On the mortgage front, things disappeared as a result, including: lenders, products, variable-rate discounts, generous appraisals, and underwriting exceptions.
These things all played a part in the five developments below:
Trend #1 - Fear of losses. The U.S. subprime fiasco made lenders and mortgage investors run for cover. Canada lost some good lenders, including: GE Money, CitiFinancial, MoneyConnect, and Accredited.
In addition we saw three U.S. mortgage insurers retreat back south: PMI, MGIC, and Triad Guaranty.
Then, of course, there were countless product cuts and new lending restrictions. We lost: MCAP’s FlexStar, First National Excalibur, Merix’s HELOC (temporarily at least), ResMor variables, Xceed subprime, and Street Capital subprime, among others.
Trend #2 - Rate Premiums. Bond yields and the Bank of Canada’s key interest rate fell substantially in 2008. Yet, heightened credit risk forced lenders to pay more for the money they lent out. That led to record-high mortgage spreads, abnormally high fixed rates, and for the first time in memory, prime+ variables.
Trend #3 - Borrower Limits. 2008 saw the government eliminate hugely popular 40-year amortizations on insured mortgages. They also imposed a 5% minimum down payment—forcing most of those wanting 100% financing to borrow that 5% at disadvantageous terms.
Trend #4 – Ottawa’s Support of the Market. Where would we be without the government’s Canada Mortgage Bond program?
Answer: In a bad place. When other capital sources dried up CMB’s were the main source (and often the only source) of capital for most non-bank lenders. Then, in October, the Finance Department came to the rescue yet again with its mortgage buyback initiative.
Trend #5 - Prime Competition. With less opportunity in the subprime market, lenders like Xceed, Abode, Home Trust, and Street Capital all flocked into “A” lending.
As the year progressed, banks went on their own offensive, leveraging capital from their huge deposit bases to offer unprecedented discounts off posted rates. Competition in 2008 was therefore as fierce as it’s ever been…and lending profit margins as low as they’ve ever been.
All in all, 2008 was far from typical. And while no one knows exactly what 2009 will bring, if economists are right, things may return a little closer to “normal” late this year. Whatever the case, Canada’s highly adaptive mortgage industry will find a way to forge ahead.
Laurie Anne Faulkner
Mortgage Broker
202-1075 Pendergast Street
Victoria, BC V8V 0A1
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