Mortgage Broker

Fall 2014

Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.

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Page 15 of 47

letters 16 | fall 2014 MortgageBroker Mail for MP I read the article by Ralph Yetman on super priorities in your last magazine [Summer 2014], which prompted me to write the following letter to MP Russ Hiebert, Re: e Powers of CRA (Super Priorities). Being in the mortgage lending industry for many years I have always been proud of many things. One is our land title system in B.C., which I understand is one of the best in the world. It clearly shows who owns every piece of real estate and what charges are owing. I have also been aware of the power government has in taking priority over registered charges. What have I been proud of ? e fact that CRA in the past has recognized the priority of those charges, and they have not exercised their legal rights. It has been brought to my attention that CRA is now starting to exercise their power and they are making mortgage lenders responsible for unpaid GST and employee source deductions of those they have lent mortgage money to. It may seem like a good idea for increasing the government's revenue, unless one is to look at the bigger picture. e mortgage brokers in this province alone fund about $4 billion a year, and we only have about 30% of the market share. I don't have numbers to state what percentage of those are self-employed borrowers, but I know from our own business it has to be substantial. If banks, credit unions, other lending institutions, private investors, etc. cannot rely on the priority of their mortgages, then lending policies are going to start drastically changing. Many self-employed people will not be able to find a mortgage to buy a home. ey will have a tough time taking equity out of their real estate to assist with growing their businesses. ey will have a tough time consolidating debt and many will face foreclosure and bankruptcy. What does this mean to the economy of this country? It could have devastating effects. ese effects could have a much more devastating effect on the government's revenue than the positive results they will get from going aer mortgage lenders. Our business (Consumers Choice Mortgages Inc.) specializes in helping private investors invest their savings in residential mortgages. Because the banks have already tightened their lending policies for self-employed borrowers, most of the borrowers we see are self employed. How can we recommend to our investors that these investments are safe when we don't know what problems lie ahead with CRA's new policies. Billions of dollars in this province are private investor funded mortgages, and this supports thousands of jobs. My main concern is the possible loss of private investor mortgage funds across this country that help fuel the economy. Also my concern is the lending policy changes the banks will make once they get hit with paying their clients unpaid gst and employee deductions. I recommend you read the article on page 16 in the enclosed MBABC magazine, written by a prominent Vancouver real estate lawyer, Ralph Yetman. I would like to know what you plan to do about this situation. Catherine Swallow Consumers Choice Mortgages Inc. MBABC member Bridging question One question about the [Report from the President: Building Bridges . . . a B.C. solution for B.C.'s mortgage brokers by Ajay Soni in the Summer 2014 issue of Mortgage Broker magazine] editorial comes to mind: Why is UBC involved in any aspect of licensing mortgage brokers? No one there is a broker or knows what brokering a mortgage entails. e sole requirement for licensing brokers in B.C. should be successful completion of our course. We don't need academic non-brokers telling us how to do our business. Peter Dale MBABC member APR discrepancy I have been asked by clients to explain why the APR for their mortgage is 2.673% when their interest rate is greater – 2.69% compounded semi-annually. ey believe I have made a mistake in my paperwork. e APR should always be equal to or greater than the interest rate. Can you explain this discrepancy? Larry McGuinness VERICO Street Smart Investing Ltd. MBABC member Reply: Larry, please know that there is a technical error in the APR formula, which is a shortcut cheat method adopted in the legislation used to calculate the future value, which is a more formal and technically correct formula. Section 6 of the Cost of Credit Regulations (to the BPCPA) requires that the APR be calculated using the formula: APR = (100 x C) (T x P) where C is the cost of credit, T is the term and P is the average outstanding principal over the term. is formula does not work with mortgages where the compounding rate does not match the payment frequency. is is a problem as most mortgages have interest that is compounded on a semi-annual basis and monthly payments. If there are no non-interest finance charges, the formula when applied correctly should result in an APR that is exactly equal to the contractual interest rate. However, the formula does not work and can produce a discrepancy between the contractual interest rate and the APR which even exceeds the permitted error tolerance rate of 1/8 of 1% or .125%, which is set out in section 4 of the Regulation. – Samantha Gale Please send letters to the editor to: letters to the editor mbabc members' views

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