Summer is Over…Thankfully?

September 5th, 2012

Well trusted readers, it’s been several weeks since I posted on my blog. Not for lack of things to say or comment on, but simply didn’t make the “to do” list enough times without it being quashed by some lender pulling a fast one and requesting some “other” document at the 11th hour (and 59th minute).

I’ve had more lawyers contact me over the last 2 months than I have in the last 4 years. “Where are the lender instructions?” “The lender is requesting a copy of document XXX. Do you have one handy?” “Lender wont release funds until <insert random new condition here>”.

To say that the world of mortgage lending over the past 2 months has tightened up, would be putting things mildly. The first crunch came with the announcement (call it a sneak attack with 1 weeks notice of the change) of reduction of amortizations to 25 years, BUT the increase of never before clearly defined debt service ratios to 39%/44% (previously 32%/40% were the golden standards, just not written down officially anywhere).

That was the beginning. That almost took the wind out of the sales for the spring… but not quite. Things still charged forward, but many more people now saying they didn’t “think” they would qualify for a mortgage under the new rules. Why people would only “think” and not actually try is one of those mysteries I will never quite grasp.

Reminds me of that famous quote from Ford, “Wether you think you will, or you think you wont, you’ll be absolutely correct.”

Then came the announcement of FirstLine closing its doors at the end of June after being “for sale” for months prior to that. On the heals of that announcement came ING stating that they would be selling their Canadian stake in ING Direct in Canada. Fortunately this company was purchased, rather than left to languish waiting. The fact that it was purchased by Scotia remains to be seen if this is a good thing or a bad thing for the mortgage world in Canada. The officials at Scotia indicated that nothing would change with ING. Similar to what they said with Maple Trust when they were purchased. Maple who? I had almost forgotten about them. Ancient history now.

Then there’s BMO and their famous headline grab of 2.99% for 5 years. I think they’ve done this “limited time offer” special at least 3 times now. What I loved is just last week when BMO announced that they are losing money in the mortgage space that they worked so hard to acquire with this campaign. Surely some actuarial type at BMO must have done the math and warned them this wasn’t a wise business decision.

I must admit, I’ve never really understood anything BMO does. Starting with the time when they announced the severing of the broker channel for business. Nothing like cutting off your nose (ear, arm and maybe foot) to spite yourself. Unbelievably in a snap decision, they decided that 30% of their mortgage business was costing them “too much” and promptly turned it off. I would argue they were probably worst hit in the 2008 market collapse and took the longest to recover of any of the other big 5 banks. Now they are willing to lose money in order to gain marketshare.

“How’s that working for you?”

As is typical for me, the summer is a time when investors seem to have idle time on their hands and start buying good rental deals. This summer was no exception. I’ll have to say the deals in June were far easier to complete than the ones just closed in August. Every-time I turned around, the lender had a new surprise requirement.

For example, I tried doing a stated income deal for a self-employed person. Every lender I tried said the same thing. Can you provide proof of the income? WHAT? I can’t prove it, that’s why I’m using stated income. They’re business owners. They manage their cashflow very well. Pay themselves the least amount possible. The business takes as much as it can as expenses to reduce taxes. There’s no T4, no paystubs, no (credible) job letters. This deal even got passed to a private lender who never asks for income verification and they want to see some form of proof of income. I almost fell off my chair. Thankfully a commercial lease was enough to make them happy.

What can I say? Cashflow is STILL king. Even more so today in the mortgage world.


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