Important new rules from Ottawa today regarding mortgage regulations and guidelines!

In an effort to avoid the sort of housing meltdown that has damaged the U. S. economy, the Finance Department today said it was reducing the maximum amortization period for new government-backed mortgages to 35 years from the previously allowed 40 years.

The government states that Canada’s housing and mortgage markets are performing better than the United States and the new ruling which will come in effect October 15th, 2008 will assure the continuation of this.  They state that the historically prudent and cautious approach taken by the Canadian financial institutions to morgage lending, combined with a sound supervisory regime, has allowed Canada to maintain strong and secure housing and mortgage markets.

New regulations will require a consistent credit score for mortgages the government backs along with a minimum level of loan documentation standards to evidence property values and borrowers’ income.  The final change will be a capping at 45% on a borrower’s debt-service ratio.

These changes will take force on October 15th, 2008 and means that people looking to purchase or refinance their home with a high ratio mortgage need to act quickly!

Contact Mary Wozny, 877-446-9791 or email mwozny@mortgagealliance.com today to secure your financing before these new rules come into effect.

Warmly,

Mary Wozny

According to Toronto Dominions recent economic report, after a long run of rapidly-rising prices, the Canadian housing market has cooled to the point that it is no longer a sellers’ market.  “The long-awaited end of the Canadian housing boom has occurred, reflecting more moderate demand and increased supply of properties for sale.”

 “The year-over-year price growth for existing homes in Canada’s major markets fell to only 1.1 per cent in May, down from 8.6 per cent just four months earlier,” the TD economists wrote.

“The trend has been broadly based, but is has been particularly sharp in some of the markets that had experienced the most dramatic price growth. Calgary and Edmonton home prices in April and May fell to below year-earlier levels.”

The TD economists said they had expected the slowdown to occur before now, but “housing remained stronger for longer than we had anticipated, largely due to increased affordability through new financing options, such as no money down or extended amortization.”

Regional economic strength related to the commodity boom also helped to fuel “unsustainably elevated home price growth in the west,” they wrote.

Last month, the Canadian Real Estate Association reported that resale home listings across Canada rose by 17.7 per cent in April from a year earlier – pushing the number of home listings to the highest level on record.

“Most of Canada’s major housing markets have moved out of sellers’ territory to more balanced markets.” 

However, the Canadian housing market remains fundamentally strong, unlike the U.S. market, where the National Association of Realtors reported Thursday that median home prices continued to fall. The median price of an existing U.S. home sold in May was $208,600 (U.S), down 6.3 per cent from a year earlier – fallout from the subprime mortgage crisis.

In Canada, the TD economists forecast an average existing home price of $313,300 (Canadian) in 2008, up 2 per cent from last year’s average.

Canadians, the TD economists said, are “cashing in, not foreclosing.

“… It should be stressed that the rise in listings does not reflect homeowners of principal dwellings desperate to sell, and this is the dominant difference between the Canadian and U.S. experience,” they wrote in their report, Canada’s Housing Boom Comes to an End.

“Indeed, the U.S. has been characterized by an abnormal rise in delinquencies and foreclosures or large negative equity positions. In Canada, speculators may be quickly dumping properties on the market to get out while the times are good, but individuals that have a principal dwelling are not under financial duress.

“Canadian consumers are nowhere nearly as leveraged through their home equity as American consumers are.”

Throughout the rest of this year and 2009, most regional housing markets in Canada “will see low to mid single-digit gains, but Saskatchewan and Manitoba will continue to post double-digit gains in the near term, followed by a significant cooling in 2009 – with the risk of a mild price correction in the major cities that have recently experienced extraordinary price growth,” the TD economists said.

“Alberta will have further weakness in the near term, as Calgary and Edmonton will likely see prices continue to fall for another three or four quarters, dropping 8 per cent to 10 per cent from their peak, after which prices should stabilize and start rising at a low single-digit pace.”

Warmly,

Mary Wozny

The Federal Reserve, navigating treacherous economic waters, decided on Wednesday to leave a key interest rate unchanged, bringing an end to a string of consecutive rate cuts.  The decision to leave rates unchanged had been widely expected by financial markets.The central bank announced that it was keeping the federal funds rate, the interest rate that banks charge each other, at 2 per cent, marking the first time in 10 months that the central bank has failed to reduce interest rates at one of its regular meetings.

The Fed is confronted with the twin perils of a possible recession and rising inflation pressures, stemming from this year’s surge in oil and food prices.

In a brief statement explaining the decision, Fed Chairman Ben Bernanke and his colleagues cited both the threats to growth and rising inflation pressures as problems confronting the economy at the moment.  The statement said that the downside risks to growth “appear to have diminished somewhat” while adding that “the upside risks to inflation and inflation expectations have increased.

Because of the Fed’s decision, short-term borrowing costs on millions of consumer and business loans tied to banks’ prime lending rate will remain unchanged. The prime rate is currently at 5 per cent, its lowest level since late 2004.

