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Extension of the mortgage deferral program must be considered

Back in May, when COVID-19 was tightening its grip on the throats of the Canadian economy and housing markets, Evan Siddall, CEO of the Canada Mortgage and Housing Corporation (CMHC), spoke to the federal Standing Committee on Finance on actions the corporation had taken to alleviate financial stress on Canadian homeowners, including the mortgage deferral program.

“We acted quickly to help Canadians who are having difficulty paying their mortgages or rent due to income loss because of COVID-19,” said Siddall. “In co-ordination with private mortgage insurers, we are offering temporary deferral of mortgage payments for up to six months.”

Siddall estimated nearly 20 percent of mortgage holders will have elected to defer payments by September, calling it a potential deferral cliff.

Initial reaction to Siddall’s projection of 20 percent were scoffed at by economists, but according to alternative lender Equitable Group Inc., loan balances on COVID-19-related payment-deferral plans peaked at 20 percent at the end of May, but have declined significantly since then, to six percent as of July 17.

“Our general feeling is that many of our customers called looking for a deferral just out of an abundance of caution in an uncertain economic scenario,” said Equitable president and CEO Andrew Moor during a conference call for analysts and investors.

The Canadian Bankers Association says since the rollout of the COVID-related mortgage deferral program, approximately 760,000 Canadians opted to defer or skip mortgage payments, representing about 16 percent of the total number of mortgages in bank portfolios.

The bulk of those deferrals happened during the early days of the COVID threat, says Justin Thouin, co-founder and CEO of LowestRates.ca.

“We’re hearing from our bank and broker partners that there has been a steep drop in mortgage deferrals since banks and lenders originally began announcing such programs in March during the start of the pandemic,” says Thouin. “However, there is still a large number of Canadians who are requesting deferrals.”

Last week, CMHC announced it was investigating ‘new tools’ to prevent the deferral cliff.

“As the end of the initial six-month deferral period from the beginning of the pandemic approaches, we recognize the need to continue to monitor this diligently and potentially develop new tools with our partners to help Canadians during this unprecedented pandemic,” CMHC said in a statement to The Financial Post. “This work is ongoing and we will provide Canadians with updates as they become available.”

In an email, a CMHC spokesperson said it was premature for the agency to discuss specific outcomes of their ongoing conversations with lenders and other mortgage insurers.

“As we continue to approach the end of the initial six-month window for deferrals, there is a lot of uncertainty about what will happen to those who cannot make their mortgage payments,” says Thouin. “Speaking to brokers and bank partners, we know that the home is often one of the last assets that Canadians will stop making payments on. They’ll default on credit card payments, car loans and personal loans first.”

In June, the Canadian Credit Union Association (CCUA) consulted with CMHC “regarding next steps and policy recommendations to assist homeowners facing hardships due to COVID-19,” said CCUA on its website. “To inform our discussion, we surveyed credit unions to understand their views on existing CMHC default management tools, and their recommendations to improve and expand them.”

The survey found some CCUA members think the six-month deferral repayment period is too short and would like to see it extended, because they view COVID-related challenges as being long term.

Concerns were also expressed about those on deferral who have lost their jobs and will still struggle to make mortgage payments when the repayment period ends. Added to that was the concern of whether mortgage holders will be in a position of making higher payments, as deferred payments are tacked onto their monthly bills.

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Jims Mortgage Corner

Jim,

Our bankruptcy was discharged more than three years ago and we would like to buy a home in the near future. How much time must pass before we can qualify for a mortgage? After we filed our bankruptcy, we stopped borrowing money and paid cash for everything. What should we be doing to build good credit and how long will the bankruptcy impact our credit scores?

Elizabeth, Grand Junction

Dear Elizabeth,

When you first filed bankruptcy, it can have a substantial impact on your credit score by up to 100 points or more. It will have a negative impact on your score while it is on your credit file, but after two years you should see less of an impact on your score. Until the bankruptcy falls completely off your credit report, it will continue to have a small impact on your score.

Before I spend more time on how a bankruptcy impacts your score and what you should be doing now to build good credit, let me answer your first question. The good news is that you can qualify for an FHA or VA loan now since the waiting period is two years from the discharge date. USDA is based on three years from the discharge date to the date of the loan application. Depending on the loan size, if FNMA or FMAC is required (also known as conventional) you will need four years from your discharge date or dismissal date. I encourage you to meet with your lender and they can determine which loan you could qualify for at this time.

When you filed for a bankruptcy, it was most likely a Chapter 7 or a Chapter 13. A Chapter 13 will stay on your credit report for seven years from the filing date. A Chapter 7 will stay on a credit report for 10 years from the filing date. All creditors that you included in the bankruptcy will remain on your credit report for seven years, whether it was a Chapter 7 or 13.

In addition to the bankruptcy showing up under public records, most creditors included in the bankruptcy will show “included in bankruptcy,” which will also negatively impact your score. Occasionally these creditors will continue to report the account after the bankruptcy is discharged since they can do this for seven years. By continuing to report it, this will bring the reporting date current and it will continue to have a negative impact on your scores.

While filing a bankruptcy will significantly impact your credit score, it will not be permanent. I can imagine the last thing you would want to do is borrow money after you have filed a bankruptcy. However, I encourage you to get two to three secured credit cards and/or lines of credit to reestablish your credit. Most banks and credit unions offer secured credit cards or lines of credit. You provide them a small amount of money (collateral) to establish a credit limit and you use them the same way as an unsecured credit card. Most important, make sure they will report to all three credit bureaus (Equifax, Experian and Trans Union) so you get credit for these new accounts and your payment history. Keep your balances low and make your payments on time. This will be the best way to build new credit and improve your credit score.

I hope this provides you a plan to rebuild your credit.

Jim Kaiser

Branch Manager, NMLS #1721861

Cherry Creek Mortgage Co., Inc. NMLS 3001

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Mortgage Delinquencies Down 10% in 2013, Vary by State

Mortgage delinquencies decline

In 2013 Mortgage delinquencies declined 10% on a year-over-year basis despite a slight uptick in December. (According to Black Knight Financial Services’ Mortgage Monitor data). But, they are varying widely by state.

Mortgage lates were up 0.26% in December 2013 compared to the previous month. There is a total U.S. loan delinquency rate of 6.47% for loans that are 30 or more days past due, but not in foreclosure.

Notwithstanding the small upstick in credit lates and delinquencies to close out the year, the overall trend for 2013 was one of improvement, down 9.85% from 2012. (Black Knight Financial Services) notes, with the lowest level of “seriously delinquent” inventory since 2008.

As of the end of December, there were 3.24 million properties that were 30 or more days past due, not in foreclosure. Nearly 1.3 million properties were “seriously delinquent” at 90 or more days past due. Approximately 4.5 million properties were 30 or more days delinquent or in foreclosure.

Mississippi, New Jersey, Florida, New York, and Louisiana are the states with the highest percent of non-current loans. (According to December 2013 Mortgage Monitor). Conversely, the five states with the lost percentage of non-current loans are Montana, Colorado, Alaska, South Dakota, and North Dakota.

Black Knight Financial Services’ Data and Analytics division generates month-end mortgage performance statistics. This is derived from its loan-level database that represents approximately 70% of the overall mortgage market.

The Financial Assessment expected in coming months for the Home Equity Conversion Mortgage program may include information about past delinquencies, among other relevant financial history. This indicates a borrower’s willingness or capacity to pay loan obligations. HUD recently announced it will release guidance on the Financial Assessment in February.

By Alyssa Gerace

January 29th, 2014.

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