19 Nov

HOW DO THEY SLEEP AT NIGHT

General

Posted by: Tracy Price

It started innocently enough, my 26 year old son asked me for his credit card statements. I saw him on the phone and asked him who he was talking with. He told me it was a company who could reduce his credit card debt. Now my son is a university student, does not own a home and has some student loans and some credit card debt. He has perfect credit. Of course, a program which could help relieve his debt load was alluring and he was sucked in. Horrified, I immediately told my son to hang up the phone. Well of course, with a prospective sale now in the dumper, the debt specialist asked to speak to me. That was a big mistake because I told him his so called debt program was ruining people’s lives. He went on about foreclosures in the US and how his program helped people with big debt load, adding my son with no income could not afford these high interest credit card payments. I think that’s when I asked him how he could sleep at night knowing the financial harm he causes his clients and I added some other choice words.

You see these debt reduction ads are splashed over the TV, radio and print. And now they are telemarketing, trying to find new victims. They are relentless, calling several times a day with messages like call us, ‘if you would like us to negotiate lower rates on your credit cards’. They promise to reduce your credit card rates and get you into more affordable payments. These debt programs are a ‘ruse’. What they don’t tell you is that it will take years for your credit to rebound because the program destroys your credit. They don’t tell you that the reduced monthly payment you agreed to make is paying your commission for years. They don’t tell you, you have to pay this large commission in full if you want to get out of this program. They don’t tell you that no lender will look at you for a mortgage while you are in this program. And they don’t tell you, you will have to pay that commission off completely which will amount to thousands over 3 to 5 years and still must re-establish good credit for 2 more years before any lender will even consider you for the good mortgage. That’s a minimum of 7 years with someone like myself coaching them what to do.

We know so many people whose lives have been ruined by these slick ‘debt cousellors’. We had one client with perfect credit but when her husband lost his job, she got scared and believed these people were going to help her. She cried when I told her what they had done to her credit and how we would have to wait until this debt was repaid before any prime institution would look at her application. My son, could easily have been a unknowing victim had I not been here. The debt program would have ruined his credit card rating and he would not have been able to buy a house for years. He will repay his credit card debt when he finds a job as an electrical engineer. I still don’t know how these ‘debt counsellors’ sleep at night! Warn everyone you know about them especially your grown kids.

 

15 Nov

NEW ‘COLLATERAL’ MORTGAGES MAY BE DANGEROUS

General

Posted by: Tracy Price

On October 18th TD Canada Trust launched a new type of mortgage that makes it easier for homeowners to tap into their equity. It is called a ‘Collateral’ mortgage charge which is registered at 125% of the home’s value. In other words let’s say your home is valued at $300,000 and you only borrow $150,000: the mortgage is registered on title at $375,000.

We should point out that several banks are starting to use the collateral mortgage product, but on a more selective basis, not across the board as in the case of TD Canada Trust.

To the unimformed, the collateral(CM) mortgage may seem like a good idea, however the reaction from our industry has been very negative, as it has from some media sources as well. The CM has as its primary security, a promissory note as ‘back up’ or collateral security. It allows for a re-advancing of the principal, like a revolving line of credit does. On the surface, it sounds good making it ‘EASIER to obtain new credit in future, and you don’t have to go anywhere else right? While true, the fact is you ‘CANNOT’ go anywhere else(to another lender) without incuring significant costs to get out of this mortgage, and you cannot ‘switch’ our mortgage to another mortgage lender, because lenders in general do not ‘accept’ collateral charges of any sort from other institutions.

The truth of the matter is that with the CM, the bank has ‘significantly greater’ control over your future ability to access credit, be it a mortgage, a loan, line of credit, and potentially new credit cards as well. You see, with what looks like a $375,000 mortgage registered on title, it appears you have zero equity.

It is more expensive to register a ‘Collateral Mortgage Charge’ than a ‘normal’ mortgage, and it is more expensive to discharge it as well, and you pay for this, not the bank. Secondly, what you may or may not be told is that you cannot register a second mortgage, ever, and there is also fine print that ‘allows’ the bank to increase the rate of interest they charge you (at their discretion of course) up to ‘PRIME PLUS 10%. That’s right! Which would be 13%(on your secured mortgage) based on today’s prime. Critics point out that with this action of ‘juicing’ up the rates that the banks can require from you in future,(at the bank’s sole discretion, without your ‘permission,’ that this is similar to that of credit card companies doubling or tripling the interest rate charged on a credit card when the client is late on ‘MAKING A PAYMENT’ twice in the same year. So if you sign for one of these(CM) mortgages, God help you if you ever run into trouble, i.e. job loss etc., because your mortgage interest/payments can skyrocket, and if that were to happen, you would likely be forced into default, with the bank making excessive profit at your expense. We should also remind you of the actions some banks took during the ‘credit crisis’ last year, when they ‘upped’ the interest rate(arbitrarily we should add) by one per cent on lines of credit, to all credit holders. Why? To help their profit margins. Fortunately, many consumers simply left, cancelling their LOC and went to another institution. Leaving your CM will not be as nearly as easy.

