28 Sep

CIBC Holds Firm on Interest Rate Prediction


Posted by: John Dunford

One of Canada’s largest mortgage lenders says that the Bank of Canada is in no hurry to make another increase in interest rates.

CIBC said Thursday that it is holding firm on its prediction that Governor Stephen Poloz will not make another increase until spring 2018 despite some strong economic indicators.

The bank’s Capital Markets division says that the BoC needs the Fed to make its next interest rate move first to avoid further appreciation of the Canadian dollar, which the report says is unsustainable at current levels.

CIBC Capital Markets forecasts a 1% rate to remain until June 2018 when it will rise to 1.25% with a further 25 basis points rise to 1.50% in December 2018 and then to 1.75% in June 2019.

22 Sep

Buyers To Face Even Greater Hurdles


Posted by: John Dunford

Last year’s mortgage rule changes placed roadblocks in front of millions of would-be buyers, but increased rates and future regulatory action may prove even more difficult for them to overcome.

That’s according to one leading economist, who argues the latest rate increases and the addition of another round of mortgage rules represent major hurdles in front of prospective homeowners.

“The posted mortgage rate has now increased 20 basis points to 4.84%, which is of particular importance because since October 2016 this is the assumed borrowing rate at which mortgage applicants must qualify for insured loans,” Dr. Sherry Cooper, chief economist for Dominion Lending Centres, wrote in her report on CREA’s latest data. “The Office of the Superintendent of Financial Institutions (OSFI) issued a proposal in July to tighten the qualification criterion for uninsured borrowers as well–that is, those that put at least 20% down on their home purchase. If the proposal were implemented, high loan-to-value mortgage borrowers would need to meet debt-servicing requirements at mortgage rates 200 basis points above the contract rate.

“Many believe this would have an even bigger negative impact on housing than the October 2016 measures.”

The Bank of Canada raised its target for the overnight rate to 1% earlier this month.

OSFI, meanwhile, is currently receiving consultation on its latest suggest mortgage policies, which include a qualifying stress test for all uninsured mortgages, as well as a crackdown on bundled mortgage loans.

If OSFI’s measures pass as currently written, they are expected to make it more difficult for Canadians to qualify for a mortgage.

However, with that – and the threat of further interest rate increases – on the horizon, brokers can likely expect an influx of potential clients in the coming months before a slight dampening in demand.

“Experience shows that home buyers watch mortgage rates carefully and that recent interest rate increases will prompt some to make an offer before rates move higher, while moving others to the sidelines,” CREA President Andrew Peck said last week.

15 Sep

What You Need to Know About the Equifax Data Breach


Posted by: John Dunford

Equifax, one of the three main credit reporting companies, said this week that a major data breach exposed Social Security numbers and other important information of millions of people.

The breach affected about 143 million in the United States, as well as some people in Canada and the United Kingdom, but Equifax didn’t provide a number. Hackers had access to the data between May and July, Equifax said. The company discovered the hack on July 29 and publicly announced it more than a month later on Thursday.

Here’s what else you need to know about the breach:



Hackers had access to Social Security numbers, birth dates, addresses, driver’s license numbers, credit card numbers and other information. Those are all crucial pieces of personal data that criminals could use to commit identity theft. Those are what John Ulzheimer, an independent credit consultant who previously worked at Equifax, called “the crown jewels of personal information.”

Equifax’s security lapse could be the largest theft involving Social Security numbers, one of the most common methods used to confirm a person’s identity in the U.S. The data breach is especially damaging to Equifax, since its entire business revolves around being a secure storehouse and providing a clear financial profile of consumers that lenders and other businesses can trust. The credit profiles it holds contain personal information, like how much people owe on their houses and whether they have court judgments against them.



Equifax set up a site, equifaxsecurity2017.com , where you can type in your last name and six digits of your Social Security number to find out if your data may have been compromised. Consumers can also call 866-447-7559 for information. The company says it will send mail to all who had personally identifiable information stolen.

Equifax is also offering free credit monitoring for a year. The company says the service will search suspicious sites for your Social Security number, give you access to your Equifax report and other offerings. You can sign up at the same site listed above, and the deadline to do so is Nov. 21.

Initially, though, there was a catch _ signing up would also commit you to binding arbitration with the credit monitor, which would mean giving up your right to sue. Several politicians and consumer groups have criticized this provision. Democrats in the House and Senate called on the company to pull back that requirement. Late Friday, Equifax said the arbitration language that appears on its website “will not apply to this cybersecurity incident.”



