Why anyone who deferred mortgage payments should check their credit score

© Provided by The Canadian Press

TORONTO — Hundreds of thousands of Canadians have been negotiating with lenders over the past few months, hoping to hold off paying debt amid the COVID-19 pandemic.

Now, those payments are beginning to filter through the credit reporting system.

“We have seen the average number of accounts that are in a payment deferral status triple since before the pandemic,” says Eva Wong, co-founder and chief operating officer of Borrowell, which offers free credit scores and reports.

“It shouldn’t impact the credit score, but it should show up on the credit report.”

The Canadian Bankers Association said that as of June 30, 760,000 account holders had negotiated mortgage deferrals or skipped payments, while 445,000 had requested deferral for credit card debt.

According to Equifax, deferred payments — many agreed to as part of COVID-19 relief programs — don’t harm borrowers’ credit scores. But the payments must be reported in a certain way, and the status of these payments may not get reported to Equifax for up to 30 days.

It’s important to make sure these deferred payments are reported correctly to credit bureaus, because even one false late payment can drop a credit score by as much as 150 points, says Wong. Credit scores are used not only by lenders, but also checked by cellphone carriers, employers and landlords, Wong says. Because it takes time to correct a credit score error, waiting until you “need” your high credit score is a risky move, she says.

“Depending on the type of error, the longer it persists, the more negative the impact,” says Wong. “If it’s showing up as a late payment and it goes to month two, then it’s two months of missed payments as opposed to just one. So I would encourage people to check their credit report and make sure that everything on there looks right.”

Anne Arbour, a financial educator at the Credit Counselling Society in Toronto, says that Canada’s two credit-reporting agencies, Equifax Canada and TransUnion Canada, are data aggregators, and it is up to the lenders to create policies on how they report the deferred payments. It’s important for consumers to get clear documentation of their agreement with their lender — such as a bank — when it comes to how they are reporting deferred payments, she says.

“Get as much detail from the lender, from the creditor, as possible about what a deferral will mean and what their practices as far as reporting it — so, whether it will impact somebody’s rating or their score or not,” says Arbour. “And if there is any issue or concern, deal with the creditor first, getting as much written information as possible.”

Arbour noted that deferrals are not an automatic license to skip payments — not only must a formal agreement be struck, but many lenders may have explicit instructions on how interest or even late fees accrues while payments are halted.

Taylor Little, chief of Vancouver-based alternative lender, Neighbourhood Holdings, says that many people skipped payments based on reading about deferral programs, without actually checking to make sure whether the lender was offering deferrals or some other type of payment plan instead. Doing that can hurt a credit score, and likely won’t be counted as an error, he says.

When checking with lenders, Arbour says people should collect a copy of the agreement, a file ID or reference number, and the name of the agent with whom they spoke, in case this information is needed to file a credit score dispute down the road.

If a consumer notices something that might be wrong on their credit score —such as a deferred payment being counted as “late” — the lender is once again the first stop, she says.

“Going back to the creditor themselves is a good first step,” she says. “[Equifax and TransUnion] have worked closely with the Canadian Bankers Association, with the lenders, everybody to try and come up with a way to report any deferrals, whether it was mortgages or credit cards, in a way that wouldn’t penalize the consumer. But the onus ultimately was on and is on the creditors to change their systems.”

In addition to requesting a fix from the lender, consumers can ask Equifax or TransUnion to investigate a mismarked payment, through a credit report update form or investigation request form. Separately, consumers can also now put a “consumer statement” to a credit report to signal to lenders that something is being disputed. Equifax Canada gives an example: “Be advised that the negative accounts on my credit report are related to the Covid-19 pandemic. I intend to make these up as soon as I can find a job.”

Keeping on top of errors — and being quick to correct them if they happen — is easier if consumers stick with a routine and understand the parts of the credit scoring process, says Arbour. For example, free services that offer credit monitoring offer more frequent updates and are different from Equifax or TransUnion’s free yearly reports. Those annual reports from Equifax or TransUnion are also different from the formal scores checked by lenders in a “hard” credit check, she says.

She advised that consumers can take advantage of both credit monitoring services and free yearly reports.

“There’s no sort of one size fits all answer — very often mortgages don’t actually appear on credit reports,” says Arbour. “[Mismarked deferrals] haven’t been brought up as a concern just yet. . . . I think come September, it might be a different story. Once deferrals are over, unless people are checking their credit report, they won’t notice it unless they’re in a situation where they’re having to renew their term or renegotiate a rate or a debt management program.”

Source: Anita Balakrishnan, The Canadian Press – August 13, 2020

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CMHC urges lenders to stop offering so many high-risk mortgages

Canadian house prices have held up during COVID-19, but the Canadian Mortgage and Housing Corporation warns that this can’t continue forever. (Ron Antonelli/Bloomberg)

The head of Canada’s national housing agency is asking banks and mortgage companies to stop offering higher-risk mortgages to over-leveraged first-time buyers, because they represent a threat to the economy.

In a letter to officials in the federal government and representatives of Canada’s banking and credit union industry, Evan Siddall, the CEO of the Canada Mortgage and Housing Corporation, asked lenders to be more strict about how much money they are willing to lend to fund home purchases, and more diligent about who they are lending to.

The letter was first reported on by financial news channel BNNBloomberg before Siddall released the letter publicly on social media.