Investors are split about the Fed’s actions for the rest of the year. Some analysts believe the Fed could start raising rates, possibly as soon as the next meeting in August because of concerns about inflation. Other economists argue that the weak economy and rising unemployment will keep the Fed on the sidelines until at least after the November elections.

While saying that the upside risks to inflation have increased, the central bank repeated its forecast that it expected “inflation to moderate later this year and next year.”

The opposing forces of weak growth and recession put the central bank in a bind. Its main policy tool — changes in interest rates — can only address one of those problems at a time. The Fed can cut interest rates to spur consumer and business spending and economic growth or it can raise interest rates to slow spending and growth and ease inflation pressures.

The Bush administration is hoping that the government’s $168-billion (U.S.) economic stimulus program, which is sending rebate payments to 130 million households, will help dissolve some of the gloom and bolster consumer spending in the months ahead.

Other analysts, however, said they believed Mr.Bernanke wanted to send out a strong anti-inflation warning, especially since it was coupled with a comment in an earlier speech about the Fed chief’s concerns that the weak U.S. dollar was adding to U.S. inflation problems. The remarks taken together had the impact of bolstering the dollar, which had been tumbling.

The Fed is making an effort to convince the markets that the central bank is serious about fighting inflation without having to start raising interest rates at a time when the economy remains very weak.

The last thing the central bank wants is a repeat of the 1970s, when successive oil price shocks did trigger a wage-price spiral that sent inflation soaring and was only subdued when the Fed under Paul Volcker pushed interest rates to levels not seen since the Civil War.

Rocky times are ahead and investors must use prudence and care to successfully navigate through them.

Warmly,

Mary Wozny

As reported in the Globe and Mail, Canadians should be prepared for a modest hike in mortgage rates as the Bank of Canada turns its attention away from stimulating the economy and toward curbing inflation.

This prospect, combined with other rising costs, will likely cause more homeowners to opt for the security of locking in their mortgages.

That will be the case even though, for now, variable rates are still at least a percentage point cheaper.
The surprise decision last week by the central bank to freeze rather than cut its key lending rate hasn’t hit mortgage rates yet.

However, fixed-rate mortgages, which move in tandem with long-term bond yields, should creep up in the next six months as the bond market is hit by concerns about the rising cost of living, said Benjamin Tal, senior economist at CIBC World Markets Inc.

“The No. 1 enemy of the bond market and long-term rates is inflation,” Mr. Tal said.
Variable-rate mortgages are tied to the prime rate set by the banks for their best customers. It fluctuates with the Bank of Canada’s key lending rate, and Mr. Tal said he expects the central bank will raise rates next year as it moves to curb inflation.

Mortgage rates will likely start heading up in the near term, although the increase should be a moderate quarter to half a percentage point, said Gerald Soloway, chief executive officer of Home Capital Group Inc., which provides alternative mortgages through its principal subsidiary, Home Trust Co.

“I don’t think it will be dramatic. I think there will be a modest increase,” Mr. Soloway said.
The current volatility in the economy reinforces his view that the bulk of his company’s clients, including people on fixed incomes or on a tight budget, should lock in for the longer term, Mr. Soloway said.

“I really don’t think that the average homeowner is equipped to speculate on interest rates. I think fixed is a much better option for people getting a mortgage today. Why not have the certainty and protect the investment in your house?”

With both fixed and floating rates expected to rise, CIBC’s Mr. Tal, a long-term proponent of variable mortgages, said he now sees a window of opportunity for homeowners to lock in for the next five years.

For all your mortgage needs go to www.MaryWozny.com today and apply online now!

Warmly,

Mary Wozny

Update for investors - Since the onset of the global credit crunch in August 2007, the US Federal Reserve has resorted to a slew of innovative and sometimes unconventional approaches to dealing with the problems faced by distressed financial institutions.

The effort has been part of the Fed’s attempt to stave off a full-fledged financial sector meltdown and to blunt the adverse impact of the ongoing disruptions on US economic activity.  Despite the massive amounts of liquidity injected into the money market, it doesn’t appear that the measures introduced will pose any significant inflationaary risks to the US economy.

Analysts don’t believe that the Fed’s ability to provide futher liquidity injections into the financial system is compromised by its current level of commitment.  Should the Fed’s cupboard become bare, there are several options that it can pursue to address any shortcoming it may face.

Ensuring stability in the financial markets has enormous implications for the economic wellbeing and prosperity for any society such that it becomes imperative for it be be pursued at reasonable costs.

For the second time in a row, the Bank of Canada has cut the overnight rate by 50bps, bringing the target rate to 3.00%.  This is now the first time since 2001 - when Canada was last concerned about the fallout from a U. S. recession - that the Bank has seen fit to cut rates by a full percentage point in just six weeks time.

While the latest statistics have underscored a resurgent strength in Canadian home construction, manufacturing and international trade, the Bank is looking past these red herrings and has their sights set squarely on the formidable risks looming over the horizon.

