Canada’s economy goes on a slower path
jeremy torobin
OTTAWA— From Wednesday's Globe and Mail
Europe’s debt quagmire, a flagging U.S. rebound and slowing growth in China are taking the steam out of Canada’s economic outlook.
Canada's top policy makers said the country’s prospects for this year and next have deteriorated as a slowing global economy weighs on exporters and cuts into confidence at home.
Consumer and business spending is expected to slow and unemployment is expected to hover close to the current 7.1-per-cent level for years, factors that will likely keep interest rates near emergency levels until as late as 2013.
Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty insist Canada and its top trading partner, the United States, won’t slide back into another recession. However, both suggested that outlook depends on European leaders to contain a debt crisis before it pushes the region into a serious slump.
Mr. Carney on Tuesday left the Bank of Canada’s key interest rate at 1 per cent for a ninth consecutive decision. Canada will feel the effects of weak U.S. growth that will persist until mid-2012, and a “brief recession” in the euro zone, he noted.
The bank chopped its forecasts for 2011 and 2012 and said the Canadian economy will not return to full capacity until the end of 2013, 18 months later than policy makers had projected in July. And Mr. Flaherty said the economic projections that underpinned his latest budget face a “significant downgrade.”
The gloomier outlook comes ahead of a crucial gathering of European leaders on Wednesday and a Group of 20 summit next week in France, both aimed at stemming the euro zone debt mess before it engulfs the continent’s banking system and tips the world economy back into recession. The slowdown is already affecting Canadian financial conditions, consumer and business confidence, and trade, the central bank said, also warning that while its forecast assumes the European crisis will be contained, that notion is “clearly subject to downside risks.”
Even if the European situation doesn’t worsen, through the end of 2012 Canada will see “very modest” growth that’s just enough to “keep the unemployment rate treading water,” said Leslie Preston, an economist at Toronto-Dominion Bank.
The Bank of Canada said the economy will grow 2.1 per cent this year instead of its July call of 2.8 per cent, and 1.9 per cent in 2012, down from 2.6 per cent. In 2013, the economy will grow a healthier 2.9 per cent, roughly equal to the average for the two decades before the crisis.
In the meantime, household spending will “grow relatively modestly,” the bank said Tuesday, as lower commodity prices and volatility in markets weigh on Canadians’ sense of financial well-being. Business investment will continue to grow but will also be “dampened” by the global outlook.
All of which means the bank will likely leave interest rates untouched for much of 2012 and possibly into 2013, economists said. Indeed, despite hotter-than-expected inflation readings in recent months, bank policy makers said Tuesday that the drop in energy prices since the summer and a slowdown in big emerging markets like China will tame inflationary pressures everywhere.
Some Canadian companies say they’ve come to accept that their traditional markets will be lukewarm as governments and consumers unwind the massive debt they incurred in recent years.
“These are marathon issues, they’re not sprint issues,’’ said Tom Schmitt, president and CEO of Purolator Courier Ltd., Canada’s largest courier company. “We’re probably talking about years of a little bit of bumpiness along the road.”
Similarly, Don Lang, executive chairman of CCL Industries Inc., a Toronto-based specialty packaging company, said a “pullback” in orders through much of the developed world is still better than a downturn.
“From our perspective, it’s business as usual,” Mr. Lang said. “Positive growth is positive growth, so there are still lots of opportunities for businesses that are well-placed.”
Source: http://www.theglobeandmail.com/report-on-business/economy/interest-rates/canadas-economy-goes-on-a-slower-path/article2212610/
Thursday, October 27, 2011
Tuesday, October 25, 2011
How self-employed can easily get a mortgage
According to Industry Canada, about 16 per cent of the workforce was self-employed workers in 2010, about 2.7 million people. Some are likely looking at low mortgage interest rates and thinkning about buying a home.
It can sometimes work against you in a mortgage application to be self-employed. Marcy Berg, a mortgage broker at Mortgages For Women, says the main reason isn't what you do for a living, but the lack of proof of income in the form of tax records.
“It’s not anymore difficult to get a mortgage when you’re self-employed. The basic rules still apply for getting a mortgage,” said Berg. “But if you don’t declare your freelance income, then you may have a problem.”