“I am asking you to continue to support CMHC’s mortgage insurance activity in preserving a healthy mortgage sector in Canada,” Siddall wrote to the banks, credit unions and other mortgage lenders that make up his customer base.

While the CMHC does not directly loan out money to buy homes, it has a massive influence on Canada’s housing market because it insures a big chunk of the loans that lenders give out.

By law, borrowers with down payments of less than 20 per cent must purchase mortgage insurance to cover potential losses if they default on their loans. Premiums that borrowers must pay for that insurance can add thousands of dollars to the cost of the loan.

CMHC recently raised its standards 

Earlier this summer, the CMHC announced it would raise its standards for giving out such insurance by raising the minimum credit scores it will accept, putting a cap on the gross debt ratio for an approved borrower, and banning the use of borrowed money to come up with the down payment.

The goal was to make it harder to get an insured loan, in the hopes that borrowers already stretched thin would not be able to get one and thus not be able to get in even further over their heads by buying a house they may not be able to afford. But things didn’t quite work out that way.

Evan Siddall is CEO of Canada’s national housing agency, and he warned members of the mortgage industry in a letter this week that he thinks there are too many risky loans out there. (Galit Rodan/Bloomberg )

CMHC is the dominant mortgage insurer, but they do compete with private companies Genworth and Canada Guaranty for business. It’s impossible to downplay CMHC’s outsized impact on the market, however — as of the end of 2019, the crown corporation was on the hook for $429 billion worth of Canadian real estate, by insuring the mortgages on it.

The insurers often move in unison, so in the past any change at CMHC was quickly matched by the other two. But that didn’t happen this time, which means the CMHC’s moves had little impact beyond moving borrowers from CMHC to a competitor. Anyone who was locked out by the CMHC’s higher standards simply got insurance elsewhere where the standards were lower.

In his letter, Siddall pleaded with lenders to work with CMHC to make sure lending standards don’t become even more lax.

“There is no doubt that we have willingly chosen to forego some profitable business that our competitors would find appealing,” Siddall said.

“While we would prefer that our competitors followed our lead for the good of our economy, they nevertheless remain free to offer insurance to those for whom we would not.”

By not tightening lending standards, Siddall warned that the entire economy could be put at risk.

The Switzerland-based Bank of International Settlements, an industry group for central banks around the world, warns that as a rule of thumb, when households have debt loads above 80 per cent of their gross income, it’s bad for the economy.

Canada’s ratio on that front has blown past 100 per cent and is approaching 115 per cent, Siddall warns. 

“Too much debt not only increases risk, it therefore slows economic growth.”

CMHC expects house prices to fall

COVID-19 has walloped every facet of the Canadian economy, but broadly speaking, house prices have yet to fall in any meaningful way. Compared to last year, average prices were flat in March and April, before ticking higher, in May and into June.https://datawrapper.dwcdn.net/6GnwF/1/

But that is unlikely to continue forever, Siddall warns.

He suggests a big reason that prices are staying high is because massive government spending programs like CERB and CEWS have allowed people to keep their heads above water for now.

But those are set to expire in the coming months, as will the hundreds of thousands of mortgage interest deferrals that banks have doled out. 

Once those programs end, bankruptcies and defaults may follow, and that is when prices may decline as new buyers are unable or unwilling to pay ever-higher prices, and sellers behind on their mortgages could become desperate to sell.

“The economic cost of COVID-19 has been postponed by effective government intervention,” he said. “It has not been avoided.”

House prices could fall by about 18 per cent and the impact of COVID-19 will be felt into 2022, the CMHC said recently.

Siddall said that under the current rules, there are loopholes that could allow people to buy houses with negative equity.

Although rare, mortgages for 95 per cent of the home’s value are allowed, and that loan would come with a four per cent capitalized insurance fee. Even a tiny fall in the housing market for someone with that loan would be onerous to withstand, as the homeowner would owe far more on their home than it is worth in reality.

‘Dark economic underbelly’

“In the midst of an economic calamity,” Siddall said, “we risk exposing too many people to foreclosure. These are individual tragedies that also create conditions for exacerbating feedback loops and house price crashes.”

Without naming names, Siddall accuses some in the industry of handing out too many risky loans while ignoring the long-term cost of doing so.

“Please put our country’s long-term outlook ahead of short-term profitablility,” he said.

“There is a dark economic underbelly to this business that I want to expose.

Source: CBCNews.ca – Pete Evans Senior Writer Aug 12, 2020 2:19 PM

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Preparing for the storm

Preparing for the storm

by Michael McWilliams, Tamara Watson 27 Jul 2020

If mortgage loans are ships at sea, they are locked on a course that’s taking them directly into a storm. Reports released since COVID-19 hit the Canadian economy tell us that that storm – a nauseating combination of rising mortgage defaults and crashing real estate prices – is coming.

This knowledge leaves mortgage lenders with three questions: What should they do to prepare? How should they navigate the situation? And will their investments survive?

Early warnings of mortgage defaults arrived shortly after COVID-19. In April, a Dart & Maru/Blue survey found that one in 10 Canadian mortgage holders believed they would soon default. A majority of Canadians also believed that housing prices would depreciate in the months to come.

