Reviewing article: "The bank said no - now what?"

Good afternoon Montreal Real Estate world. Today, I am reviewing an article that caught my eye in the National Post entitled "The bank said no - now what?" Susan Smith does a great job painting the current mortgage landscape and impact of the post-2008 Federal Government rule changes. However, I'd add a couple things. Susan Smith discusses how the rules changes have impacted certain consumers, I shall solely focus on the self-employed.

The Self Employed: Okay, here is the unplugged truth for anyone self employed. Is it really harder for self employed people to qualify for a mortgage? I'd say it depends on your specific circumstances (declaring income and credit quality are the usual suspects). According to Susan, "The government...tightened requirements for the self-employed, requiring independent validation of income statements." In other words, the Federal Government is forcing the self employed to declare more income on their income taxes. It is much harder to get a mortgage with an "A-lender" under the self employed program without declaring anything reasonable. For example, the most common insured self-employed program would be Genworth's Alt-A program. They require strong credit history, a +680 score, incomes taxes to be filed and up-to-date for 2 years, and no income tax arrears owed. Generally, when applying for a mortgage your income declared on line 150 of your notice of assessment can be multiplied by 2-2.5 of the stated income. Usually, this type of financing referred as "common sense financing." In other words, say you are a plumber or electrician declaring $45,000 personally hence we may be able to an auto-declared income under this program at $90,000 in order to qualify for your mortgage. In such cases your mortgage would incur an extra mortgage insurance premium.

As the article points out, there are alternative lender options like Home Trust or Equitable Bank that exist. Using an alternative bank the interest rate can be between approximately between 3.89-6.99% depending on the term. Rates here as understandably based on risk. The "country’s 2.75 million self-employed workers – a group that, according to Statistics Canada, has a higher median net worth than paid employees." Self employed individuals are made out to sound more risky compared than salaried individuals. The self employed must declare more income whether we like it or not. Sometimes it makes sense to work with an alternative lender for 1-3 years but with a mortgage plan you can switch to an "A -lender" thereafter depending on your circumstances. 

The article mentions private lender, I shall write a separate blog entry on that subject.  

Reviewing Mike Holmes on renovations and creating value

Mike Holmes is back at with another article that I enjoyed reading entitled, "Fix-ups to push up your property value." In the article, Mike shares how to create value or increase value in your home, which I would add is also applicable to investment properties.

Mike poses the most fundamental question: What does valuable mean? Not every renovation adds value to your property. Sometimes renovations solely make the property more durable or energy efficient (new windows, doors, insulation). I agree with Mike, that these make for a happy homeowner because energy costs can decrease. I think that when it comes to renovations it all depends what your goals are. Perhaps your goal is an income goal or you want to flip the property or perhaps you'd like to renovate, rent and refinance the property to buy more.

Mike's tips are awesome:
1. Don't curb curb appeal
2. Fix roof problems
3. Clean the property before listing

I have some clients that realized that the the cost of renovations don't always translate into 100% market value. This is especially applicable with a purchase plus renovations or refinance plus renovation project financing. Depending on the size of the renovations you're looking at it's worth to have a proper home evaluation to determine present and future value post-renos.

At the moment the vibe I am feeling in the Montreal market is: renovate, maintain and hold your properties. It's a good time the weather a bit of the market storm.Your thoughts?

"O’Leary Mortgages is No More"

A few sources including Canadian Mortgage Trends are reporting that O'Leary Mortgages have closed up shop. Rob McLister, Mortgage Columnist for the Globe & Mail, wrote that " In sum, O'Leary Mortgages was a pilot project that didn't generate the returns O'Leary envisioned. The problem might have been that he treated it like a pilot project and didn't make the investment needed to grow consumer awareness and differentiate his offerings." I would also argue that the direct consumer model wasn't best suited. Perhaps offering O'Leary Mortgages through brokers could have helped?

Some also argue that O'Leary's personality wasn't the ideal "poster child" for the mortgage industry in Canada. Regardless of what one thinks of the man, it's always a shame to lose another virtual lender in Canada. Unfortuanately virtual lenders like ING, Macquarie etc have come and gone. As a mortgage broker, I meet with clients from all sort of backgrounds and I can tell you that lender variety is critical more than folks realize. Furthermore, having more virtual mono line lenders is important as their mortgage conditions, i.e. "fine print" is usually better and more consumer friendly.

