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Mortgages that are Not Being Renewed

This is a column by our resident real estate expert Rachelle.

I just recently found out about a problem in the mortgage market. It appears that some of the mortgage lenders that came to Canada have decided not to do business here any more. Some others are only renewing mortgages that can be insured by CMHC. Even though I heard of this only a few days ago, it’s not recent news.

Yesterday a long time friend of mine dropped by my house. In the course of the conversation he starts telling me about his mortgage woes. He’s a great guy but he’s having a rough go of it for the last few years and his mortgage situation is just the icing on the cake.

He has not missed a payment on his mortgage in three years, through some very hard times in the economy and a heart attack. Then last year he got sued and had to declare bankruptcy. He is getting discharged May 19th of this year. He struggled to keep his house through all these challenges. So a few weeks ago, he gets a letter from his mortgage company Accredited Home Lenders. They are not renewing. In fact they are not renewing any mortgages.

So now with a credit score of 520 he is in the market for a renewal for $200,000 in mortgage principle. He has found a broker willing to do a deal at 11% for a 35 year term or he can get another mortgage at 8% -9% possibly. He is currently paying 5%. Furthermore, this broker has charged him money for an appraisal. He asked for a copy, which he is not entitled to have even though he paid for it. As I am writing this he is being asked for another $700 for faked income documents for his wife, who is a stay at home mom. Nothing is guaranteed either. I really wish I could name names here, but I don’t want to limit his options at this point.

I’d like to be able to say this is an isolated incident. His wife was talking to one of their neighbors; she also has a mortgage with Accredited Home Lenders. Her term is up in a year. She called the company only to find out that it was true and no mortgages are being renewed. She also finds herself in a precarious position; she got badly injured at work and is collecting Workman’s Compensation as a result. It’s not exactly business the bank is clamoring for.

I looked up the news only to find yet another story.

I can also understand the predicament the lenders are in. They just can no longer do business here and they can’t lend anymore. SO WHY THE HECK ARE THEY WAITING FOR THE LAST 90 DAYS BEFORE RENEWAL BEFORE TELLING THEM. These lenders already know they are leaving the country. They know they can’t renew their mortgages. They know their client base are the most difficult to remortgage. Why not send out all the letters now so that these people can plan ahead. If they have to sell their house, three months is not sufficient time in some markets.

I know why they won’t be decent and mail the letters out. If all the people got the letters at once there would be a hue and cry. It would make the news in a serious way. These companies would much rather limit the damage to a few people at a time. How many people are involved?

Keep in mind that these are not people buying. These are people who are renewing their mortgages and I have never heard of people who have made their payments not getting a mortgage renewal. I know that mortgages have terms but at least in residential real estate it was pretty much unheard of for lenders not to renew.

Here’s another point, FICO score notwithstanding, these people have already proven their creditworthiness by paying their mortgage for years. My friend didn’t ask to be sued and have to declare bankruptcy as a result. I’m sure that his neighbor didn’t ask to be injured at work. All these people have struggled though adverse life situations just to be pole axed for no good reason.

In my friend’s case according to the appraisal, he actually has $70,000 in equity. This is about 35%. Can someone please explain to me why he should have to pay 8 – 9 % interest? In fact, paying an extra $400 – $500 per month may well prove entirely unaffordable.

When you have bad credit you pay more. It’s that simple. In our society nothing seems to be a greater crime than having bad or no credit. You can’t get a decent apartment, you can’t get a mortgage, you can’t finance a car and you don’t get a line of credit. Yet there are a lot of honest, hard working people who have suffered serious injury to their credit. Divorce, illness or unemployment are all reasons why you can’t pay your bills for a while. Once you enter the world of bad credit it is very difficult to reestablish yourself.

Even those with good credit may well be affected. As someone who deals with investors I am getting concerned. The new guidelines from CMHC will only count 50% of rental income from your properties. I am also aware that a number of my clients may well have used some of these lenders that are no longer going to do business in Canada. Their mortgages may not be renewed and through no fault of their own. Mortgages on income properties have always been more difficult to get. ResMor is apparently not renewing mortgages on income properties.

Right now there are more questions than answers. Who will service the needs of these “bad credit” people who have mortgages that cannot be renewed? What about investors? Is it going to become more and more impossible to get financing? Then of course there’s my friend, will he have to sell his house, is he being ripped off by this mortgage broker, will he even be able to get a renewal, what will he end up paying in interest? Maybe someone out there has some answers that I can’t find. If so please let me know what direction to go in.

In any case if you are reading this post and you have a mortgage with Xceed Mortgage Corporation, Accredited Home Lenders, HSBC Finance, GMAC, GE Money or ResMor call them and find out if you are being renewed. Chances are good that if you don’t qualify for CMHC insurance because of your credit, bankruptcy or any other reason the answer will be no. Please warn as many people as you can.