In May, CMHC CEO Evan Siddall warned the country that a growing debt “deferral cliff” is looming in the fall, when borrowers will have to start paying their mortgages again after a six-month respite. When the deferred debt comes due, as much as 20% of mortgages could be in arrears. Soon after, the Bank of Canada echoed Siddall’s warning in a financial system review released on May 26.

The risk of default is compounded by falling real estate prices. According to the experts, Canadian housing prices are set to fall by between 9% and 18%. A full return to pre-COVID levels is not expected before the end of 2022.

Thanks to two decades of low unemployment and rising real estate values, many private lenders have never experienced a default. If they have, the borrower has typically been able to remedy the default or refinance the mortgage loan before enforcement became necessary.  

Mortgage lenders can take practical steps to protect their loan investments before they are lost at sea. While no amount of planning can guarantee that a determined borrower will not bring endless motions or break the locks to re-enter the property, lenders can mitigate much of the risk related to mortgage enforcement through preparation.

First, assess the likelihood that the borrower will default on the loan. Gather all available information about the borrower from the mortgage application, publicly available documents and even from the borrower themselves. If a borrower has lost a job or had to shut down a business, the lender needs to know. For corporate borrowers, obtain an updated corporation profile report to see if the corporation has been dissolved. If it has, the land securing its mortgage loan may become vested in the Crown, and the lender will face a special set of challenges.

Second, determine whether the security sufficiently ensures repayment of the loan. Factors will include an assessment of the current value of the property, the position the mortgage is in, whether the property generates income, whether an assignment of rents was provided and whether any personal guarantees were given. A lender that is not in first position should consider how much equity might be available if the property is sold and what it will do if there is a shortfall. Second and subsequent mortgagees might also wish to consider whether they have or can get enough capital to pay out prior mortgage lenders to get control of the mortgage enforcement process.

Third, work with knowledgeable legal counsel to develop a mortgage enforcement strategy. Several remedies are available; there’s no simple answer to the question of which one will be most effective. In every case, the lender must weigh the merits of all available remedies with the help of experienced legal counsel.

As housing prices fall, distressed borrowers will have limited ability to refinance a mortgage in default. Some highly leveraged borrowers will choose to walk away from real estate investments once their equity dwindles down to nothing. Compared to recent decades, we can expect more contested proceedings and difficult choices about the best remedy.

The good news is that mortgage lenders can improve the odds of reaching safe harbour with strategic preparation and sound advice. The storm is coming. The time to prepare is already here.

Source: MortgageBrokerNews.ca Michael McWilliams is a partner and head of the commercial litigation group at TK law firm Loopstra Nixon. Tamara Watson is a student-at-law at Loopstra Nixon who will be called to the bar in 2020

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5 Steps to Buying a Home That Won’t Bust Your Budget

A new homeowner holding out the keys to her house while looking at her budget.

It’s easy to feel overwhelmed by all the decisions that go into buying a new home. Brand new or existing? Cottage or McMansion? Fixer-upper or move-in ready? City or country? After all, a home is a big purchase, and you want it to be a blessing for many years to come.

But one question holds the key to home-buying success: how much home can you afford?

Lucky for you, you don’t need a degree in rocket science to find the answer. You just need to know how to budget. Here are five steps to buying a home Dave Ramsey recommends to make the process smoother.

Step 1: Add Up Your Income

You can’t make a budget if you don’t know how much you can spend. So sit down and add up every source of income you receive each month.

Let’s crunch numbers based on a two-earner household. In our example, John brings home two paychecks a month, while his wife Jane receives one.

John’s Paycheck 1 = $1,600
John’s Paycheck 2 = $1,600
Jane’s Paycheck = $2,800

Total Monthly Income = $6,000

Step 2: List Your Household Expenses

Next, write down every place your dollars go each month. Find expert agents to help you buy your home.

John and Jane rent a one-bedroom apartment in the heart of town so they can be close to work. A big chunk of their budget goes toward saving for retirement and a down payment on their new home. Here’s how their current budget looks:

John and Jane’s Pre-Home Budget
Charitable Gifts = $600
Savings = $2,200
Rent = $900
Utilities = $300
Food = $400
Clothing = $100
Transportation = $450
Medical = $400
Personal = $450
Recreation = $200

Total Expenses = $6,000

Of course, everybody’s budget is going to be different. We’ve assumed some things in this sample. If some of these categories don’t fit, feel free to make them your own.

Step 3: Calculate Home-Ownership Costs

Dave Ramsey recommends your housing payment, including property taxes and insurance, to be no more than 25% of your take-home income. 

To maximize your savings, you should get a 15-year, fixed rate mortgage.

That means the maximum amount John and Jane should spend on their home payment each month is $1,500. Of course, home ownership isn’t limited to a house note. John and Jane make room for expenses like HOA fees, maintenance and repair, furniture and décor, and lawn care in their budget. They also add extra heft to utilities and transportation since they’ll have more square footage and a longer commute in their new home.

John and Jane’s down-payment goal will be complete when they purchase a home, so they reduce the amount they allot to savings.

If you need help figuring out how much house you can afford, we suggest using our mortgage calculator

John and Jane’s Budget: Changes Made With Home Ownership in Mind
Savings = $2,200 $900
Rent Mortgage = $900 $1,500
Other Housing Expenses = $250
Utilities = $300 $400
Transportation = $450 $550

Total Expenses = $6,000 $5,750

With these adjustments, John and Jane still have money left over—but the budgeting doesn’t stop here.