Mortgage Minute commentary: "If you want to have a mortgage in retirement, be prepared to make some big sacrifices"

Garry Marr from the Financial Post wrote an article on 5 April 2014 entitled, "If you want to have a mortgage in retirement, be prepared to make some big sacrifices." In the article, Garry quotes Will Dunning, Chief Economist with the Canadian Association of Accredited Mortgage Professionals, stating "..among homeowners 65 years or older, 35% have a mortgage," and fortunately "Among those with a mortgage, the average loan-to-value is 33%."

As a public policy nut and a mortgage broker I am pleased to see seniors have strong equity (one hopes they would by that age) in their properties but the question is why are seniors even having mortgages past 65 years? Simple! It seems that seniors are refinancing lately to help to bail out their "kids," now adults, that are carrying a high debt burden. Is life harder now versus then? Was credit just not as available as it is now? Quite probable. Garry states "Most [financial] planners seem to think it is a disaster waiting to happen because seniors don't usually have the income in retirement to support debt repayment and that means major lifestyle changes."

I've personally witnessed several situations like this where a client needs money to pay debt, owes money to revenue Quebec, or has an active consumer proposal and we look to leverage a parent or family member's property. In such circumstances, I usually sit the entire family down to discuss options including pros and cons. If we remortgage the parent's house to pay off their kids debts I make sure:

1. that we have pre-planned exit strategy before doing anything. Sometimes it can take 6 months to 3 years to fix the problem and then we refinance again to pay back the parents.
2. that the kids in turn pay the new mortgage because the new mortgages payments are generally lower than paying for a full unsecured debt load 

Reviewing Mike Holmes: "Home Inspections Benefit Buyers and Sellers"

I always try to keep an eye out on articles written by Mike Holmes. This time Mike writes about the benefits of home inspections. Mike's article is actually reprinted in yesterday's Montreal Gazette. It shouldn't come as no surprise that we're in the buying season and that it's a good idea to get a home inspected by a professional before buying. Having said that, Mike also suggests that you have an inspection completed on your own home before listing it for sale.

Mike Holmes at a speaking engagement 

Photograph by: Alex Schuldt/The Holmes Group, Postmedia News

Mike suggestion makes total sense because selling one's own home can be an emotional process and it's a good idea to get an idea of any unforeseen problems you might have with your home. Wouldn't you rather have your inspector catch any issues up front than a potential buyer's inspector? Being more proactive will most likely get you a better sale price in the end. It will be up to you whether you decide to fix an pre-identified problems. Should you not repair any issues in advance of listing then expect your price to negotiated hard once a buyer's inspector finds problems or repairs to be completed.

Mike also suggests that you have your inspection report ready and available for any future buyers (referencing even the contractors used) visiting your home. Here Mike is also very skeptical of inspectors that are referred by real estate agents. He says you want to get an inspector that does the job not one that lightly reviews a home and may not "catch" all problems. A home inspector in such a situation might do this because they want to keep getting referrals from the agent. Last year, I had two purchase transactions where I was shocked that my client's inspectors did not catch some major items and now my clients are now either in court or given up and financing the problems themselves.

The Making of a Member of Parliament

Today, I am going to focus some thoughts on Federal politics and the road towards becoming a Member of Parliament. Given our busy lives with our jobs, kids, and paying our mortgages; we don't have time to think about the electoral process and how much work it takes to get first nominated by a political party before you can run in an election. With all the recent corruption scandals and mediocre policy ideas, politicians sadly can get a lumped with the same level of trust as a sleazy used car salesman.

Believe me, working and studying politics I saw many politicians come and go. Very few politicians here in Canada and abroad have caught my attention. Once upon a time I worked for Irwin Cotler, Member of Parliament, for Mount Royal. Irwin, I can say is one of the few politicians that is truly issue-driven. Irwin is not your typical politician and human rights lawyer that I respect because he sees beyond party lines. He builds real coalitions of the willing and often defended less popular issues such as gay rights, poverty reduction, and rights for the elderly. Irwin's litmus test for a policy idea is, "ask yourself, is what is happening good for children?"