In my opinion the people this affects need as much lead time as possible to fix their credit or get financing or sell their house. Ninety days is not enough. These companies already know what’s up. Frankly, I’m disgusted that they aren’t manning up and sending out the letters to all the people it affects. The irony is that mortgage companies are crying foul in the States when people walk away from their houses, which are worth 50% what they paid for them. Here in Canada they walk away from paying customers without any consideration for the effects on people’s lives.

Our government is doing nothing I know of to help these people. They have no problem making landlords take people who may or may not pay the rent even before they are moved in. I reference the Ontario Human Rights Commission’ fact sheets for landlords (link).

Landlords can no longer discriminate against tenants for not qualifying according to arbitrary cut off measures such as the 30% of income rule or credit score. Why don’t they make the banks swallow this pile of horse manure and continue the mortgages of people who are making their payments on time every month?

About the Author: Rachelle specializes in renting property on behalf of landlords. She also works with investors to find good investments in Toronto and surrounding areas. Her passion is bringing multi res properties back from the brink and maximizing profitability.

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About the author: This is a guest post. You can read more about the author in the biography above.

{ 51 comments… add one }
  • Bruce May 18, 2010, 9:35 am

    This is truely a bad news.

  • No Debt Guy May 18, 2010, 11:03 am

    It is very sad and unfortunate in both cases.

    I do not want to seem uncaring, but the reality of it is lenders are in business to make money. People will pay a higher rate if they are seen as more of a risk of defaulting or they may not find a lender that will give them a mortgage at all.

    It is common place for borrowers to pay for appraisals.

    I understand that desperate times call for desperate measures but does your friend really want to run the risk of being criminally charged for fraud for fake income documents. It won’t just be the broker’s butt on the line, but both of them.

    I do hope it works out for your friend, without him having to lie on his mortgage application.

  • Michael James May 18, 2010, 11:44 am

    I’m with No Debt Guy. I feel for people who suffer very bad luck, but why should mortgage lenders bail them out? Why should anyone be forced to “service the needs of these ‘bad credit’ people”? I think almost every individual would be much tougher than these lenders if these individuals were planning to lend out their own money.

    You have a point about the 90 days notice. It would be best to change the law to increase the required notice period. However, until the law is changed, I don’t blame the lender for giving only 90 days.

    If we want to make big changes that stop lenders from failing to renew the mortgages of people who make all their payments, we need a change in the law followed by a period where mortgages rates will rise to compensate for the increased number of defaults.

  • Rachelle May 18, 2010, 11:49 am

    Between the time I wrote the article and today, my friend did find some financing.

    I guess the equity did save his a## because he managed to find a mortgage. He had to go with a 30 year at 4.9% but open so he can prepay his mortgage.

    He did refuse to pay any more fees to slimy guy.

    To be entirely honest I specifically did NOT ask about what he said to get his mortgage. I don’t want to know.

    I’m not really qualified to judge other people who are trying to keep from ending up on the street with a wife and 5 year old child. Credit score notwithstanding I’m not sure anyone deserves that.

    His success does speak to my point that lenders can be found with sufficient lead time so people should be warned ASAP

  • John Walsh May 18, 2010, 11:54 am

    Hm….
    I don’t want to judge anyone and I don’t have all the facts and more importantly the numbers in front of me, but based on the information presented things are not adding up in my mind.

    To me if there is 35% equity in a property, there must be solutions and committing fraud by forging documents is not one of them.

    There are still “B” or subprime lenders who will look at deals and apply common sense to the deal. Payment history should be a major factor.
    If the income is not there and the ratios don’t work, that’s another story.
    Bad credit does mean rates will be higher 8-9 is not out of the question, but I get the feeling someone is not trying very hard. Again I don’t want to judge, I don’t have all the facts, but 7-8 seems more appropriate.

    As for who is going to pick up these mortgages that no one wants? If they are in good areas (i.e. urban not rural) then TD Financial Services seems to be the one coming to the rescue.

    JRW

  • Anya May 18, 2010, 12:26 pm

    One solution is to get a mortgage from a stable Canadian based financial institution – people fall for low teaser rates and don’t think that one day the company may shut down its operations in Canada.

  • DAvid May 18, 2010, 12:38 pm

    It strikes me that having an ongoing banking relationship with a regular bank can also be to your advantage at times like this. If you are chasing the best return of the instant, you may well be losing an opportunity to become known to your banker, and gain their trust. I have experienced a number of instances where the requirements have been relaxed due to the individual being a long time customer. However, if you walk in off the street, you will not only never see these benefits, you’ll never even know they exist!