When I was applying for my mortgage this past spring, my mortgage broker asked me to produce three years of declared freelance earnings in the form of my Tax Return Summary. Even though I was on pace to make well over $20,000 in freelancing for 2011, I was not allowed to count that income when it came to qualifying for a mortgage.
The declared income in the tax years of 2008, 2009, and 2010 only averaged out at $3,903 – a far cry from the freelance income that I currently make – but it was the data they had to use.
“There are two basic methods that freelancers can show income,” Berg said. “The first is ‘declared income,’ and the second is ‘stated income.’ Declared income is provable. It usually averaged over your last two income tax years. If you have been self-employed for a certain length of time, you may be able to use stated income. This is reasonable income based on the type and size of your business.”
Because I ended up purchasing a home well below the mortgage amount I qualified for, it didn’t matter that the real amount of my freelancing income wasn’t taken into consideration.
If you are a freelancer, and looking to qualify for financing, here are a few things to consider:
• Many banks are now offering mortgages specifically geared towards freelance and self-employed individuals. Check out CIBC, RBC, and Scotia Bank, among others.
• If you don’t have a 20 per cent down payment, or third party income validation, you will have to pay a higher CMHC Mortgage Loan Insurance premium. For example, a home buyer with a stable job who puts down 10 per cent on a property would only have to pay a 2 per cent mortgage loan premium. If a self-employed person without income validation puts down the same 10 percent on a property, they would have to pay a 4.75 per cent premium.
• If you have a healthy amount of money in your savings account, it can boost your chances of getting approved for a mortgage, and may even help you qualify for a lower rate. Self-employment can often times cause severe income level fluctuations from month-to-month, so if you don’t already have an emergency fund, consider getting one before you try to qualify for a mortgage.
“Self-employed workers who are looking to get approved for a mortgage should always keep their personal tax returns up-to-date and filed on time,” Berg advised. “Pay all income tax owning on time, and keep your credit repayment history clean. If you do this, you will be able to demonstrate to lenders that you are serious about your business, and serious about home ownership.”
October 07, 2011 By Krystal Yee
Source: http://www.moneyville.ca/blog/post/1066322--how-self-employed-can-easily-get-a-mortgage
It can sometimes work against you in a mortgage application to be self-employed. Marcy Berg, a mortgage broker at Mortgages For Women, says the main reason isn't what you do for a living, but the lack of proof of income in the form of tax records.
“It’s not anymore difficult to get a mortgage when you’re self-employed. The basic rules still apply for getting a mortgage,” said Berg. “But if you don’t declare your freelance income, then you may have a problem.”
When I was applying for my mortgage this past spring, my mortgage broker asked me to produce three years of declared freelance earnings in the form of my Tax Return Summary. Even though I was on pace to make well over $20,000 in freelancing for 2011, I was not allowed to count that income when it came to qualifying for a mortgage.
The declared income in the tax years of 2008, 2009, and 2010 only averaged out at $3,903 – a far cry from the freelance income that I currently make – but it was the data they had to use.
“There are two basic methods that freelancers can show income,” Berg said. “The first is ‘declared income,’ and the second is ‘stated income.’ Declared income is provable. It usually averaged over your last two income tax years. If you have been self-employed for a certain length of time, you may be able to use stated income. This is reasonable income based on the type and size of your business.”
Because I ended up purchasing a home well below the mortgage amount I qualified for, it didn’t matter that the real amount of my freelancing income wasn’t taken into consideration.
If you are a freelancer, and looking to qualify for financing, here are a few things to consider:
• Many banks are now offering mortgages specifically geared towards freelance and self-employed individuals. Check out CIBC, RBC, and Scotia Bank, among others.
• If you don’t have a 20 per cent down payment, or third party income validation, you will have to pay a higher CMHC Mortgage Loan Insurance premium. For example, a home buyer with a stable job who puts down 10 per cent on a property would only have to pay a 2 per cent mortgage loan premium. If a self-employed person without income validation puts down the same 10 percent on a property, they would have to pay a 4.75 per cent premium.
