1. Government intervention
hurts investors
How to prepare as government
focuses on slowing credit growth
2. Topics
Get your notebooks out!
Market update
Qualifying and the DCR program
Industry changes
What’s getting tougher
HELOC strategies
Silver
lining of mortgage rule changes – Principal
Reduction!
Who am I? How can I help you?
FREE Cashflow Analysis Spreadsheet
3. Market Update
Fixedrates have dropped1.4% since April 2011 (4.39% 5 yr) to
3.39% (best rate 2.99% 5 yr, 2.69% 3 yr)
CMHC and OSFI changes have severely impacted financing
for self employed and investors
Variable rates see a decrease in discounts to P+.1% with all
major lenders (best rate Prime - .35%)
Tons of international market volatility with the Euro debt crisis
Prime has not moved since 2010, not expected to move until
2013 or even 2014. US Fed likely not moving until 2014 2015
4. How to qualify with banks
Most banks will use what is called a 50% add
to income method of calculating rental
income
$1000/mo in rental income:
$500 added to income
40% of $500 for Debt Servicing is only $200!
DCR method will be the only way to build a
portfolio sustainably.
YOU NEED TO UNDERSTAND THE BASIC PRINCIPLES
OF THIS PROGRAM
5. Special Programs – “DCR”
Stands for “Debt Coverage Ratio”
Clients with 3 or more rentals (or in the process
of purchasing their 3rd) may qualify for a “DCR”
mortgage with select lenders
1.1 : 1 Ratio for Revenue : Debt
“DCR” applies to the portfolio and to the
subject property, although some lenders want
every property to follow these guidelines
Some lenders require 25% down payment,
although many do 20% down
7. Insured Mortgage Rule Changes
Effective July 9th on >80% financing
• 1. Amortization from 30 years to 25 years
• 2. Maximum refinance is 80% LTV (down from 85%)
• 3. Limit debt servicing for GDS (all housing related
expenses) from 44% to 39%.
• 4. Ban mortgage insurance on properties over $1mil
8. OFSI Changes
Effective Bank’s fiscal year end, Oct 1st in many cases
• 1. HELOC’s reduced to 65%. Can go to 80% only if 15%
is amortized.
• 2. Variable rates qualify at 5yr bank posted.
• 3. Stated income borrowers require reasonable
income verification.
• 4. Cashback not allowed to be used towards down
payment.
Julie Dickson, Superintendant of Financial Institutions
9. Firstline closing doors
Couldn’t find a buyer, so Firstline collapses July 31st
• Firstline was #1 in market share in the broker channel
for 10 years
• Accounted for nearly 1/3rd of all funded mortgages
at times
• CIBC wanted to make a move to “higher margin
business” and develop better relationships with its
customers
• CIBC keeping these mortgages on their own books
10. Scotia buys ING
8th largest Canadian lender sold for $3.1 billion
• Scotia sending mixed messages with their plans with ING
• Scotia is “committed to keeping this unique platform”
But…
• Scotia’s focus will be “predominately in the retail channel because
that’s where the day-to-day relationship is with the customers”
• Will Scotia intend to change ING or did they buy them for their
deposits?
• Sounds a lot like Firstline before they left the industry…
• Currently ING gets about 50% of mortgages from brokers.
11. Is the money supply running low?
Factors both home and away tightening the screws
• International volatility lowers rates but lower the money
supply
• Harder to find buyers for MBS (Bulk Insurance)
• Basel III
• Why Macquarie and possibly Firstline left the mortgage
industry
• CMHC close to $600 Billion cap ($575 Billion currently)
Many lenders insure all mortgages, called bulk insurin
The average Loan to Value in CMHC’s book is 56%
12. Eurozone Debt Crisis
How does it affect Canadians?
Holy $#%&!