    DAvid

  • DAvid May 18, 2010, 12:44 pm

    A 30 year open mortgage (term not described) at 4.9% is a pretty good rate, however I don’t understand why he would pay the interest penalty for an open mortgage unless he plans to sell the house. Most mortgages allow up to a 20% repayment annually without penalty!

    DAvid

  • Mike May 18, 2010, 1:31 pm

    It doesn’t seem fair that the guy can’t get a mortgage when he had one before…

    That said – maybe the issue is that perhaps he shouldn’t have been approved for a mortgage in the first place?

    Alternatively, the financial “yea or nay” shouldn’t all come from the financial institutions. If you are in a situation where you can’t afford a home, regardless of how you got there, then maybe selling it is the best option for the home owner. Why is it all the financial institutions fault? Just because the guy wants to keep the home doesn’t meant that is the best course of action.

    Selling your home and renting is not the same as being “out on the street”.

  • tom May 18, 2010, 2:17 pm

    Besides TD Financing (formerly VFC) Home Trust will provide financing to former bankrupts. We deal with both, no “slimy” extra charges but lenders may ask for appraisal :)

  • Dana May 18, 2010, 3:09 pm

    I am shocked that your friend was able to claim bankruptcy with 35% equity in his house!? How did he manage to do that? Is title to the house in someone else’s name?

  • Confused May 18, 2010, 3:10 pm

    Maybe I don’t get it, but I’m more than a little confused at this issue.

    1) Lenders are in place to make money – as others have pointed out.
    2) Bankruptcy is a pretty good indication that there may be issues with payment in the future isn’t it? I get that he got sued, but did he not have personal liability insurance? Something isn’t adding up in the details.
    3) Are you suggesting that I pick up the tab as either a taxpayer (government bailout of bad mortgages) or as a homeowner? Legislation to force companies to offer renewal would just mean I have to pay more so that my lender can take on bad risks.

    I agree that 90 days doesn’t seem like long to have any kind of renewal notice, but correct me if I’m wrong – he knew the term was coming due didn’t he? Perhaps this is where some changes can be made that don’t restrict the ability of lenders to carry out business, or force taxpayers to pick up the bill.

    Other than my issues in general with the content of the post, it also seemed sort of poorly written. No offense intended, but it was more of a rant than anything else…

  • Ray May 18, 2010, 3:56 pm

    Is this a giant pity party? Sell the house and pay your damn debts.

  • Play the odds May 18, 2010, 4:31 pm

    Though you are correct that it is difficult to repair credit, it is not impossible – and yes, it takes time. Just as it takes time to pay back my insurance company (i.e. the community) if I drive my car into a street post – 6 years. With this in mind, credit may be juxtaposed to the concepts of reputation and trust.

    I am sorry that your friend and others may suffer from these decision, but *** happens. Most of us encounter challenges. Some much more than others. We are often supported through such challenges through the concepts of society, and I hope that the people affected in this context gain positive outcomes from such challenges. I do not necessarily agree though that there is a requirement to provide anyone with such assistance. I prefer any assistance given on my dime be in the form of teaching the man to swim than buying him a life preserver. If along the path to swimming he requires a vest, then buy him a vest. But more important is to start with a plan.

    I feel that you’ve crossed a line in creating a rant masqueraded as an informational blog. Let’s stick to the facts please. The subject is relevant, but the content lacks.

  • Pete May 18, 2010, 4:46 pm

    This is of great concern to me. I have 3 rental properties coming up for renewal in the next 3 years, all around the same time (within 8 or 9 months of each other). If they are taking rental income at 50%, maybe I won’t qualify for renewals? I may not even be employed at that time since I’m heading back to school. Well if I can’t sleep maybe I’ll run some numbers.

  • Rachelle May 18, 2010, 5:17 pm

    Well to answer your questions….

    Dana you are allowed to keep a certain amount even if you file for personal bankruptcy. For example you cannot sell a tradesman’s tools. To be honest I’m not sure exactly how it works out. The trustee is in charge of deciding what you get to keep.

    The point of what I was saying is that to my knowledge in the past it was generally unheard of to have to switch lenders in the middle of your mortgage term unless you could get a better deal somewhere else. Furthermore you don’t have to requalify for your mortgage if you renew. 25 years is a long time and lots of crap can happen to you during that time. People lose jobs and get new jobs, get divorced, default on their credit cards and more but…. they can still manage to renew their mortgage with the same lender if they have to. As long as they can keep making their payments they have been able to count on that. The credit score used is a snap shot in time and that’s what qualifies you to buy the house. What happens after that no one checks your credit again to renew. (Or no one did in the past)

    @ Mike certainly you are right today he would not get a mortgage with the credit he has. When he did get the mortgage he had decent credit.