Step 4: Give Your Budget Room to Grow

Life is going to happen in the years you occupy your home. Before you get married to a mortgage, look ahead and consider events that might increase your living expenses down the road.

John and Jane don’t have children yet but hope to start a family next year. Guess what? Kids cost money! According to the USDA, a middle-income married couple spends an average of $727 a month on non-housing expenses in a child’s first years of life. Depending on what you make or where you live, it could be more, it could be less.

John and Jane build cushion for Junior into their budget by parking an additional $750 into their savings account each month. That puts their savings total at $1,650 and bumps their monthly expenses up to $6,500.

John and Jane’s Budget: Changes Made With Junior in Mind
Savings = $900 $1,650

Total Expenses = $5,750 $6,500

Step 5: Make Adjustments

Right now, John and Jane’s expenses outweigh their income by $500, so they’ve got some balancing to do. John and Jane realize that spending 25% of their income on a mortgage will squeeze out their ability to afford diapers and daycare. So they aim for a more conservative home payment and tighten the purse strings in a few other areas.

John and Jane’s Final Home-Buying Budget
Charitable Gifts = $600
Savings = $1,650
Mortgage = $1,500 $1,250
Other Housing Expenses = $250
Utilities = $400
Food = $400
Clothing = $100 $50
Transportation = $550
Medical = $400
Personal = $450 $400
Recreation = $200 $50

Total Expenses = $6,600 $6,000

When income minus outgo equals zero, your job is done because every dollar has a name.

$6,000 – $6,000 = $0


That means you can feel confident buying a home that won’t bust your budget. Just keep your mortgage to 25%—or less!—of your monthly income and don’t borrow so much that you can’t breathe if life changes down the road.

Boost Your Buying Power

Now that you know the secret to being a happy homeowner, it’s time to go out and get the most home for your money! All you need is an expert negotiator by your side. A buyer’s agent brings your best interests to the table so you can get the best deal on a home that’s right for you and your budget.

Source: DaveRamsey.com

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Do sellers ever agree to rent-to-own deals? Yes, a few—when there’s a downturn

It’s a route to ownership that may make sense if you’re a renter who wants to buy but you’re concerned about job stability and need a way out if necessary.iStock

It’s fair to say that most New York City renters have the same real estate fantasy: Instead of throwing away their money every month—and agonizing over it—they could be applying their payments toward ownership.

That’s why rent-to-own luxury condo programs, which are rare but growing in the pandemic, have so much appeal. They help developers who are struggling to fill empty apartments and give renters who want to buy a chance to wait and test out the building—like a glide path to ownership. You can find rent-to-own condos at 100 Barclay StreetOne Manhattan Square, 196 Orchard, 298 East Second Street (Houston House) and 21-30 44th Dr. in Long Island City (Corte).

Luxury condo are nice of course, if you can afford them, but for most buyers a condo that starts at, for example, $4,485,000 at 100 Barclay or $1,395,000 at 196 Orchard is out of reach. So you might be wondering: Is it possible to approach someone selling an apartment or a house and ask if the owner will allow you to rent first and buy later—and apply your rent payments to the purchase price?

Market decline brings back rent to own

The answer is yes. Rent-to-own purchases of apartments or houses from a seller (not a condo developer) come back in fashion when sales are slow, like they are now. But it is not typically a widespread phenomenon.

“In the last downturn there was buzz about rent-to-own and very few deals happened—it was talk, talk, talk, and at the end of the day, very few happened,” says Mark Chin, CEO of real estate brokerage KWNYC.

These deals don’t end up converting many sellers, however, with more programs available from condo developers, rent-to-own may gain some more traction. And as sellers are forced to compete with developers of new condos, taking a page out of their playbook is one way to level the field.

Why would you rent to own?

It’s a route to ownership that may make sense if you’re a renter who wants to buy but you’re concerned about your job stability in this economy, for example, and want the ability to cancel the deal without penalty. Like rent-to-own condo programs, rent-to-own deals for resales give you a period of time to decide whether to buy.

So, if you are renting for one year, you may have to let the owner know by the eighth month if you intend to buy. Depending on the agreement, you can apply a portion or the full amount of your rent toward the purchase price. The deal allows you to chip away at the price of the house while giving sellers the rental payments they can use to pay their mortgage or common charges.

A rare kind of real estate deal

They’re not a straightforward path to ownership though. In fact they remind Jonathan Miller, president and CEO of appraisal firm Miller Samuel, of a reverse mortgage, another rarity for NYC. And, if you think about it, they are also somewhat mind bending when you consider what happens when a tenant ultimately decides to buy, and has their rent deducted from the sales price. “You could argue that they paid no rent,” Miller says.

It’s not necessarily a way to get a deal either. Usually, the seller is asking for a price they couldn’t get on the open market, Miller says.

To Miller, they make up a nominal, niche part of the market.

Where to find a rent-to-own property?

Rent to own can be negotiated with any type of building—townhouse, condo, or co-op, says Steve Wagner, partner at the Manhattan law firm Wagner, Berkow & Brandt, who represents co-op and condo owners (and is a Brick sponsor, FYI).