• If you have a healthy amount of money in your savings account, it can boost your chances of getting approved for a mortgage, and may even help you qualify for a lower rate. Self-employment can often times cause severe income level fluctuations from month-to-month, so if you don’t already have an emergency fund, consider getting one before you try to qualify for a mortgage.
“Self-employed workers who are looking to get approved for a mortgage should always keep their personal tax returns up-to-date and filed on time,” Berg advised. “Pay all income tax owning on time, and keep your credit repayment history clean. If you do this, you will be able to demonstrate to lenders that you are serious about your business, and serious about home ownership.”
October 07, 2011 By Krystal Yee
Source: http://www.moneyville.ca/blog/post/1066322--how-self-employed-can-easily-get-a-mortgage
Thursday, October 20, 2011
CIBC Lawsuit for miscalculating penalties...
October 12, 2011
Class Action Lawsuit Filed Against CIBC Mortgages on Prepayment Penalties
Consumers hate mortgage prepayment penalties, largely because they don’t understand them.
CIBC-BankNow, there is about to be a high-profile challenge of how mortgage penalties are calculated.
CIBC Mortgages Inc., a subsidiary of CIBC bank, has just been named the subject of a pending class action lawsuit.
The intended suit claims that CIBC improperly calculated penalties for customers who broke their mortgages from 2005 to date.
The claim alleges that:
“CIBC applied terms and conditions to certain mortgage contracts to allow it unfettered discretion for calculation of mortgage prepayment penalties.”
“…the quantification of prepayment penalties applied by CIBC are in breach of the mortgage contracts.”
“Starting in 2005, CIBC started using language in its standard charge terms that was extremely vague regarding how its prepayment penalties would be calculated,” says Kieran Bridge, lead counsel on the case, in partnership with Siskinds LLP.
“That language, in legal terms, is called unenforceable. The net result is that they cannot collect penalties with a clause like that.”
(If you’re interested, you can see some the penalty language CIBC Mortgages has used here—on page 13)
“Even if [part of the language] is enforceable,” says Bridge, the penalties should be “capped at three months interest.”
In addition to the above, the suit claims that CIBC charges the future value of monies owed in its interest rate differential calculation, whereas it should “adjust for present value,” asserts Bridge. “They 'present-value' all of their own assets and liabilities. Any actuary or accountant will tell you, you have to present value or you’re not talking about actual value received.”
Bridge says the lawsuit applies to most CIBC mortgages, including many of those originated in CIBC branches and through its related entities, such as FirstLine Mortgages and President’s Choice Financial.
CIBC Mortgages Inc. is one of the largest residential lenders in the country. Bridge estimates it has about 500,000 mortgages on the books, of which 5-10%—25,000 to 50,000 people—prepay every year. (We’re unable to confirm those stats.)
In terms of value, Bridge estimates this case is worth “into the tens of millions (of dollars).” These types of cases are usually settled out of court, however, and don’t usually make it to full trial.
He adds that there is plenty of precedent with respect to mortgage prepayment contracts and “uncertain contract provisions.”
“You don’t start a class action lightly,” states Bridge, adding that his firm has “literally spent hundreds of hours” researching this case before filing it. (Funny enough, we noticed a Siskinds lawyer collecting evidence on Ellen Roseman’s blog back in July.)
Bridge is not a rookie in class actions. He says he brought another prepayment-related class action against RBC where the class members were “paid 100 cents on the dollar” for their claims, plus legal fees.
“That was a very favourable settlement. It’s about the best you could possibly do.” (Although, that case had a very different fact pattern than this one.)
This particular class action all started with a single parent in B.C. whose marriage ended. That individual had to sell the family home and was stuck with a $47,000 interest rate differential penalty from CIBC.
Bridge has reviewed other banks’ practices and hasn’t yet found other lenders that are calculating IRD penalties improperly.
Our take: Mortgage penalty language is notoriously cryptic at the Big 6 banks. It would be interesting to see if a court ruled that CIBC is calculating its IRD penalties in a materially different way than its peers. One thing is for certain, few banks go out of their way to make penalty calculations intuitive. Maybe this lawsuit will change their thinking.
(Incidentally, RBC is one of the best big banks when it comes to IRD disclosure. They outline the formula they use, try to explain it and base their penalty calculations on present value, according to sources at the bank.)