    I’m sorry to rant but I am kind of angry about the whole issue, these companies came here from the States with their loosey goosey qualification standards and now they have created a mess that affects a bunch of people. These people are people who are struggling to better themselves and who have done nothing wrong except for lend from the wrong company.

    They have slaughtered a sacred cow and no one noticed. And when I googled “mortgages not being renewed” nothing came up. There is a list of the companies that are not renewing some or all mortgages. Make no mistake this is a public service announcement. Since I have been posting on this subject a few people have called their companies to find out if they are being renewed and some are not.

    We even have direction for people to go in. Thanks for those who answered :)

  • Peter @ Credit Crisis May 18, 2010, 6:04 pm

    This is a great post and only confirms my opinion that the Canadian housing bubble is bursting, and there’s nothing that can stop it. Mortgage companies getting out of Canada and not renewing mortgages, borrowers falsifying incomes to qualify for mortgage that they can’t realistically carry if the risk is properly priced – these are classic bubble bursting signs. While on a personal level this is a sad story, if you look at the big picture this is good for the next generation, that won’t be forced to buy overpriced properties, and slave away to the banks.

    CHMC allowed people with no or very little money to buy a house with the same interest rates that were given to people with substantial down payments. This and emergency interest rates fed our bubble, and now is pay time. The “no-money” crowd will always represent bigger risk to the lender, and this is a simple economic fact.

  • Dividend Lover May 18, 2010, 6:51 pm

    I refinanced a rental property with HSBC 3 weeks ago. so they are probably still renewing mortgages.

    Though they would only lend 70% of the appraised value.

    But then I don’t blame them the prices are insane these days, so I thought I’d refinance in case the market crashes again.

  • The_Realist May 18, 2010, 7:32 pm

    Yeah, whenever there’s a problem, let’s blame the evil Americans. It’s so much easier than looking at the truth of the matter. If you want to blame someone, blame the Canadian government for letting these companies from the “States” with their “loosey goosey” qualifications into Canada in the first place.

    I feel sorry for these people as well, but sometimes folks need to man up and take responsibility for their own actions. And if you think this is bad, wait until the CMHC ponzi scheme busts in full force.

  • Dirk May 18, 2010, 8:40 pm

    Isn’t this the same situation where everyone said, “it won’t happen here”.

  • Rachelle May 18, 2010, 9:28 pm

    The good news is that these companies were not in business in Canada for very long so the damage is not as wide spread as it could be. Another kind of scary thought is that no one can really answer how many of these mortgages were issued.

    I think the people who have the most to worry about are the people with small companies who are self employed and landlords who bought with 5% down and of course anybody else who got a mortgage with one of these companies and is currently not doing very well or has suffered a credit problem.

    If people can learn than they will have to requalify for a mortgage soon enough they can take steps to repair their credit or work harder on getting employment.

    Taking Pete as an example if he knows about the problem he can take steps to refinance early perhaps or delay going to school for a bit until his properties are remortgaged. That’s what knowing can do for you. It allows you to plan ahead.

  • Financial Cents May 18, 2010, 10:31 pm

    Sad and bad news for your friend and others in this position. Those who are self-employed, and have some falling credit ratings, are REALLY going to feel the pain soon. Not good for the economy on the whole. Good credit is ever so important, now more than ever! Thanks for the post Rachelle :)

  • Subversive May 18, 2010, 11:29 pm

    There’s a reason I’ve mostly stopped reading this blog and it’s posts like this. I still have it in my news feed and the headline was interesting enough to make me click over. I’m annoyed that I did, and I’m annoyed at the poor turn the content at this site has taken. The author clearly has little to no knowledge of how CMHC or mortgages (or credit, or business for that matter) work, and others are right when they say it’s a rant masquerading as real content. Since when did owning a house become a right? FT, if you’re reading this, I don’t know what has pulled your attention away from this blog, but I wish you’d come back.

  • Rachelle May 19, 2010, 1:06 am

    Subversive,

    I bow to your great wisdom as you clearly live in a world where everyone has 700 credit scores. Bad Credit People work in indentured servitude as untouchables and sleep outside in the cold and wet. Even thoughts of bettering themselves are harshly punished with weeks of cleaning latrines.

    The Financial Post ran this story http://www.financialpost.com/story.html?id=2785564&p=1 the same day I emailed FT this post.

    They don’t know anything either… funny it’s the same story recycled from a year ago lol. And they don’t tell people which companies are not refinancing so they can plan ahead.

