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What are Mortgage Rates Doing?

what are the mortgage rates doing

Robert McLister June 30, 2015

Jul 3, 2015 - 9:23:38 AM

There’s been a perfect storm brewing in the mortgage rate market, one that’s bringing volatility and uncertainty. And it all came to a head today.

Here are some of the factors impacting mortgage rates at this moment:


Greek Default & Cascading Yields

The home of the gyro became the first developed nation ever to default on IMF debt. S&P now pegs the odds of Greece departing the EU at 50%.

Virtually no one expects the Grecian debacle to trigger global financial catastrophe, but investors have taken no chances. They’ve piled into AAA bonds for safety, which in turn has pounded Canadian yields to a two-month low. In just the last two days alone, our five-year yield has nosedived 22 basis points.

Despite the bond/fixed-rate correlation, don’t count on an immediate reduction in mortgage rates. Lenders usually wait a bit for the volatility to end before repricing.

More GDP Disappointment

There’s actually a chance Canada could be in recession and we just don’t know it yet. April’s GDP came in negative today, which makes it four months in a row of negative growth. We haven’t seen that since the financial crisis. If the economy shrank in May/June, that, folks, is a recession.

“In Canada we won’t know (about the recovery) until May,” says BoC governor Stephen Poloz. With the U.S. economy improving, negative growth in Q2 is still viewed as unlikely, for what that’s worth.

Whipsawed BoC Expectations

Last week, traders were

pricing in rate hikes by mid next year. After today’s news, there’s now a 50%+ chance of a rate cut in the next few BoC meetings.

That’s got CIBC star economist Ben Tal reversing his engines. He now says, “…We change our call to a 25-basis-point rate cut by the Bank on July 15th.”

In fact, a slew of economists are now jumping on the monetary easing train. See this Financial Post Article.

New Mortgage Regs

Finance officials have intervened in the mortgage market again.

The Finance Department has been promising to ban the use of government-backed insured mortgages as collateral in non-CMHC-sponsored securitization. Well, it essentially started imposing that ban today, June 30.

The DoF is also prohibiting lenders from using portfolio (bulk) insurance unless they pool the insured mortgage in a CMHC-governed security. The problem is, with all the restrictions now placed on mortgage-backed securities (MBS), lenders can’t be sure they’ll be able to fund their insured mortgages through CMHC programs.

One of the various repercussions is that lenders can no longer directly fund insured mortgages with asset-backed commercial paper (ABCP). That’ll have an immediate impact on avid users of ABCP, the likes of First National, MCAP and Investors Group. Big banks who fund mortgages with deposits, covered bonds, bankers’ acceptances, etc. are relatively less impacted by this measure.

Literally every single lender and capital markets pro I’ve talked to has the same opinion: the government overreached here.

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