The Bank noted that buoyant growth in domestic demand has been substantially offset by the fall in net exports.  Due to a ‘deeper and more protracted slowdown in the U.S. economy’, this drag from trade is expected to remain.  Low levels of unemployment and aggressive easing from the Bank to date highlights why many Canadians have remained fairly sheltered from  the U. S. and financial centered woes.

When the updated Monetary Policy Report is reported, it is expected to report dramatically lower expectations for the U.S. and global growth compared with January forecasts.   The Bank hopes to ease these pressures.  Lower rates will help shield the economy from externally-driven weaknesses, but the imbalances in the financial sector continue to impair short term borrowing.

The Banks forecast for Canadian economic growth in 2008 and 2009 still seems optimistic which is a good sign overall.

As reported in the Globe and Mail this afternoon, the U.S. Federal Reserve Board slashed interest rates by three-quarters of a percentage point Tuesday and left the door open to more cuts, moving aggressively to stem a financial market meltdown and avert an economic recession.

Under the watch of Chairman Ben Bernanke, the Federal Open Market Committee voted at its scheduled meeting to bring the benchmark U.S. federal funds lending rate down to 2.25 per cent. The Fed’s decision was not unanimous, with two of 10 policy makers dissenting in favour of “less aggressive action.”

In the statement accompanying the decision, the Fed said that the outlook for economic activity has weakened further, consumer spending has slowed and labour markets have softened. “Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.”

The central bank also noted that although it expects inflation to moderate in the coming quarters, uncertainty over the outlook for inflation has increased.

“Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity,” the Fed said. “However, downside risks to growth remain.”

Charmaine Buskas, a senior economic strategist with TD Securities, said the tone of the Fed’s statement points to further rate cuts, with the central bank noting that it will “act in a timely manner as needed to promote sustainable economic growth” and price stability.

“Given that credit markets remain in a fundamental paralysis, and the economy continues to unwind, we are of the view that the Fed will remain in an easing cycle for the next few meetings,” Ms. Buskas said. “The key issue is to first unclog the credit markets and get the wheels turning again.”

Ian Shepherdson, the chief U.S. economist at High Frequency Economics, said that by April 30 Mr. Bernanke should be able to extract another 50-basis-point cut from his more reluctant colleagues. “This will all make no difference to the near-term data, but it is a necessary precondition for recovery, eventually.”

Tuesday’s cut is the sixth time in as many months that the U.S. central bank has lowered the federal funds rate, which is now at its lowest level since December, 2004. The rate was 5.25 per cent in August, when the troubles with U.S. subprime loans first escalated and began spreading to capital markets and the wider economy.

Although Tuesday’s 75-basis point reduction is large by historical standards, it is bound to disappoint some investors. The Fed also eased rates by 75 basis points at an inter-meeting move two months ago.

Fed-funds futures had priced in a full percentage-point cut after this weekend’s stunning near-collapse of investment bank Bear Stearns Cos. Inc. sent shockwaves through markets.

Stock markets in both Canada and the U.S. pared gains immediately after the Fed announcement, although both recovered in the final hour of Tuesday’s trading session.

Global credit jitters escalated this past weekend when JPMorgan Chase & Co. agreed to step in to buy Bear Stearns for just $2 (U.S.) a share after the Fed said it would backstop the deal. The central bank announced that it would provide funds to any other troubled investment dealers for the first time since the Great Depression, moving away from its traditional policy of only lending to large commercial banks.

Over the weekend, the Fed also made an emergency quarter-point cut to its discount rate to 3.25 per cent.

Mr. Bernanke has been pulling out all of the stops, taking new and extreme steps in his efforts to ease the credit crunch, set financial institutions on a more stable footing and calm financial and stock markets. Fears that the Bear Stearns situation could trigger similar meltdowns at other financial companies sent Canada’s equity market into a tailspin on Monday.

Bank of Canada Governor Mark Carney has said that while he is monitoring the situation, Canada’s monetary policy will be driven by domestic conditions, not by panic in global financial markets or external credit problems.

The central bank lowered Canada’s rates by a half-point to 3.5 per cent on March 4, citing a weaker-than-expected U.S. economy. According to a spokesman, the last time in modern history that the Bank of Canada slashed rates by 75 basis points was on Oct. 23, 2001.

Warmly,

Mary Wozny

With the record high divorce rates in Canada and the United States, one should ask themselves how will a divorce impact my credit report?

A divorce decree alone will have no impact on jointly held accounts that are a part of your credit report. For joint accounts, including credit cards, car loans, home mortgages and lines of credit, you and your ex-spouse continue to have joint liability. You are both responsible, and if one of you defaults, creditors will seek payment from the other.

Just because your divorce may be finalized and you think that “finally it’s all over!” the reality is that if you were a co-signer on anything with your previous spouse then you are still liable for these debts.  Failure on the part of either party to make payments on time and/or pay off these debts will result in your own personal credit being potentially ruined!    Often this happens and you are not even aware of it!

Check your own personal credit and FICO/Beacon Score to avoid these surprises before it’s too late.

In Canada, you may check your credit online using the link to Trans Union at www.MaryWozny.com.

Warmly,

Mary Wozny