  • Ed Rempel May 19, 2010, 1:52 am

    Hi Rachelle,

    Interesting article. I do feel for people in a tight situation and realize they don’t get the same offers as the rest of us. For example, Home Trust specializes in giving mortgages to people that don’t qualify at the banks, but their rates are often much higher and they can be a trap because of their ridiculous penalties.

    We had one client trying to pay the penalty to get out of a high rate mortgage they can’t really afford. The penalty was: “Just pay 100% of the 18 payments they would have had to make until maturity.”

    In other words, no matter how high their rate is, there would never be a time you can save money by paying a penalty to get out. For the rest of us dealing with regular mortgage companies and banks, we can get much better rates and more reasonable penalties (if necessary).

    Often, the people in these difficult situations put themselves there by over-spending or buying more house than they can afford, but we have seen very well-meaning people sensible with money that had unfortunate things happen to them and get trapped in very difficult mortgage situations.

    Ed

  • Ed Rempel May 19, 2010, 1:59 am

    Hi Rachelle,

    This is not really an issue for most people. There are some mortgage companies leaving Canada and not renewing, but most Canadians can normally do a straight renewal at their bank without any issues – no appraisals, credit checks, income verification or financial checks. A straight renewal still allows them to negotiate rates and choose the best term.

    The new qualification rules are just out, but our understanding is that they only affect new mortgages or refinancing, not straight renewals.

    Ed

  • Bailed in BC May 19, 2010, 3:19 am

    From what I understand, the sceniero with rental income is much more drastic than just 50% considered toward the mortgage

    http://www.youtube.com/watch?v=gOnnq6lpISo&feature=related

  • Michael May 19, 2010, 10:11 am

    As for having a relationship with the bank being in your favour…. I would tend to disagree. In almost all cases, you’re just a number – that number being your credit score. While the bank manager can maybe dodge a fee for you here and there or give you a lower rate than posted, most of the time you’ll get a better rate by shopping around anyway.

    I’ve been a longtime customer of PC Financial, and have found that by calling in and speaking to a supervisor, they are able and very willing to waive some fees on occasion (rrsp transfer for example), just as a supervisor at a physical branch would.

    Times have changed, and honestly it’s really only the older population, or the less tech-savvy people who go into branches anymore. So too has changed the relationship with the banks. Thoughts?

  • Gerry May 19, 2010, 10:41 am

    Do you know if your friend is under water in his mortgage? If not, selling and paying out the debt shouldn’t be a problem. If he’s under water, it could mean going to power of sale and a recourse suit after that. Not really the end of the world. And if he’s been able to carry his mortgage payments, surely he can afford to rent an apartment. No need for he and his family to be out on the street.

    Though I feel for your friend, it sounds like he should never have bought a house in the first place. Renting isn’t really that bad.

  • Rachelle May 19, 2010, 11:03 am

    He’s not underwater he has about 35% equity. Renting a similar house would cost him more than he is currently paying.

    Gerry not to be a devil’s advocate here but no landlord would take him either.

    Renting is that bad, I work in the industry and I can tell you that. With his credit score he wouldn’t qualify for any decent building. Landlords and their behavior inspired me to buy my own house. My last landlord was actually stealing my property, scratched out my rent on the lease and wrote in another amount and my personal favorite had my hot water tank (which I was paying for) hooked up to another unit which did jewelery electroplating costing me hundreds of $$$ per month in hydro. This was a live/work space on Geary Avenue.

    I also suggest for your review this link which is a PDF.

    http://www.urbancenter.utoronto.ca/redirects/rb2.html

    There are very significant advantages to being a homeowner.

  • Rachelle May 19, 2010, 11:56 am

    Dear Ed,

    Just checking here but are you saying my friend could have just walked into his local bank and asked for a renewal and got it?

    They wouldn’t check his income, credit and all that stuff because he would just be approved on a renewal?

  • Money Green Life May 19, 2010, 12:43 pm

    I guess if you’re planning to sell your home in the short-run, then adjustable mortgages might make sense. Otherwise, why would anyone do adjustable instead of fixed rate? maybe i’m missing something.

  • No Debt Guy May 19, 2010, 12:48 pm

    Hi Rachelle,

    I believe Ed was referring to renewing with the same lender at the end of the term. This obviously was not an option for your friend.

    Generally renewal are done without income verification and credit checks. It is rare but occasionally lenders will ask for someone to re qualify at the end of the term. Lenders are not obligated to renew any mortgage.

    Hope this helps.

  • jbearr33 May 19, 2010, 1:57 pm

    Unfortunately, as many people are in pursuit of the cheapest deal regarding their own home, they tend to also end up with the cheapest quality of service. Just as people find out the cheapest contractor, electrician or mechanic is often not the best overall money saving decision, the same can be said that the cheaply priced mortgage lenders with an office only in Toronto. Lawyers hate dealing with them, and in the end they don’t help their customers, even outright making life more difficult.

