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MFAA Prosper : Mortgage and Finance Brief 13
16 Mortgage & Finance brief AustrAliA AND CANADA HAVE MANY tHiNGs iN COMMON. Both are large countries geographically, but have relatively small populations. Both have extensive natural resources that have driven prosperity and economic growth. This similarity extends to our mortgage markets. Australia has four major banks; Canada has five. These lending institutions are responsible for the majority of residential mortgages in both countries. Australia and Canada have benefited from having a majority of mortgages on balanced sheet lenders, unlike the United States, which continues to have a large percentage of mortgages funded through securitisation – a market that dried up following the GFC. However, in Canada we also have a mortgage bond program at the federal level that helps fund non-deposit-taking institution lenders. This provides choice to borrowers and competition in the market. The program has been a success. While banks account for the majority of mortgage lending in Canada through the broker channel or otherwise, other lenders are profitable and successful in the broker channel as a result of the bond program. Lenders are allowed to access the program for up to roughly C$2.5 billion annually. Mortgage brokers have come a long way in Canada. Some 15 years ago their market share was in the single digits and they were seen as the lender of last resort. In a new series, we look at what’s happening in overseas mortgage markets. Jim Murphy, Chairman and CEO of Canadian mortgage association CAAMP, discusses his domestic market. glObal view crunch 60% The percentage of consumers who hold fixed-rate mortgages 31% have variable-rate mortgages. (Annual State of the Residential Mortgage Market, CAAMP, November 2011) 21% the percentage of consumers who changed lenders when they renewed or refinanced their mortgages (Annual State of the Residential Mortgage Market, CAAMP, November 2011) C$388,218 the average price of a two-storey house in third-quarter 2011 (CAAMP Stats, November 2011) 207,600 the number of new housing starts in September 2011 (CAAMP Stats, November 2011) 1% the Bank of canada Benchmark interest rate, December 2011 3.92% the average mortgage interest rate (CAAMP Stats, November 2011) C$222,000 the average amount of equity each homeowner has in their property, equal to 66% of the property value (Stability in the Canadian Mortgage Market, CAAMP, May 2011) C$982 billion the total value of mortgages and lines of credit in Canada. The total value of owner-occupied housing in Canada is C$3.017 trillion (Annual State of the Residential Mortgage Market, CAAMP, November 2011) Today they are seen positively as working with borrowers to help them attain the best advice and rate on the most important financial transaction they will make in their lifetime. Approximately 27% of all mortgages are now attained through the mortgage broker channel. This number rises for first-time buyers and for borrowers located in the two western-most provinces, British Columbia and Alberta. The number is lower in other provinces and for refinancings or renewals. Mortgage brokers are regulated at the provincial level – not federally – with minimum education and licensing requirements. By and large, brokers are paid up front, with the compensation roughly equivalent to 1% of the mortgage, although this varies on the size and term of the mortgage. There are also volume bonuses. Another unique feature of the Canadian market is mortgage insurance. Federal law stipulates that if you are getting a mortgage from a federally regulated institution and your deposit is less than 20% of the purchase price, you must carry mortgage insurance. Today in Canada, nearly 50% of all new mortgages are insured. The federal government has made a series of changes to the rules that govern its financial guarantee, but this framework has succeeded in helping Canadian lenders weather the GFC. ••• news Jim murphy ChAIrMAn And CEO OF CAnAdIAn MOrtgAgE AssOCIAtIOn CAAMP
Mortgage and Finance Brief 12
Mortgage and Finance Brief 14