You can view your credit reports for free at

AnnualCreditReport.com. You’re entitled to get a free copy of your credit report from each of the three big agencies once every 12 months. Review it closely for unauthorized accounts or any mistakes. And you may need to be vigilant much longer than the free year of credit monitoring Equifax is offering. “If any of the data was exposed, you will be living with that for the rest of your life,” said Rich Mogull, who runs the security research firm Securosis. You can consider freezing your credit reports, but it comes with some downsides. A freeze stops thieves from opening new credit cards or loans in your name, but it also prevents you from opening new accounts. So each time you apply for a credit card, mortgage or loan, you need to lift the freeze a few days beforehand.

Freezes can be done online at the websites of the three credit reporting agencies — Equifax , Experian and TransUnion . You’ll need to freeze all three reports for the best protection. Each company will give you a code that you’ll need again in order to lift the freeze, so keep it in a safe place. When you plan to apply for a credit card, mortgage, or other loan you’ll need to go back to each site and lift the freeze.

The credit reporting agencies may charge a fee, usually under $10, depending on which state you live in. But it’s free for residents of some states, including Maine, New Jersey and South Carolina.

A freeze doesn’t protect you from everything: thieves can still file a fraudulent tax return in your name or charge things to your already opened credit card accounts. A freeze won’t affect your credit score or report. The report stays open and is updated to keep track of your debts, payments and other information.



Equifax is blaming an unspecified “website application vulnerability.” Security experts say it’s hard to say for sure without more information, but such vulnerabilities typically don’t require a lot of sophistication to exploit.

Mogull says the web app breach suggests “things are broken down in a couple of different areas.” He says someone likely made a programming or configuration mistake.

Corporate culture could also be a factor. Often, Mogull says, corporate security is underfunded or isn’t given the authority it needs to make sure application developers do what’s right.

Ryan Kalember of the security company Proofpoint says that even if the vulnerability was known and fixable, “co-ordination between app developers and security teams in a lot of organizations are not on the best of terms.”

Another security expert said the website Equifax created to help customers find out if they were affected raises its own security questions. The site looks like the kind set up by attackers to trick people into disclosing information, says Georgia Weidman, founder and chief technology officer for security firm Shevirah.

“It’s teaching people entirely the wrong things about using the internet securely,” Weidman said. She said says she’s also troubled by Equifax’s approach to security generally, including reports that it didn’t respond to basic scripting bugs it was warned about last year.



Potentially, a lot of people. Credit bureaus like Equifax are lightly regulated compared to other parts of the financial system.

U.S. Rep. Jeb Hensarling, chairman of the House Financial Services Committee, said he will call for Congressional hearings. And Rep. Greg Walden, the chairman of the House Energy and Commerce Committee, says he’ll hold a hearing examining what wrong and how to better protect against future hackings.

Several state attorneys general have also said they would investigate, including those from New York, Massachusetts and Pennsylvania. New York’s attorney general, Eric Schneiderman, said his office aims to “get to the bottom” of how the breach occurred.

Company executives are also under scrutiny, after it was found that three Equifax executives sold shares worth a combined $1.8 million just a few days after the company discovered the breach, according to documents filed with securities regulators. Equifax said the three executives “had no knowledge that an intrusion had occurred at the time they sold their shares.”

7 Sep

Bank of Canada Forges Ahead With Rate Hike as Economy Surges (1)


Posted by: John Dunford

The Bank of Canada forged ahead with another interest rate hike in a nod to the country’s

surging economy, while signaling its appetite for further tightening may be curbed by a rising Canadian dollar and sluggish inflation.

Policy makers raised their benchmark rate for a second time since July, by 25 basis points to 1 percent. At the same time, they cited risks including continued excess capacity, subdued wage and price pressures, geopolitics and the higher Canadian dollar, along with worries about the impact of rising interest rates on highly indebted households.

“Future monetary policy decisions are not predetermined and will be guided by incoming economic data and financial market developments as they inform the outlook for inflation,” the Bank of Canada said Wednesday in a statement from Ottawa.

Governor Stephen Poloz is trying to strike a balance between bringing interest rates back to more normal levels amid the strongest

growth spurt in more than a decade, and acknowledging the persistence oflow inflation and subdued wage pressures. He may also be attempting to restrain market expectations it will get too far ahead of the Federal Reserve.

Futures trading suggests investors were anticipating — before Wednesday’s rate decision — as many as three hikes from the Bank of Canada by the end of 2018, versus one more for the Federal Reserve. Only five of 26 economists surveyed by Bloomberg News expected the central bank to hike its benchmark rate. Futures trading was assigning about a 40 percent chance of an increase. Another rate increase is now almost fully priced in by December.

Market Reaction

Canada’s currency climbed as much as 1.8 percent after the decision, reaching C$1.2146 against its U.S. counterpart, the highest intraday level since June 2015, and extending the gain this year to 10 percent. Bonds yields surged, with the two-year note jumping eight basis points to 1.43 percent, the highest in more than five years.

The bank didn’t repeat language from previous statements about the current degree of stimulus being appropriate, which may suggest it will stay on its tightening path.