  • MS Save Money May 19, 2010, 7:08 pm

    Oh boy..This is a truly tragic situation. It’s really tough for those who aren’t getting renewed mortgages. Just adds to the already growing list of economic problems.

  • This is why I opened an ING account May 19, 2010, 7:50 pm

    I don’t get it… the leading Bank of Canada rate is at a historic low.
    Chartered banks are advertising 4.5 % rates on mortgages.

    The way I see it, banks can borrow at almost nothing and makes loans like mortgages.

    I don’t understand why the people can’t get a decent mortgage rate.
    I have a feeling there’s something missing to the story.

  • Ed Rempel May 20, 2010, 2:04 am

    Hi Rachelle,

    A straight renewal would not work for your friend, since the mortgage company seems to be closing down their Canadian mortgage business.

    Your article is about a big concern for certain people in difficult situations. My point is just that, most people dealing with regular banks probably don’t have to worry about not getting a renewal.

    We often talk to regular people that want to lock in for many years because of an incorrect fear of having trouble renewing.

    Ed

  • ScottyMortgages May 20, 2010, 2:35 am

    Excellent post, many people do not understand the lender is under no obligation to renew your mortgage. I am truly sorry to hear about your friend and horrified he has to deal with such a sleazy outfit.

  • Canuckabroad May 20, 2010, 7:51 am

    As a bank shareholder and depositor I expect the bank to make money and lend my deposits prudently… so of course people with bad credit pay more, it’s to compensate for the risk. A person with a bad credit score should of course borrow at higher rates. Frankly bad lending decisions are what caused the recession it’s what is inflating house prices to ridiculous levels and I do not want nor should not have to subsidize people who have bought houses and now have trouble meeting their morgage payments. People who are prudent and saving for a down-payment are now priced out of the market because of inflated house prices due to people buying more house than they can afford. Home ownership is not a right.

    On another note, this post is more rant than quality post and is filled with anti-american bias. I agree with “subversive” fully.

  • Aolis May 20, 2010, 11:15 am

    Rachelle

    That CUCS pdf you posted is a bit misleading. It seems to suggest that being a home owner is going to make you wealthier than being a renter.

    It is more reasonable to conclude that people who are wealthy are more likely to purchase a home. And that the level of wealth needed to be a homeowner is going to be higher since it costs so much to purchase a home these days.

    For example, a young adult just starting out will rent. As they get older and more wealthy, they will purchase a house. Why would this suggest we need a national policy of the wealth of renters?

  • Rachelle May 20, 2010, 1:10 pm

    Well consider this Aolis.

    While what you say is somewhat true there is another side of the equation.

    About 13 years ago I was paying $750 per month in rent. I was self employed and needed space for my tools and other things. My landlord was erratic to say the least. Dealing with him was driving me nuts. My goal was to get into a more stable situation and be my own landlord so to speak. I had to put 25% down which I did when I found a house.

    Let me describe the house to you, small two bedroom with a large garage, ONE kitchen cupboard etc. There was also a very nice in-law suite that could be rented out. It was pretty horrible and is certainly no luxury accommodation even now. But it is mine, there are no cockroaches, no crazy landlords disturbing my sense of security.

    Once I had the house, I rented out the in-law suite and made double payments because the tenants paid me $750. I also made the annual prepayments as allowed. The house was paid off in 5 years. At the end of five years I still had one kitchen cupboard. Then as I got the money I changed the house to open concept by removing most of the interior walls and I put in a decent kitchen.

    It’s in a not so nice area of town but has doubled in value since I bought it.

    My house represents about 99% of my equity. Where would I be if I had not made this decision and decided to continue renting? Well I can assure you that i wouldn’t be worth what I am today or even close.

    What I find with lots of people is that they want the perfect house. I was actually speaking to a couple yesterday. They want a very nice house in a very good location and they will not comprimize on those things. They are renting an extremely nice apartment and saving a down payment on a house. What they are paying would easily qualify them for a house in a so-so part of town in a not-so-perfect house. Instead they pay their landlord’s mortgage.

    This is Canada and it is absolutely too cold to live outside. So you have to be paying somebody for accommodation. I would rather downsize and live in a crappy house in a crappy neighborhood then to pay the rent in a very nice place.

    Can I share with you the freedom this brings me as a person ? When I was pregnant and sick I didn’t have to worry, when I started my business I didn’t have to worry, when I don’t like the person I am working for I quit. Last year when I did not receive one phone call for my business in two months, I had extremely low overhead. My husband is sick and I don’t have to panic even thought I have to work less to take care of my 2 year old. I never even considered any of these benefits when I was working 18 hour days 7 days a week to pay the damn thing off. Nor could I look into the future to see the immense personal and professional challenges I have faced.