“I’ve done a couple of them,” he says, emphasizing that the deals were not new construction but apartments that were converted long ago and were rented to someone who is interested in buying.

“With a condo or co-op, it is likely you’d be approved to buy but not guaranteed. Generally with condos, the board has a right of first refusal and co-ops have the right to consent. This is handled in the contract, as well as financing, approval, representations, all the stuff you’d normally have in an agreement,” Wagner says.

To Craig L. Price, a partner at the law firm of Belkin, Burden, Goldman, this mode of buying “has become more than niche” recently. He’s seeing an uptick now because of the pandemic and in the last month worked on four such agreements (one didn’t pan out because of the complexity of the deal and became a regular rental).

These arrangements are easier to do in a condo than in a co-op, he says, which will require jumping through many hoops to gain approval from the board.

Price recommends pre-negotiating a purchase agreement before you occupy the apartment or house—you’ll have more leverage with an owner of an empty place. An attorney will need to work out protections for you to prevent the owner from selling to someone else before you exercise your option, he says.

“The downside for tenant is that they may overpay,” Price says. You are negotiating a price without knowing where the market will be in eight months or a year from now when it is time to pay up. You may be locking in a premium price for the property, he explains.

He recommends tenant buyers get a financing contingency as part of the deal (aka a mortgage contingency), which offers you a way out if you can’t get a mortgage.

Source: Brick Underground – JULY 27, 2020 – 9:30 AM


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Mortgage Deferrals ‘Buying Time’ For Canadians, Bank Of Canada Says

A view of Metro Vancouver is seen here at twilight on July 18, 2020, from Burnaby, B.C. Softening...
A view of Metro Vancouver is seen here at twilight on July 18, 2020, from Burnaby, B.C. Softening population growth from immigration could start to weaken house prices in the future.

The pause in mortgage payments are giving people a chance to get back to work.

TORONTO — A Bank of Canada economist says the current economic recovery could be different than the recovery from the financial crisis of 2008.

Mikael Khan, the Bank of Canada’s director of financial stability, said that while the employment rate has fallen due to the pandemic, house prices are recovering and keeping homeowners from filing for insolvency.

Khan said breaks from mortgage payments have bought homeowners some time to get back to work amid the COVID-19 pandemic and economic downturn.

“The fact that these deferrals have been available is really, really important,” said Khan. “Ultimately, what matters most when it comes to defaults is people having a job, having their incomes. What the deferrals are doing is they’re essentially buying time for that process to unfold.”

Khan, who spoke at the Move Smartly Toronto Real Estate Summit on Monday, has been studying mortgage defaults. He compared the COVID-19 pandemic to a natural disaster, such as the 2016 wildfires in Fort McMurray, Alta., which also involved a mortgage deferral recovery plan.

Bank of Canada research found that while the wildfires caused a bigger spike in employment insurance filings than the 2008 recession, the EI trend reversed much faster after the fires than in 2008.

The 2008 conditions set off a lengthy recession due to “an underlying fragility in the global financial system,” the research suggested. But the wildfires, like the COVID-19 pandemic, were a sudden shock.

“One thing that’s always very important when you’re facing a large negative shock is the initial conditions,” said Khan.

“In Fort McMurray, when the wildfires hit, that’s an area that had already been struggling for some time with the decline in oil prices that had occurred about a year or so prior, so financial stress was quite high,” Khan said.

“Now, at the national level, what we’ve been concerned about for many, many years is the high level of household debt. That’s the No. 1 pre-existing condition that was there when the pandemic struck.”

While there are some parallels, the rebuilding process from a pandemic remains more uncertain compared to a wildfire, the research said. Khan cited increased savings rates as an example of a fundamental shift with potential to affect how quickly the economy recovers from COVID-19.

Watch: Expect interest rates to stay low for “a long time,” the Bank of Canada says. Story continues below.

Over the past few months, some have warned that it could lead to a deferral cliff once benefits —such as Canada Emergency Response Benefit and mortgage deferrals — run out.

“When it comes to bumpiness in the recovery … this question that has been in the background of most of our discussions is, ‘To what extent will we see defaults or insolvencies?’” said Khan. “I think it’s reasonable to expect some sort of increase. What we’d be concerned about, there, is a very large-scale increase.”

Khan said that when a mortgage is in default, it can be caused by a “dual trigger” of both unemployment and large decline in house prices. Home prices in many areas have recovered since the start of the pandemic, Khan said. The job market’s recovery will be key to determining the impact of mortgage deferrals, said Bank of Canada research cited by Khan.

Softening population growth from immigration could start to weaken house prices in the future. But for now, Khan said, it wouldn’t make sense for homeowners with healthy home equity to file for insolvency.

“Even in cases where a homeowner simply can’t make their mortgage payments anymore — as long as they have equity in their homes and the housing market is relatively stable — there’s always the option to simply sell without kind of resorting to those sorts of measures,” said Khan.

Source: This report by The Canadian Press was first published July 20, 2020.

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The worst is yet to come for renters, apartment owners

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Apartment landlords across the U.S. spent the last days of March holding their collective breath while waiting for rent checks to come in.

For the most part, they did, thanks to the $2 trillion in emergency relief authorized by Congress to blunt the economic blow of the pandemic. Now, expanded unemployment benefits are expiring and eviction bans are set to lift, leaving tenants and building owners wondering again what will happen when the bills are due.

