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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Rob
8 years ago

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.

Justin
10 years ago

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.

Bob Fish
10 years ago

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!

Rachelle
11 years ago

@ 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.

Mike Barker
11 years ago

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.

Wendy
11 years ago

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

Rachelle
11 years ago

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.

Aolis
11 years ago

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.

Nolan Matthias
11 years ago

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.

LarryLat
11 years ago

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