    I have a small house and an old car and it’s sweet. I have one credit card with a $1000 limit and that’s it. Many people that I know are big hat, no cattle. They appear to be much richer than I.

    So my response is that buying a house will not only increase your equity it is also a path to a freedom you could not imagine.

  • LarryLat May 20, 2010, 3:24 pm

    Rachelle,

    my oh, my. Unknowingly to yourself you made a very wise financial decision thirteen years. Now you are trying to project your success story onto everyone by being convinced that home ownership is the best thing ever on the path to prosperity. Your problem, however, is that you still haven’t realized why your story is a successful one. One of the decisive reasons why you enjoyed success is because you were able to acquire an asset (your house) at a very good valuation based on the historical measures.

    Should you have tried to do the same thing today, instead of thirteen years ago, you would have been forced to work for 28 hours per day 7 days a week, instead of 18 hours. Obviously, that’s impossible. Acquisition of the same asset at today’s valuations is absolutely not worth it for anyone who is in a situation like you were in back in mid-90’s.

    Those who are in a dire situation but have the perseverance to continue to rent, and save for a sizable down payment, and wait for the valuations to correct will be able to achieve a similar to yours financial independence in 13 or less years.

    The key is not in “home ownership no matter what”, the key is in building your wealth by making the most out of your means, and acquiring wealth-building assets at attractive value. Buying a house right now is not a wise decision, no matter how successful were home-owners over the past 18 years.

    with only the best wishes,
    LarryLat

  • Nolan Matthias May 20, 2010, 7:41 pm

    Unfortunately, for your client, his issues started before he got a mortgage with Accredited, on both his side and the banks.

    First of all, the type of lending that Accredited and many of the lenders you mention practiced should never have happened. Their lending practices were loose – including certain CMHC products. These lenders represent the closest to the very fine line called subprime mortgages that we got.

    Second, the fact that he had to go to Accredited meant that he fell into the trap of those who should not have been buying a house, but could because the lending policies got so lax. He certainly did have prior credit issues or could not prove his income if he was dealing with this type of lender. Of course, how is a person supposed to know that they shouldn’t be buying a house, if there is no one there to tell them that.

    The fact that these lenders have left town is not surprising. The market they served has dried up. It is horrible that they lead their borrowers to believe that home ownership was the right choice, and then picked their bags up and left when things got bad, stranding those client in the process.

    If your client wants to avoid future issues he would be prudent to sell his house and rent until he rebuilds his credit, socking away the proceeds of his sale for a rainy day. That will be a long and tough seven years, but something he will have to go through regardless. Of course the broker making the commission on his deal won’t tell him this, he wants his commission cheque.

    Oh, and don’t get me started on investment properties. Less than 1 in 10 owners of an investment property actually have the financial means to support owning one regardless of whether the bank will let them use an 80%, 50% or any rental offset.

    One more thing, I take issue with the whole he got sued, it wasn’t his fault argument. If he got sued and lost he was obviously found negligent at some level for something. If he won, he should have been able to recoup the majority of his court costs, and their shouldn’t have been an issue. Either way, the fact that he went bankrupt had to in some way, shape, or form, been his fault.

    PS. I still think banks orphaning mortgages is wrong.

  • Aolis May 20, 2010, 8:17 pm

    Rachelle

    The scenario you mentioned can be done without buying. I used to live with a guy that rented a two floor six bedroom apartment for $1400 including two kitchens and three common areas. He would then rent out each of the other rooms at $400 each for $600 a month profit. Without a mortgage and without paying any interest. Of course, he had to deal with tenants but that is the business side of being a landlord.

    Renting versus buying comparisons aside, the main benefit of buying a house is it becomes a forced savings plan. If you took the difference between your rent and mortgage payments and put it aside in investments, you would probably do as well if not better than from owning a house. When you paid off the house, you also stopped saving money.

    The people who are more wealthy are those that live within their means and save their money. Owning a house might also bring additional benefits such as feeling free but these don’t lead to being more wealthy.

    Having 99% of your equity in your house is probably not a good idea. You could diversify with other investments in stocks and bonds.

  • Rachelle May 21, 2010, 9:47 am

    I do invest my money but it will still be a long time before that takes a sizable percentage of my home equity.

    The other thing about a home as an asset is that you get use of it unlike stocks or bonds.

    There are cheap properties out there. So if someone was motivated to do what I did they could.