It’s not going to be good.

One in three renters failed to make their full payment in the first week of July, an Apartment List survey showed. Nearly 12 million renters could be served with eviction notices in the next four months, according to an analysis by advisory firm Stout Risius Ross. And in some cities, like New York and Houston, more than a fifth of renters say they have “no confidence” in their ability to pay next month.

“You’d have to go back to the Great Depression to find the kind of numbers we’re looking at right now,” said John Pollock, staff attorney at the Public Justice Center, a Baltimore nonprofit that uses legal tools to fight poverty. “There’s almost no precedent for this, which is why it’s so scary.”

The pandemic spurred mass layoffs beginning in March, and renters have been scraping by on a combination of savings, credit card debt, unemployment benefits and federal stimulus. Roughly 11 million renters spend at least half of their income to keep a roof over their heads in normal times, and the first wave of job cuts skewed toward lower-paying retail and hospitality workers who are less likely to have emergency savings.

One-time stimulus payments of $1,200 helped, as did eviction moratoriums passed by local, state and federal governments. And Congress authorized an additional $600 a week in unemployment insurance on top of what states provide, offering a lifeline to millions. In some cases, the benefits exceed what workers were bringing home while employed.

That extra boost will expire at the end of the month without action by Congress. The Trump administration and Senate Republicans have yet to release their $1 trillion plan for another round of virus relief, which Treasury Secretary Steven Mnuchin and others have described as an extension of portions of the last stimulus. The proposal would be their opening bid in talks with Democrats, who’ve already offered a $3.5 trillion package.

Continuing the extra unemployment benefits would provide a measure of relief to people like Brooke Martin, 33, who lost her job at a dive bar in Seattle in March. Even though the business has since reopened, she’s hesitant to go back, fearing for her own safety. The bar doesn’t have good ventilation and people aren’t wearing masks when they aren’t drinking, she said.

Martin and her husband have been living off her unemployment alone, because he was unable to collect benefits himself. After her student loan payments, utilities and other expenses, the money is barely enough to cover their $1,800-a-month apartment.

“As of the end of the month, we’re screwed,” she said. “There’s just no two ways about it.”

The U.S. had a pretty “stingy” safety net when it came to housing before the pandemic, said Mary Cunningham, vice president of the Metropolitan Housing and Communities Policy Center at the Urban Institute.

But Congress’s quick action to give aid this spring has shown the upside of being more generous. Adults who received unemployment benefits were far less likely to report they were worried about making rent or mortgage payments, compared to those who hadn’t gotten the relief, according to a survey the institute conducted in May.

“This has been an important part of the safety net,” said Cunningham. “If Congress doesn’t do anything, I think we are in for a dark fall and winter.”

John Pawlowski, a senior analyst at real estate research firm Green Street Advisors, said he doubts the apartment industry would see an immediate crash if the additional unemployment benefits aren’t extended. People will skip things like auto and credit card payments to cobble together enough for rent.

“People still need a place to live,” he said.

But over the long-term, rental revenue will decline because of missed payments and lower occupancy as tenants look to save money by doubling up with others, Pawlowski said. Landlords could end up missing more than $22 billion in rent over the next four months, according to the Stout analysis.

Chuck Sheldon manages about 1,650 apartments in Albuquerque, New Mexico, about half of which he owns. Rent collections have been far better than he had feared in late March, when several states were going into lockdown.

Sheldon’s T&C Management tends to rent to more blue-collar and service workers who have been disproportionately hit by job losses. Most have tried to stay current, he said, and the $600 unemployment boost has been a “huge” part of that.

“When it drops off, that’s going to be painful,” he said.

Source: Bloomberg News 26 Jul 2020

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How much does a “middle class” lifestyle cost in Toronto?

How much does a “middle class” lifestyle cost in Toronto?

Condos in Toronto’s downtown core have become increasingly out of reach of most household budgets, skewing what it means to be “middle-class” in one of Canada’s hottest cities.

Speaking to the Daily Hive, Fong and Partners Inc. said that a “middle-class” one-child household living in a modest condo in the area will cost a family around $123,388 annually after taxes – an income level currently accessible to only the top 10% earners.

Even singles – who would need to make around $74,000 annually after taxes – will find it exceptionally difficult to sustain themselves in the downtown area: A one-bedroom condo with one parking spot in Toronto’s core will cost approximately $2,540 a month in mortgages alone.

Those who are counting on the long-term impact of coronavirus pandemic to moderate home price growth should abandon such notions, according to Victor Fong, president of Fong and Partners.

“This is because of the money-printing that is happening in the US, Europe, and Canada to battle the economic effects of COVID-19. Money printing causes inflation in asset markets such as real estate, which naturally increases prices,” Fong said.

Recent Royal LePage data supported Fong’s stance, with the national aggregate home price growing by 6.8% year over year during Q2 to reach $673,072.

“Home prices shot up in the second quarter as a crush of buyers entered the market, attracted by extremely low interest rates and the perception of bargains to be had,” said Phil Soper, president and CEO of Royal LePage. “Once provinces allowed regular real estate activity to resume, demand surged in many markets. Inventory levels, already constrained pre-pandemic, have failed to keep pace.”