“What they are saying to me is they are leaving the door open to future

hikes,” said Derek Holt, head of capital markets economics at Bank of Nova

Scotia in Toronto. He changed his forecast last week to correctly predict the

rate increase.

Considerable Stimulus

The bank cited Canada’s stronger-than-expected economic performance for the hike, warranting a removal of some of the “considerable” stimulus in place. In effect, the Bank of Canada fully removed the two rate cuts from 2015, which were meant to counter the negative impact of falling commodity prices.

The Bank of Canada also cited recent better-than-expected data supports its view that growth is more “broadly-based and self-sustaining.” It also cited more “widespread strength” in business investment and exports, and “stronger-than- expected indicators of growth” globally.

Yet, there was an introduction of cautionary language in the statement, and new worries about financial market developments, that weren’t in the last rate decision and suggests the central bank isn’t quite ready to declare victory on whether the economy has totally eliminated its slack.

“There remains some excess capacity in Canada’s labor market, and wage and price pressures are still more subdued than historical relationship would suggest,” according to the statement.

The Bank of Canada said there remains “significant geopolitical risks and uncertainties” around international trade and fiscal policies that have weakened the U.S. dollar. The suggestion is the Canadian dollar gains aren’t totally reflective of growth. It was the first reference to the Canadian dollar in a rate statement since March.

The bank also said it will pay close attention to the “sensitivity” of the economy to higher interest rates given “elevated” household indebtedness, and added it will pay “particular focus” to the evolution of the economy’s potential growth rate, possibly a suggestion that the economy can run at a faster pace than the bank originally thought without triggering inflation.

— With assistance by Greg Quinn, and Erik Hertzberg

Copyright Bloomberg 2017

7 Sep

Prepare for Interest Rate Rise Says CIBC Economist


Posted by: John Dunford

The Bank of Canada is expected to increase interest rates this week according to CIBC economist Avery Shenfeld.

“After [last week’s] blowout GDP figures, we now see little reason for the BoC to wait before hiking interest rates again,” Shenfeld wrote in a client note, adding that it is a close call due to the strength of the loonie.

However, while the BoC governor Stephen Poloz is concerned about the strong currency, Shenfeld says that in comparison to a basket of currencies being watched by the central bank, the loonie is weaker than it was at the time of the previous hike.

On a positive note for mortgages, Shenfeld predicts that an interest rate increase will be accompanied by a statement that no further rates are imminent, having reversed the two previous cuts.

Shenfeld is in a minority calling for a rate rise this month with 24 of 33 economists polled by Reuters expecting no change until at least October.

4 Sep

Analyzing Years of Mortgage Rule Impact


Posted by: John Dunford

The most recent mortgage rule changes have had a much smaller impact on the market than previous policy changes and there’s a simple explanation for that, according to a new report.

There has been an unprecedented number of housing policy changes over the past year-and-a-half, according to TD Bank, and each has been aimed at tempering housing demand.

And while the industry viewed the last round of changes as particularly invasive, they have proven less impactful than previous iterations.

“Each successive regulation change at the federal level has left a smaller mark on home buying activity. Our estimates suggest that the most recent federal rule changes may have only shaved 2% off demand nationwide,” TD Economists Beata Caranci and Diana Petramala, wrote in their latest report, Canadian Regional Housing Outlook Navigating a Soft Landing. “In contrast, the first regulatory changes implemented in 2008 dampened home sales by roughly 10%. That policy increased the required down payment from 0% to 5% for insured borrowers and lowered the allowable amortization period from 40 years to 35 years.”

The reason for dwindling influence, according to the economists, is that each round of mortgage rule changes has specifically targeted borrowers who require mortgage insurance.

“This incented a shift away from high loan-to-value mortgages into conventional mortgages,” the economists wrote. “New loans that require homebuyer’s insurance now account for less than 20% of all new chartered bank mortgage originations, compared to 40% prior to 2008. So, each round of policy changes has targeted a shrinking share of the overall market.”

The Bank of Canada claims insured mortgage originations fell 43% in 2016 and early 2017 from the peak in late 2015.

However, that shrinking share was up by a growing number of Canadians relying on conventional mortgages.

Looking forward, it seems federal policymakers aren’t quite finished with their market tinkering.

The Office of the Superintendent of Financial Services (OSFI) has proposed additional rules in the form of income tests for all borrowers at a rate of 2% higher than the contracted rate.

And that policy is expected to temper housing demand even further.

“ … if the new measures are put into place, which will cause buyers in the former group to adjust their behaviour by coming up with a bigger down payment, opting for a lower priced purchase, scaling back other debt, or delaying a home purchase altogether,” the economists wrote. “In the year of implementation, we estimate that this new rule could depress demand by 5% to 10%, and shave 2% to 4% off of our current forecast for the average price level in 2018. This will be yet another force limiting price growth in the future.”