So we ask, can the banks arbitrarily increase the rate on the new CM a person has signed, without that person doing anything wrong? Well it certainly looks that way, and if so this is downright scary. With common knowledge that the banks characteristically send out renewal notices, close to the maturity dates, offering less than best rates, and leaving existing clients with little time to shop elsewhere, the new CM product appears to give the banks an even better opportunity to charge higher renewal rates since it is both more ‘expensive’ to switch to another institution, and it is more ‘difficult’ to do so.

We have serious concerns about such a CM product. It gives the banks powers that go well beyond that of a traditional mortgage. We are concerned that the borrower may not fully understand the ‘downside’ aspects(or be aware of them at all), and that by the time that they get to their lawyer’s office to sign, everything is done and ready to close, so it is too late to start over. Also cheaper ‘in house’ bank closing services when used especially in the case of new CM’s will leave the borrower without any ‘independent legal advice’ whatsoever, and that is really scary.

From our viewpoint, it would appear that the client’s ‘options’ are in fact ‘diminished’ rather than ‘enhanced’ as the bank may want the consumer to believe. Quite clearly, with a CM, the consumer’s choice is limited, and some may think also anti-competitive, since a CM in our opinion, increases the borrower’s exposure to potentially significant and catastrophic loss.

15 Nov

CANADA DOES HAVE A ‘NASTY’ SUBPRIME SECRET AFTER ALL

General

Posted by: Tracy Price

While we pride ourselves with having a ‘squeaky-clean’ financial image and a more conservative approach to life than our American neighbours, it seems that we have been on the same slippery ‘subprime’ mortgage slope after all, albeit on a much smaller scale.

Between 2005 and 2008 a dozen or more subprime(B) lenders, the most prominent being Xceed Mortgage, GMAC and Wells Fargo(all lenders from the U.S.A. whom came here) took an aggressive approach to mortgage lending, up to 100% of sale price, plus(in some cases) legal costs, charging fees and higher than normal interest rates.

Today these lenders have disappeared because of the ‘credit crunch’ and these mortgages are now coming due. All the borrowers’ have/are/will be told that their mortgages will not be renewed and will need to scramble to find a new lender. The task will not be easy, as most were either self employed, had poor/bad credit at the time, or both. Experts believe that the vast majority will not find a new lender, and will default on their mortgages, causing a flood of power of sale properties. Some will have improved credit, and will qualify. But because loan to value ratios were so high back then, and lending guidelines have tightened up since then, many will not have sufficient equity to be able to qualify for a new(replacement) mortgage.

It is estimated that there are approximately 30,000 such ‘orphan’ mortgages coming due this year and next, which represents about 5% of the total mortgage market. if you are one of these unfortunate people, call us as soon as possible to review your situation with you, especially if you want to remain in your present home. We will see what we can do for you, and as a last resort we may be able to arrange a ‘Rent to ‘Own solution, that is, have an investor purchase the property from you and rent it back to you. We will credit ‘coach’ you, and will assist you in improving your credit to qualify to repurchase your house in the future.

1 Nov

BANKS ‘PREY’ ON FIRST TIME HOME BUYERS

General

Posted by: Tracy Price

Almost every time we get a First Time Buyer(FTB) mortgage client that has applied to the bank for their first mortgage, we learn that the bank was trying to charge them a higher interest rate etc.

First timers lack any knowledge and experience when it comes to understanding all the facets of the real estate process, and yet the majority of parents and real estate agents continue to send ‘the kids’ to their friendly banker. We expect this is the case because trust in the banks ‘is still ingrained in most of us’

This reality continues to befuddle us, as the FTB is one of our ‘specialties’. We love helping young people starting out, to attain that first place they will call home. And we have a lot of experience doing so.

We take special care to educate them every step of the way, including helping them assemble all the key players(service providers) they will need, with the view to making their experience as cost effective, enjoyable and stress free as possible. Most importantly, we take the time to explain each step of the way, giving them a proper understanding of the next step and proper expectations with respect to all subsequent steps. Too often FTB’s tell us that they are rushed at the bank, and were not informed about ‘so many’ things.

And they do not know if the rate they are being offered, or the mortgage product and terms they are given are the best or not. The facts are that we, with our high mortgage,volumes and multitude of lenders, can get them the same rate as we can get our wealthy clients, consistent with our policy to get each client the absolute best interest rate out there.

One example of ‘our advantage’ is that we understand that FTB’s do not have the ability to make(extra) prepayments to their  mortgage, and so we get them a ‘no frills’ product with an even deeper discount, saving them more money.

Many prospective FTB’s are declined by the banks, often due to some small issue(s) that can be fixed. As a result, many FTB’s give up on their dream of home ownership and keep renting, not knowing that a professional mortgage broker likely has a solution.

Footnote: Activity in the real estate market has picked up considerably over this past month; we are busy again, realtors are busier, as are real estate lawyers. If you are thinking about making a move in the near future, don’t put it off(act now) & (deal with the financing first) because now is the time to purchase; it’s now a balanced market(flexible sellers) and mortgage rates once again have dipped to all time lows. In other words, housing may never be this affordable again.