Source: MortgageBrokerNews.ca – by Ephraim Vecina 27 Jul 2020

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Financial Stress Index finds Canadians more worried about money than relationships, work, health

Financial Stress Index finds Canadians more worried about money than relationships, work, health

A recent survey by financial planning firm FP Canada has found that stress related to money outweighs worries around relationships, work and health for Canadians. That won’t come as a surprise to mortgage brokers, but the firm’s most recent Financial Stress Index contained a few surprising nuggets of information: Canadians are actually less worried about their finances than they were in 2018, and more than half of respondents in most areas of the country said their level of financial stress has not been impacted by COVID-19.

In 2020, 38 percent of the Canadians surveyed said money is their greatest source of stress, with 25 percent choosing health, 21 percent work and 16 percent relationships. Two years ago, 42 percent chose money, while 22 percent said personal health. The increase in Canadians saying health is a greater worry makes a fair bit of sense when the country is still dealing with its share of the COVID-19 pandemic. The fact that the widespread financial disruption experienced during the pandemic hasn’t caused financial worries to spike should be taken as a positive indicator.

When the findings are broken down by age, financial worries are greatest for the three youngest generations studied – millennials (44 percent), young Gen Xers (44 percent) and older Gen Xers (40 percent). Money was the main concern for only 37 percent of Canadians aged 55-64 and for 25 percent of those 65-plus.

The Index broke financial worries down into several categories and found that bills, debt, income stability and rent/mortgage payments were the biggest stressors for younger Canadians. Each category worried at least 36 percent of survey respondents, with bills (48 percent) taking top spot. For older Canadians, the greatest worry was saving enough for retirement.

A difference in earnings had little impact on individual levels of financial stress. An equal percentage of Canadians making $40,000 to $79,000 and those making over $80,000 – one-third – all chose money as their major stressor, although half of people making less than $40,000 rank money as their main source of anxiety.

The only region where more than 50 percent of Canadians felt their level of financial stress was impacted by COVID-19 was Alberta. In Quebec only 36 percent of respondents say the pandemic has increased their level of worry. Forty-seven percent of women said their level of stress has been affected by COVID-19, compared to 41 percent of men.

Impacts of financial stress
Half of the survey respondents said financial stress has impacted their lives in a negative way. Sixty percent of under-35s and 46 percent of those over 35 all reported experiencing either health issues (18 percent), relationship problems (15 percent), reduced productivity (14 percent) or family disputes (13 percent) related to financial stress. An additional 10 percent say they have experienced substance abuse or mental health issues.

FP Canada, in a not-so-subtle bit of self-promotion, compared the stress levels of Canadians who use financial planners to those who don’t. The company found that 53 percent of those working with a financial planner said financial stress does not impact their life. The data can be taken with a grain of salt, but if the numbers are accurate, enlisting the services of a financial planner may be a topic worth discussing the next time a client looks like he hasn’t slept or eaten in a week.

Monitoring a homeowner’s stress levels is something a broker must be willing to do. If clients seem to be teetering on the brink of collapse, encouraging them to find a healthy way to decompress can be an important first step toward improving their frame of mind.

“When people learn how to decompress in healthy ways and manage the difficult emotions that come with financial stress, they’re in a physiologically and psychologically calmer space to have better problem-solving abilities,” says clinical neuropsychologist Dr. Moira Somers. Once their emotions are brought under control, these individuals will then be in a position to tackle the issues at the root of their stress.

“People do best when they engage in a combination of the two strategies,” Somers says. “Focusing exclusively on either the problem itself or the settling of emotions can prevent people from making good decisions and then taking appropriate action.”

Source: MortgageBrokerNews.ca – by Clayton Jarvis 27 Jul 2020

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What Does a Property Manager Do? Here’s the Job Description

If you’ve recently started out in the real estate business and have glanced at the property manager job description, you might think you’re saving money by skipping this expense. You can handle all these tasks—right?

Think again. Half of the appeal of investing in rental property is the passive income it yields. Maximum financial reward for minimum effort. Everyone has the time to be a landlord for one property, even two. But once you have a handful under your belt, the workload can become a bit overwhelming.

Owning real estate shouldn’t be a job; it should allow you to live life on your terms, give you the freedom to enjoy life when and wherever you wish. But you can’t do that if you’re spending all your time managing your properties. Whether you have just four or five properties or an entire empire, it’s best left to the experts.

You’ve heard the phrase “Jack of all trades, master of none”? Don’t be Jack.

Purchasing your first rental property is just the beginning of your real estate journey, because being a good landlord is almost as important as making good deals. BiggerPockets’ free guide How to Become a Landlord: Managing Rental Properties for Real Estate Investors will teach you everything—from setting rent to handling evictions.

Property Manager Job Description: The 10 Key Tasks

Here’s how a property manager can help you grow your real estate business:

1. Setting the right rates

Pricing your property competitively is vital for every landlord. Too high and you won’t fill the space. Too low? Good luck making money. A property manager knows the micro market, local area, and current rental rates, enabling them to correctly value your buildings’ worth and price the units accordingly.

2. Marketing and advertising

You lose money every day your property is empty. Exposure helps you find tenants, and a property manager can help you create a coherent marketing strategy that will develop your brand, establish your reputation, and boost interest from prospective tenants.