Mortgage penalties remain a top consumer banking complaint, according to the Financial Consumer Agency of Canada. The Finance Department was expected to have new penalty calculation and disclosure regulations in effect by now, but they have continually been delayed. Most would agree, it’s time for the government to stop dragging its feet and move the ball on that.
Note: As a reminder, it has not been established at this point that CIBC has done anything wrong with respect to how it calculates mortgage penalties. Also, the defendant in this case is CIBC Mortgages Inc., not CIBC. “CIBC” is used in a standalone capacity above only as an abbreviation.
Rob McLister, CMT
Source:http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/10/class-action-lawsuit-filed-against-cibc-mortgages-on-prepayment-penalties.html#more
Class Action Lawsuit Filed Against CIBC Mortgages on Prepayment Penalties
Consumers hate mortgage prepayment penalties, largely because they don’t understand them.
CIBC-BankNow, there is about to be a high-profile challenge of how mortgage penalties are calculated.
CIBC Mortgages Inc., a subsidiary of CIBC bank, has just been named the subject of a pending class action lawsuit.
The intended suit claims that CIBC improperly calculated penalties for customers who broke their mortgages from 2005 to date.
The claim alleges that:
“CIBC applied terms and conditions to certain mortgage contracts to allow it unfettered discretion for calculation of mortgage prepayment penalties.”
“…the quantification of prepayment penalties applied by CIBC are in breach of the mortgage contracts.”
“Starting in 2005, CIBC started using language in its standard charge terms that was extremely vague regarding how its prepayment penalties would be calculated,” says Kieran Bridge, lead counsel on the case, in partnership with Siskinds LLP.
“That language, in legal terms, is called unenforceable. The net result is that they cannot collect penalties with a clause like that.”
(If you’re interested, you can see some the penalty language CIBC Mortgages has used here—on page 13)
“Even if [part of the language] is enforceable,” says Bridge, the penalties should be “capped at three months interest.”
In addition to the above, the suit claims that CIBC charges the future value of monies owed in its interest rate differential calculation, whereas it should “adjust for present value,” asserts Bridge. “They 'present-value' all of their own assets and liabilities. Any actuary or accountant will tell you, you have to present value or you’re not talking about actual value received.”
Bridge says the lawsuit applies to most CIBC mortgages, including many of those originated in CIBC branches and through its related entities, such as FirstLine Mortgages and President’s Choice Financial.
CIBC Mortgages Inc. is one of the largest residential lenders in the country. Bridge estimates it has about 500,000 mortgages on the books, of which 5-10%—25,000 to 50,000 people—prepay every year. (We’re unable to confirm those stats.)
In terms of value, Bridge estimates this case is worth “into the tens of millions (of dollars).” These types of cases are usually settled out of court, however, and don’t usually make it to full trial.
He adds that there is plenty of precedent with respect to mortgage prepayment contracts and “uncertain contract provisions.”
“You don’t start a class action lightly,” states Bridge, adding that his firm has “literally spent hundreds of hours” researching this case before filing it. (Funny enough, we noticed a Siskinds lawyer collecting evidence on Ellen Roseman’s blog back in July.)
Bridge is not a rookie in class actions. He says he brought another prepayment-related class action against RBC where the class members were “paid 100 cents on the dollar” for their claims, plus legal fees.
“That was a very favourable settlement. It’s about the best you could possibly do.” (Although, that case had a very different fact pattern than this one.)
This particular class action all started with a single parent in B.C. whose marriage ended. That individual had to sell the family home and was stuck with a $47,000 interest rate differential penalty from CIBC.
Bridge has reviewed other banks’ practices and hasn’t yet found other lenders that are calculating IRD penalties improperly.
Our take: Mortgage penalty language is notoriously cryptic at the Big 6 banks. It would be interesting to see if a court ruled that CIBC is calculating its IRD penalties in a materially different way than its peers. One thing is for certain, few banks go out of their way to make penalty calculations intuitive. Maybe this lawsuit will change their thinking.
(Incidentally, RBC is one of the best big banks when it comes to IRD disclosure. They outline the formula they use, try to explain it and base their penalty calculations on present value, according to sources at the bank.)
