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Category: Beneficial Mortgage Broker Services
Non Conforming / Sub Prime Market
Market Possible Implications
My personal view points were:
1. Canadian (Ontario) Real Estate Market for the most part is solid and still appreciating although at a slightly slower pace than previous years. Some exceptions are Windsor, Chatham, Kent, small rural villages in Ontario such as Smiths Falls (layoffs pending at Hershey. Others are having longer marketing cycles 180-365 days on POS real estate etc.) Durham/Oshawa with 1,200 jobs GM + 7,000 other primary jobs plus secondary/service retail markets may cause potential issue in the market there.
2. (3) Non – conforming lenders have suspended or modified their lending operations (MCAP sub prime, NBrook & GMAC RFC) In particular with stated income, softer beacon scores due to sub prime fallout in the US. Which has affected the DBRS rated ABCPS market place creating liquidity problems. (Coventree etc.) Bank solutions are pending and the marketplace is likely creative enough to revamp more long term solutions to commercial short term paper. Major Banks have stepped up and invested to create a sense of positive outcome.
3. Sub Prime pools will be more closely defined in the future and DBRS ratings will come under closer scrutiny, possibly downgraded and higher yields will be the result. Spread between Prime and Non Prime will likely grow increasing rates to end consumer. This will be counteracted by the Mortgage Insurance industry fierce competition to grow market share. Existing insurers are CMHC, Genworth and AIGUG. There may be as many as 3 more coming on stream in Canada in the next 12-18 months. (Triad, PMI, MGIC) There are significant residuals in CMHC and Genworth and the business has been profitable so clearly there is more room to take on risk = MORE COMPETITION. Once the insurers wrap mortgage pools their ratings will go up and can be sold into primary low credit risk marketplace or somewhere lower that the first reaction that I referred to above.
4. Lenders are reporting on a broad based basis only marginally higher delinquency rates but well below acceptable standards, consider the marketplace healthy.
5. Rates have come off at Federal reserve and likely will continue to soften further until Capital markets have settled down current volatility issues; accordingly we are not hearing what we heard from Bank of Canada Governor. We have gone from pending rate increases to no movement in rates. Expected we may see a possible drop in Band of Canada rate before the end of the year is US.
6. Pending new mortgage banker companies may have some difficulty finding wholesale lines and investor equity until there is a clear resolve for liquidity issue.
7. The R word (Recession) has been mentioned often by US executives and CEO’s so what people hear, expect to happen will happen. Which will further give reason for lower rates in the near and mid term in order to stimulate commerce on both sides of the 49th.
8. Consumers will have to become more reliant upon the mortgage brokerage industry professionals to review their options and counsel borrowers professionally will taking into account all factors in reliable mortgage placement, price aside. There will be more opportunities for brokers and agents who are lead by management teams that have experienced a down cycle or 2 in their careers. There will be more opportunity for direct private investor mortgage placements as policies from lenders tighten on LTV ratios, Credit Scores, Debt servicing and geographic/marketability factors.
Wayne Sudsbury
President
Homeguard Funding Ltd.
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