3. Complying with housing regulations

State and federal laws around housing and evictions can be rather confusing. A professional property manager can walk you through everything, from paying taxes, discrimination laws, and needed certificates. But be warned that you are still liable if your property manager gets into legal trouble, so make sure they know what they’re talking about.

4. Finding good tenants

Property management companies find higher-quality tenants for filling vacancies because of their rigorous screening processes. These people often sign longer term leases, inflict less wear and tear, and cause fewer problems. If you work alone, you might find yourself drowning in applications—but a professional property manager can assess applicants quickly and easily using a comprehensive screening process, including background and credit checks.

5. Collecting and depositing rent payments

Strict rent collection is crucial to financial success. A property manager acts as a buffer between you and your tenants so you don’t have to chase up late payments or listen to complaints.

RELATED:How Much Does Property Management Cost? Here’s What Fees to Expect

6. Providing customer service

If you’re not a people person, it may be best to have someone else deal directly with tenant complaints. Not everyone has A+ communication skills—and that’s okay. A positive, smiley, helpful property manager will build up a rapport with your tenants and placate any problems with practiced ease. A company also ensures there is someone tenants can contact, even when you’re on that two-month Caribbean cruise.

7. Handling maintenance and repair

Let’s be honest—no one wants to be woken at three in the morning because a pipe burst in a rental unit across town. When things inevitably go wrong, your property manager brings a set of management skills that help quickly and efficiently handle any problem. Remember, your tenants want problems solved immediately. Delays can lead to complaints. Thanks to their wealth of experience in real estate, property managers can also suggest preventative maintenance before a problem has even occurred.

8. Managing vendor relationships

When you do require maintenance or repairs, it can be a hassle to get the right tradesmen for the job. A good property manager will know reputable, reliable, licensed workers—and have good relationships with them. They should also have established policies to prevent any problems when the workers enter the property, which protects you from litigation.

9. Assisting long-distance investing

As your property empire grows, you may wish to begin looking for investments outside your immediate area. If you sign a contract with a state or nationwide property management company, you can rest easy. Your properties are all being looked after to the same high standard as you enjoy in your own town.

10. Maximizing profitability

If you intend to live off the revenue from your real estate business, you need to dedicate your time to searching for new investments. Once you’ve got a few rented properties under your belt, you’re probably ready to expand. But how can you do that if your time is spent dealing with tenants, addressing problems, and collecting rent? With daily operations handed over to your property manager, you’ll have more time to scour the market for that next investment.

Financial Benefits of Hiring a Property Manager

Don’t forget that hiring a property manager is financially sound. You may feel somewhat reluctant to fork out for this service, but it will pay dividends in the long run. These experts can maximize your business profits by creating distance between the property owner and tenants.

Most charge between four and 12 percent of your monthly rental rate—but remember that higher percentages often lead to a higher quality of service. Less is not more in this case, and a good property management company can be worth its weight in gold. Don’t skimp on this aspect of your business; it’s not worth it.

Of course, it’s important to do some thorough research before you hire your property management company. Ask your property manager these 20 questions before signing on the line.

RELATEDHow to Spot a Great—Not Just Good—Property Manager

Do Landlords Need a Property Manager?

Clearly, a property manager wears a lot of hats. But maybe you think you can spare the expense and do the work yourself. The property management job description encompasses more than just basic tasks. Before you dive into managing your own properties, think about if you can:

  • Negotiate a decent rate on maintenance issues with a surly contractor
  • Convince a mostly broke renter that paying rent is more important than buying steak
  • Keep track of at least three and as many as a dozen separate streams of incoming and outgoing money. Don’t forget rent and security deposits, some commingled and some not, across anywhere from four to a dozen different accounts… while being able to provide proof at any given moment of what went where, when, and why
  • Advertise property inexpensively and effectively without sacrificing your ability to get a tenant who will pay a reasonable rent and not destroy the place before move-out
  • Avoid signing a mostly reasonable-looking new tenant (who ends up destroying the place)
  • Handle all of the property maintenance—including those 3 a.m. floods
  • Communicate with, placate, and motivate tenants who have conflicting goals and priorities.

Property Management Advanced Skills

That job description is just your run-of-the-mill, no-frills property management. If you want a top-of-the-line real estate empire, you need all those skills at their peak level—plus the ability to:

  • Navigate a court case, remaining professional and calm while tenants make absurd claims about how you ate their dog and that’s why they’re late on rent for the third month running
  • Comprehend the effects that the large-scale and local-scale market movements are having on each client’s properties. In addition, predict how that will affect your ability to charge, your future costs, and the client’s risk levels
  • Work with finicky city inspectors to bring buildings that were—just last week!—70 percent hellhole into the realms of livability
  • Comprehend the systems used by your writers, inspectors, agents, photographers, builders, vendors, and so on well enough to troubleshoot and help guide them toward effective solutions.

This might seem easy to you, or maybe even fun. If that’s the case, feel free to dive into the property management world solo. But if you find the above job duties frightening, hire an expert to deal with the nitty-gritty.

However, you must remember: It’s your business. You’re the CEO, the big cheese, the top dog. Therefore, don’t get bogged down in the day-to-day running of things. Leave that to someone else, someone qualified and experienced and capable of making you lots of money. As a real estate investor, it’s your job to sit back and watch the money roll in.

Source;Engelo Rumora – BiggerPockets

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