    Being self employed and having done the bigger is better thinking for a while I make a significant effort to reduce my overhead at any costs. My income is highly variable so…. I don’t take on any monthly payments I don’t have to. This month I may make $10,000 then slow for a few months then better again etc.

  • Wendy May 24, 2010, 6:52 pm

    Hi, All,

    I am one of those affected by GMAC’s withdrawal from the Canadian mortgage market. In addition, during the depths of the recession, I had to file a consumer proposal, so my credit rating is temporarily toast. My mortgage renewal date is July of 2011. When I heard rumours about GMAC last year, I emailed them, and was told they were no longer renewing any mortgages. Since I was proactive, it seems I had this information long before many others did.

    Thus I was able to plan. To secure new financing in 2011, I knew it was pretty much imperative that I complete my consumer proposal early and be clear of it before I had to go mortgage shopping. I got an extra job, and with these funds I will be able to complete my consumer proposal early, in the fall of this year.

    Meanwhile, another rumour – that GMAC would be renewing “some” mortgages through their Canadian holding, ResMor. I emailed GMAC and was told it was true, but that they would do this on a case-by-case basis, and wouldn’t review my file until March of 2011.

    My original mortgage with GMAC was insured through Genworth. It’s my understanding that this insurance will continue to be attached to my mortgage at renewal, with no further credit checks. Am I right about this, even if GMAC transfers it to ResMor (part of their own company?) My payment history is perfect, so I assume that GMAC (ResMor) would want to “keep” me. Any insights?
    ~Wendy

  • Mike Barker May 26, 2010, 2:58 pm

    The Accredited Mortgage Implosion
    Hello all. Was there anybody else out there that recieved a letter from Accredited Home Lenders Canada or the U.S. calling thier mortgages? The letter I got only gave me three months to find refinancing through someone else.Luckily I was able to do so. What they do not mention in the letter is that Accredited U.S. filed for chapter 11 bankruptcy in May of 09. What they also do not tell you is that after three months following your maturity date if you can’t find alternative financing your basically screwed. You would find yourself out on the street with a foreclosure on your house. My biggest beef is that I had to pay a prepayment penalty of $5,368.99 when this mortgage was called. Sure I could have waited till Sept.1,2010 when there would be none applied but what guarentee would I have that I would be in a position to refinance somewhere else. Is there anyone out there that would know how I could recover that money. The part I really have to laugh at is where the letter says please have contact us prior to the maturity date. Oh I forgot to hire a lawyer when I got my mortgage. Finally I have always been a loyal customer, never missed a payment and this is how I get repayed.

  • Rachelle May 26, 2010, 3:21 pm

    @ Wendy and Mike,

    I’m glad to hear from you guys. I hope you get a mortgage Wendy. In any case being given time to plan makes all the difference in the world.

    It looks like people are able to get mortgages if they get enough lead time. Three months is not enough.

  • Bob Fish November 9, 2010, 7:07 pm

    Xceed Mortgage is in trouble. That’s why.

    Xceed Mortgage Corp. (CA) – cut two-thirds of staff (74 jobs)
    Xceed Mortgage Corp. (CA) – issued profit warning, halted dividend
    Xceed Mortgage Corp. (CA) – cut 26 jobs, about 18 percent of staff

    They don’t care about the homeowner. Only profits.

    DO NOT GET A MORTGAGE BY THIS COMPANY!

  • Justin August 29, 2011, 12:41 pm

    Hello,

    I know that this posting is fairly old, but I was wondering if someone could provide me with some advice.

    I currently have a mortgage on a condo in Edmonton. Unfortunately I bought it at the peak of the housing boom and therefore the condo is worth less than my existing mortgage. What happens when I renew my mortgage will the bank allow me to obtain a new mortgage term. The current term will be up next year. I put 5% down through TD Canada Trust so my mortgage is insured.

    Also this property is not my primary residence does that effect my renewal? Do i have to put more money down because it is considered a rental property. My wife and I are staying with her parents to save money for a house in the meantime.

    Any insight would be greatly appreciated.

  • Rob December 26, 2012, 3:01 am

    Rachelle…. do you know of any places that are scooping up these non renewed mortgages? I am looking this situation square in the eyes right now. And although my credit woes aren’t as fresh as your friends ( I have been discharged 4 years now) I also have a very harsh black mark on my file. I have a primary loan for the home with a reliable Credit Union but also, as an attempt to save ourselves way back when, I have an “equity loan” or second mortgage with HSBC. They are now closing Canadian offices and I have until July 2013 to find another lender. What if I can not find a lender? What if my primary mortgage company says “No.” I need to find a list of places that may accept me. It is definitely a scary time. I am hoping the equity will save my arse here too because I have approximately 45% equity by current market values.

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