Irwin Cotler, MP Mount Royal, speaking out about social injustice and supporting Brigitte Garceau for the Liberal nomination in Pierrefonds-Dollard & event host Beryl Wajsman, President of the Institute for Public Affairs

When Irwin Cotler put his political support behind Brigitte Garceau I paid attention. Brigitte is a divorce attorney and is currently running for the Liberal Nomination for the Liberal party in Dollard-Pierrefonds. I live in Pierrefonds and interestingly a close to home political story. Who can resist! The timing is also very important given tomorrow's Quebec Provincial Election 2014. I am beyond furious with Pauline Marois, the PQ and the politics of division in this province. It's time to speak out and take action. We must denounce those trying to divide us and speak out against this injustice.

The Quebec economy has suffered for the past 25 years with the constant treat of sovereignty. Guess what PQ and Pauline, time to move on. Your sovereignty and charter song is old. I am all about protecting individual and French Quebec rights. However, not under a cloak of us versus them policies and not at the detriment to society. All too often I see my clients getting laid off, closing their businesses, going bankrupt, forcing both parents to work constantly rather than spend more time with their children. I am making a choice to be more vocal and politically active. We need better paying jobs, a better economy, and to close the door once and for all on the politics of division. We deserve this as Quebecers regardless of background. We all make a conscious choice to live and work here. Leaving the province is not the answer either. That's what the PQ desires most.

Last week, I attended a nomination event for Brigitte Garceau. The event was hosted by Beryl Wajsman, President of the Institute for Public Affairs. We listened to supporters like Irwin Cotler (MP Mount Royal) , Gemma Raeburn-Baynes (community and cultural organizer), and Caroline Tison (West Island Community Shares) who all spoke about their excellent community work but also their support for Brigitte.

Brigitte Garceau, running for the Liberal Nomination in Pierrefonds-Dollard, addressing the audience and thanking her community leader supporters to her left. 

I agree with Beryl Wajsman, in that "being a small 'L' liberal is forgotten in creating a just society." It's time for a new generation of politicians and policy makers that create change and cross political lines to create consensus. Both Beryl and Irwin emphasized that as a politician you can do want with process but don't compromise on principle. I am hoping as I participate and help Brigitte Garceau, that she continues to gain supporters and momentum. When asked why run now, Brigitte, responded, "I am a woman, and a mother. I have raised my children here, in the West Island. And I'm angry that they may not want to make Quebec their home because of our politics."

Canadian Muslim Forum & the Quebec Election 2014

Lately, I've gotten the political bug back. As many of you know my education is in public policy and international relations. I think I've been more inspired lately because of the upcoming charged Quebec election. We all have responsibility to vote and voice an opinion. 

Last Sunday I spent the evening with the Canadian Muslim Forum (CMF) in Laval. The CMF hosted an excellent town hall format meeting attended by many Provincial parties (Liberal, Green, Coalition Avenir Québec and Québec Solidaire). The candidates spoke to the community and answered many questions. I'm not surprised that the PQ did not send any candidates to speak. The CMF organizers posed various predetermined questions about: future hopes for Quebec, Quebec identity and the economy.

Canadian Muslim Forum event @ Chateau Royal in Laval

Clearly the room was frustrated with the Charter and politics of division in this province. The common theme discussed was: job creation, access to education and a strong anti-charter sentiment. The best strongest reply from the night came from Rita Da Santis, current elected Liberal Member of National Assembly for Bourassa-Sauve riding, "...an uneducated person is not free," highlighting how important it is to create a neutral government that tolerates all religions and peoples.

Alex Tyrell (Leader of Green Party in Quebec) addressing the public

Second, Rita's quote also relates to creating accessible education in Quebec. Society is not created equal, she stated, however access to education is critical. Rita pointed out that this creates a society of confident citizens but also confident society that attracts investment.

One question addressed to all candidates was about job creation. I liked Alex Tyrell's, leader of the Green Party in Quebec, comments about eco-jobs. This is something that needs to be explored further in our province. A knowledge and eco-based economy may be one of the remaining areas that have not seen much political action. How does that related to mortgages? Simple. We need better quality jobs and better paying jobs in Montreal and the rest of Quebec. Job creation and job innovation feels flat in Quebec. Our Province has many untapped talents. Creating jobs in manufacturing is passe. We need innovation and job creation in knowledge and eco-based industries.