Mortgage penalties remain a top consumer banking complaint, according to the Financial Consumer Agency of Canada. The Finance Department was expected to have new penalty calculation and disclosure regulations in effect by now, but they have continually been delayed. Most would agree, it’s time for the government to stop dragging its feet and move the ball on that.
Note: As a reminder, it has not been established at this point that CIBC has done anything wrong with respect to how it calculates mortgage penalties. Also, the defendant in this case is CIBC Mortgages Inc., not CIBC. “CIBC” is used in a standalone capacity above only as an abbreviation.
Rob McLister, CMT
Source:http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/10/class-action-lawsuit-filed-against-cibc-mortgages-on-prepayment-penalties.html#more
Thursday, October 6, 2011
“Early Warning” on Mortgage Lending
OSFI Issues “Early Warning” on Mortgage Lending
Julie-Dickson-OSFICanada’s lending industry is witnessing rock-bottom interest rates and unrelenting competition.
The former has fuelled borrowing volumes. The latter has been known, on occasion, to encourage looser lending criteria.
Together, the two can be destructive to a banking system and economy.
That’s why OSFI (Canada’s banking regulator) is being proactive. In a speech today, OSFI head Julie Dickson laid it out like this for financial institutions:
Low rates have likely “increased the incentive for consumers – again – to borrow. Banks also have an incentive to lend, given low margins and the need to compete.”
As a result: “…We, at the OSFI, have been very focused on home equity lines of credit, and mortgage lending by institutions – both insured and uninsured books.”
“The message from OSFI to financial institutions is that…institutions should guard against loosening historical underwriting standards – for example, by moving to higher loan-to-value ratios or waiving any due diligence requirements.” FIs must protect against imprudent lending “more so than they have historically.”
After her speech, Dickson told reporters:
“I think the concern is that the conditions are such that there would be tremendous pressure on banks to loosen [lending] standards." As a result, OSFI is “stepping in to increase the monitoring” of lender portfolios. “I think it's prudent to increase [FI] capital levels as soon as we can."
OSFI Dickson also noted that OSFI is presently cooperating with the international Financial Stability Board to develop global guidelines "for what constitutes safe mortgage lending." That includes down payment, loan-to-value and income verification parameters.
Despite the warning, Dickson acknowledged that Canadian banks have “managed risk” well to date, adding that Canadian FIs are in “a position of strength”.
Source:htttp://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/09/osfi-issues-early-warning-on-mortgage-heloc-lending.html#more 09/29/11
Julie-Dickson-OSFICanada’s lending industry is witnessing rock-bottom interest rates and unrelenting competition.
The former has fuelled borrowing volumes. The latter has been known, on occasion, to encourage looser lending criteria.
Together, the two can be destructive to a banking system and economy.
That’s why OSFI (Canada’s banking regulator) is being proactive. In a speech today, OSFI head Julie Dickson laid it out like this for financial institutions:
Low rates have likely “increased the incentive for consumers – again – to borrow. Banks also have an incentive to lend, given low margins and the need to compete.”
As a result: “…We, at the OSFI, have been very focused on home equity lines of credit, and mortgage lending by institutions – both insured and uninsured books.”
“The message from OSFI to financial institutions is that…institutions should guard against loosening historical underwriting standards – for example, by moving to higher loan-to-value ratios or waiving any due diligence requirements.” FIs must protect against imprudent lending “more so than they have historically.”
After her speech, Dickson told reporters:
“I think the concern is that the conditions are such that there would be tremendous pressure on banks to loosen [lending] standards." As a result, OSFI is “stepping in to increase the monitoring” of lender portfolios. “I think it's prudent to increase [FI] capital levels as soon as we can."
OSFI Dickson also noted that OSFI is presently cooperating with the international Financial Stability Board to develop global guidelines "for what constitutes safe mortgage lending." That includes down payment, loan-to-value and income verification parameters.
Despite the warning, Dickson acknowledged that Canadian banks have “managed risk” well to date, adding that Canadian FIs are in “a position of strength”.
Source:htttp://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/09/osfi-issues-early-warning-on-mortgage-heloc-lending.html#more 09/29/11
Subscribe to:
Posts (Atom)