CMHC Bearish on Home Prices, But…

—The Mortgage Report: June 23—

• Prices Will Fall, Unless They Don’t: “Short-term uncertainty will lead to severe declines in sales activity and in new construction,” CMHC reported Tuesday. “House prices will fall as well and are unlikely to recover over the horizon of this report (through 2022).” But that statement is a tad general. It would be a mistake to think prices must fall everywhere. It’s also a question of when prices will drop, and for how long. If interim data from home-price tracker HouseSigma is indicative, there’s an outside chance median GTA home prices could hit a record in June. Who would’ve thought that when the &#!+ hit the fan in March? CMHC expects “resale sales and prices to rebound in 2022,” but admits it can’t accurately forecast with so many unknowns. Its deputy economist says we might need to “wait another six months or more to see definitive trends.” It’ll take even longer to know if CMHC’s now-infamous prediction of a 9% to 18% home price slide is on the mark.

• Another Mortgage First: Never before have Canada’s lowest variable, 1-year, 2-year, 3-year, 4-year and 5-year fixed rates all been under 2%…until today. For now, these rates apply to insured mortgages only. And no, there are no nationally available uninsured rates under 2% yet. But this is a start.

• It’s Time to Free FICO 8: There’s a problem with the current crop of free credit score providers. The scores they give you are sometimes over 50 points different from the scores mortgage lenders see. That’s a serious problem for some mortgage shoppers because it sets misleading expectations. Someone may see their “free” score as 650, for example, only to learn their lender-obtained score is in the high 500s, preventing them from qualifying for cost-effective financing with a prime lender. Free score providers don’t advertise this fault. Worse yet, lenders use too many different scores. There’s no dominant industry standard. Some use “ERS” scores (Equifax’s proprietary score), some use “CreditVision” scores (TransUnion’s proprietary score), some use FICO 4, some use FICO 8 and so on. The closest thing to a mortgage standard is arguably the FICO 8. It includes mortgage accounts and cell provider accounts (some scores don’t), it’s a score commonly used by mortgage brokers and it’s adopted by numerous lenders. Unfortunately, nobody offers it to consumers, despite it being available for licensing. It’s time for that to change. It’s time for companies hawking partly useful free scores (the Mogos, Borrowells and Credit Karmas of the world) to offer a more practical score. For mortgage purposes, FICO 8 is best of breed.

• BFS Tip: If you’re business-for-self (what lenders call self-employed people), lenders let you to “gross up” your income. That means they’ll assume you earn at least 15% more than the business income reported on your tax returns. They do this to streamline applications, because they know entrepreneurs have multiple deductions and generally make more than their declared income. Most lenders allow gross-ups only for non-incorporated entrepreneurs. But some prime lenders will even gross-up an incorporated self-employed borrower’s income. So long as it’s a small company with 1 – 4 shareholders. These policies apply whether the mortgage is default-insured or uninsured. If you’re self-employed and want to know which lender is most flexible with income inclusion, call an experienced mortgage broker.

• The #1 Arrears Indicator: “Mortgage arrears are based on employment, so employment is a key indicator for us” — Thomas Kim, VP of Capital Markets at First National.