about how the US is tightening up their mortgage requirements. The Federal Housing Administration (FHA) announced that the new guidelines would require home buyers to have at least a 580 credit score and at least a 3.5% down payment. I had a good laugh thinking "these are stricter requirements?" I wonder what the requirements were before?

In Canada, to qualify for a mortgage, you will need at least 5% down. In order to qualify for only 5% down, Canadians have to have at least a 600 credit score.

Interestingly, the FHA was created in 1934, just after the Great Depression. The FHA was established to help more people become homeowners by providing insurance programs for purchases and refinances. The Canadian equivalent for the FHA would be the Canada Mortgage & Housing Corporation (CMHC). CMHC was not established until January 1, 1946, after the war to help returning veterans purchase a home.

Bank of Canada Scheduled Rate Announcement

Today, the Bank of Canada announced that it would keep Canada's key interest rate at the record low of 0.25% in order to achieve its inflation target of two per cent.

While the Bank said economic growth in Canada resumed in the third quarter of 2009 and there has been a slightly higher than expected rate of inflation in recent months, it reiterated that the economy is still lagging, particularly due to factors like a strong Canadian dollar and low levels of U.S. demand.

Repeating many of the same projections as its October monetary policy report, the Bank predicted the economy to return to full capacity and reach a two per cent inflation rate in the third quarter of 2011. it forecast the economy to grow by 2.9 per cent in 2010 and 3.5 per cent in 2011.

The next rate announcement will be made on March 2.

Nova Scotia Association of Realtors Bulletin

Hi John

I just read your most recent bulletin regarding referring business to outside sources; http://nsar-ca.informz.net/nsar-ca/archives/archive_694563.html . I would have to say your comments are one-sided and short sighted.

I have been an independent mortgage broker for nearly 6 years now and have never had any sort of insurance claim or lawsuit threatened by any client. That is because I choose to do things the right way. You would not believe the number of times I have had a real estate agent yell and argue with me to send them a financing letter immediately. I never send a real estate agent a financing letter until the clients have signed their approval/commitment from the lender. For some reason many real estate agents don’t understand why they have to wait. Therefore, I would say NSAR has not trained these real estate agents properly.

Given the business that they are in, it should not be difficult for them to understand that I need signatures on documents to confirm the client’s acceptance. Hopefully no Real Estate agent would try to process a sale without a signed Purchase & Sale Agreement.

Furthermore, why does the NSAR website http://www.nsar-mls.ca/content.php?id=financiallinks only link to the major banks? Aren’t these links a form of referral? I would like to see a link to the Canadian Association of Accredited Mortgage Professionals website at www.caamp.org listed to ensure NSAR is not trying to influence clients to only consider the major banks as a source for mortgages.

If you are truly suggesting real estate agents should never refer any business to mortgage brokers, I should recommend that CAAMP advise their membership not to refer any of their brokers’ clients to any real estate agent. Maybe we, all mortgage brokers and lenders, should only deal with private sales. I have cc’d Jim Murphy, President of CAAMP, as well as Canadian Mortgage Professional (CMP) magazine.

Sincerely,
James Shinners

2010 Mortgage Rate Predictions

Fixed Rates will go from 3.99% for a 5-year fixed at the beginning of the year to the mid-4% range as early as February. By late summer of 2010 we will be back up into the 5% range.

Variable rate mortgages, which are based on the Canadian Prime Rate (currently at 2.25% set by the Bank of Canada) will remain the same until June 2010 as promised by the Bank of Canada. The Prime Rate will then jump to 3% as the economy continues to improve.

Variable Rate mortgage products will remain at Prime - 0.10% until the Fall of 2010. At that point, as the Prime Rate increases, lenders will begin offering Prime - 0.25% for a 5-year term mortgage.