Country 10 yr Bond Yield S+P Credit Rating
Greece 21.96 % D(Junk)
Portugal 9.00 % BB
Ireland 8.21 % BBB+
Spain 6.57 % BBB+
Italy 5.67 % BBB+
Poland 4.83 % A-
Belgium 2.64 % AA
France 2.22 % AA+
Canada 1.75 % AAA
US 1.58 % AA+
16. Bond yields drop, but spreads
increasing
Current Spreads Normal Spreads
3.50%
3.19% 3.50%
3.00% 3.00% 2.92%
2.50% 1.77% 2.50%
Spread Spread
1.50%
2.00% 2.00%
1.50% 1.50%
1.42% 1.42%
1.00% Bond 1.00% Bond
0.50% Yield 0.50% Yield
0.00% 0.00%
Fixed Fixed
Rate Rate
Fixed rates have hit a wall with little chance of staying below 3%
17. Effects of a tightening Money Supply
$5.0
Billions
$4.5
$4.0 Non-AAA
$3.5
Commercial
$3.0
Rental
$2.5
Subprime
$2.0
"A"
$1.5
"A"
$1.0 Subprime
$0.5 Rental
$0.0 Commercial
Pre 2008 Today
18. Effects of a tightening Money Supply
Slide from Feb 2012
• Already we have seen lenders discontinue:
• Rental programs (Have continued to get worse)
• Stated income programs (Much tighter)
• Rental income used to qualify (NB, FN, etc)
• We may see:
• Non-bank lenders leave the industry (Firstline)
• Tougher lending guidelines (Definitely)
• Less competitive rates (No more 2.99% 4 + 5yr across the
board)
19. What’s getting tougher
Investors, Self employed clients getting the shaft
• “Stated” income deals for self employed borrowers
Mr. Banker
• $1mil+ mortgages
• Equity deals
• Clients with rental portfolios – especially those who are
“professional landlords”
• Putting properties in holding company instead of personal name
• “B” properties – condition, location, property type
20. Why do you need to spread out
your relationships?
If your portfolio isn’t
perfect, it can be tough
to fit into your banks’ box,
but you might fit someone elses!
21. The importance of a Home Equity
Line of Credit
Can be used to finance 100% of the value of your portfolio
Interest can be a tax deduction
Very important for investors purchasing in the US
Interest only payments
Can be utilized to reduce mortgage penalties
Is a source of liquid cash
Can transform your mortgage into a 100% tax deductible
mortgage
22. Your HELOC over time
400,000
350,000 100000
300,000
200000
250,000
200,000 400,000
400000 HELOC
150,000 300000
Mortgage
100,000
200000
50,000
0
Now
5 years
10 years
15 years
23. Where do you start?
Speak to a mortgage broker who specializes in
dealing with real estate portfolios
Lately I have helped people:
Go through their own bank for a better rate
Lower payments by $3,000/mo in portfolio
Refinance 3 properties to pull out $200k
Spread relationships between lenders
Add a Line of Credit to residences and rentals (if possible)
24. Silver lining of amortization changes
Principal reduction on steroids - $304,000 mtg
3.09%, 30 yr am
Payments:
$1,296.06/mo
25. Silver lining of amortization changes
Principal reduction on steroids 3.09%, 25 yr am
Payments:
$1,455.92/mo
26. Silver lining of amortization changes
Principal reduction on steroids
6%, 40 yr am
Payments:
$1,660.70 /mo
27.
28. Rent Vs Own
10 years, typical starter condo vs renting
• 0% appreciation, need a 9% return in stock market
• 3% appreciation, need a 18.2% return in stock
market!
29. So you can either...
Invest in Real Estate
Invest in Stocks
30. Leverage – 10% return
Real Estate Stocks
Home Price: $100,000 Purchase stocks worth
Down Payment: $25,000
$25,000 Stock Prices increase
Home price increases to $27,500
to $110,000
You made $2,500 on
You made $10,000 on $25,000, or 10%
$25,000, or 40%
31. If you do anything when you leave today
• Make sure your residence has a revolving LOC
product
• Check your rates, if you have:
• Fixed rate of 4% or higher, talk to a broker about the
potential savings to break it
• Open mortgage consider locking in
• Speak to your broker who specializes in portfolios
about where you stand to make sure you are on the
right track
32. Mortgage Alliance Meridian
Mortgages Top Franchise
Access to over 40 mortgage lenders Agent in BC
Are absolutely FREE on residential deals
Will help you create a plan
Guarantee the lowest rates
Specializing in investor financing for 5 years
Top Status with each lender
34. Joint Venture Program
New Joint Venture Program created to
connect people with cash and people
who have time to find deals.
This
is a free service, come to my booth
and sign up to get started
People with cash set parameters and are
only sent deals through the system that fall
within their guidelines
37. Questions?
If you have any questions please feel free to
contact me
Office in Vancouver (Burrard and Hastings)
Mortgage Alliance Meridian Mortgages
Kyle Green
778-373-5441
kgreen@mortgagealliance.com
www.mortgagesforinvestors.ca
Don’t forget to take a business card! All of our clients are
automatically entered into a draw to win $100,000 towards
paying down their mortgage.
