Adapting to Canadian Market Conditions: 2015 Turbulent Housing Markets

When it comes to real estate investment, where are Canada’s worst markets? Well, nowhere that we could classify as turbulent at least. Housing numbers stayed steady, nationally, the entire year.

It has widely been reported throughout the year that the Canadian economy could be headed for trouble. Some would even say that the BOC’s rate drop this past summer is evidence of that, and articles like this one are suggesting that provinces such as Alberta are headed for a correction: http://globalnews.ca/news/1860605/sturdy-as-a-house-of-cards-a-look-at-canadas-property-boom/.

It can be hard to forecast and adapt to Canadian Market conditions with wide speculation of turbulent housing markets and the potential that a housing bubble exists in Canada. After all, a wise person once said there are two sides to every story, but the truth lands somewhere in the middle!

The best way to adapt to Canadian market conditions is to be in the know and this could involve a multi-lateral approach.

1.      Make sure you are subscribed to all the financial/news publications in your area of focus and not just one – only subscribing to one could leave you influenced by that publication’s positioning. Pick out your top 3-4 trusted publications to receive in your inbox.

2.      Who releases white papers? National corporations like Pricewaterhouse Cooper routinely release annual publications about Canadian real estate trends http://www.pwc.com/ca/en/real-estate/publications/pwc-emerging-trends-in-real-estate-2015-en.pdf.

3.      House price indices – Consider subscribing to Canadian house price indices like the Teranet-National Bank House Price Index™ to keep on top of national housing numbers.

4.      Provincial reports – Provincial reports like the Ontario Mortgage Insights Report drills down on provincial housing data at a more granular level.

5.      Automated valuations – you can use AVMs to generate assessments of cities or even entire neighbourhoods.  

Taking the above 5 actions means more reading, yes, however it also means that you can hand your intel down to your team to not only identify areas of risk but also areas of opportunity! You can either act using this intel to mitigate risk in these areas or work with your marketing group to ensure that you are maximizing your efforts in hot areas, even marketing the right products according to the market.

One thing that is very positive is that, throughout 2015, despite the low oil prices impacting the dollar and economist speculation, the Canadian housing market appears as strong as ever and a great market for lenders and real estate investors.

Don’t let a lack of knowledge about the Canadian housing market mean lost opportunities. Stay on top of what is happening. Contact Purview For Lenders today at 1.855.787.8439.

Mortgage Fraud in Canada – What Are You Doing About it?

We write a lot about mortgage fraud in Canada, for various reasons. Obviously offering a tool that is a solution for mortgage fraud is one reason, but another, far more important, reason is because of the dire impact that mortgage fraud has in Canada and how it can lead to overall economic instability.

The more aligned our industry is – whether you are a lender, broker, lender, insurer, technology and other service providers, etc. - the more we can work together to combat fraud.

You can neatly sort into groups who commits fraud and why:

1.   The seasoned fraudster – This is someone who knows that they are committing fraud and do it for profit – this could be the borrower, a mortgage agent or flat out delinquent.

2.   The client who “forgot” or was “confused” – This is when the customer’s actions result in fraud. It could be missing, undisclosed or incorrect information. If uncovered, the customer’s usual response is that they were confused or simply forgot – not that they internally omitted or gave wrong information. Often this proves to be true.

3.   The mortgage agent who turned their cheek – This is when flags are appearing that an agent/broker chooses not to see because they think their deal will go through anyways. This is when mortgage agent underwriting steps into the grey and your bottom line takes a hit as a result.

You can perform a strong interview and ask that the client or broker to provide supporting documents as well as conducting your own independent verifications to ensure that you have a good, clean deal.

When it comes to doing your due diligence on a property to which you are thinking of extending financing, there are certain things that you can independently verify that will help mitigate the likelihood that fraud, with respect to the property being financed, will occur. Here are 5 things that you can independently verify at the application stage that can significantly reduce mortgage fraud:

·         Validate homeownership information

·         Check the financial history on the property

·         Check the sales history on the property

·         Look at the property from the sky and from the street

·         Generate an AVM to validate value

Now, we know that are you a lender, not the RCMP, and unfortunately some fraud will slip past you, but the more you do to ensure that you are not dealing with a fraudster, the better. You are somewhat challenged because if the deal is coming from an agent or broker they may not give you direct contact with the client. The more you do to independently verify applicant information, the higher the likelihood of stopping fraud in its tracks.

Basic due diligence, the type made easy with the tools from Purview For Lenders, can help you mitigate the losses caused by fraud, and make the industry more stable as a whole. 

Call us today at 1.855.787.8439.

Training Blog – Fraud Check

Lenders use Purview For Lenders for many and sometimes all of the benefits it offers. If you haven’t yet fully explored every aspect of the report and how you can be making the maximum use of the report – let us introduce you to Fraud Check.

Fraud Check is a Purview For Lenders tool that scans the report for information that may indicate that you need to look more deeply into an aspect of your deal. On a wider scale it can be used in risk management scoring and to apply practices to your department as a whole. Fraud Check performs 18 customizable real estate fraud checks in once instance.

This quick tutorial walks you through the Fraud Check features:

Not using Purview For Lenders yet? Find out why you should be by booking an appointment with one of our sales people today http://lenders.purview.ca/contact.php. 

Teranet – National Bank House Price Index™– Your Key to Forecasting

Lenders and economists alike turn to house price indices like the Teranet – National Bank House Price Index™ to analyse performance in the housing market and to make predictions for the future. In a very competitive lending environment, lenders from smaller credit unions all the way up to major banks use a preferred house price index or a few house price indices to keep a competitive edge, manage risk and to plan for the future.

House price indices analyse housing sales data and generate index values which are monitored over time. Over time, looking at the data month over month and year over year, trends begin to emerge that economists use to forecast changes in the economy and that lenders use in strategic planning in every aspect of their organizations from underwriting to operations to risk management to product development.

There are many different providers of house price indices and what makes each distinctly difference is their data they use to produce their house price indices and also the formula they are using to arrive at their number.

Before relying on any house price indices – make sure you know where the data comes from! The data source of the house price index you are relying upon is critical because you are relying on this information to help you make important strategic decisions. Some data is more current than others.

The most common data sources for house price indices are as follows:

1.   Tax Assessment Data – Municipalities charge property taxes based on their assessed value of a property. These assessed values are stored in a database and relied upon in some house price indices.

2.    Multiple Listing Service Data – Real estate boards often maintain an MLS system which stores all listings and the sales of all properties in its region. Every time a real estate sales professional lists or sells a property, they add the listing to the MLS. This data is relied upon in some house price indices.

3.    Statistics Canada Data

4.    Land Registry Data – The Teranet – National Bank House Price Index™ relies upon, in the example of Ontario, land registry information from the province of Ontario’s land database. This is a reliable and current source of housing price data available.

You can follow one or all house price indices to have an idea at any point in time where the Canadian housing market stands and what trends that are occurring may or may not impact you. If you would like to register for the Teranet – National Bank House Price Index™ click here: http://www.housepriceindex.ca/default.aspx.

HPI Monthly Report: Home Prices up 0.6% in September

In September the Teranet–National Bank National Composite House Price Index™ was up 0.6% from the previous month, a ninth consecutive monthly increase. This rise was well above the 17-year September average of 0.2%. However, prices were up on the month in only six of the 11 metropolitan markets surveyed – 1.9% in Halifax, 1.6% in Vancouver, 1.3% in Hamilton, 0.8% in Victoria, 0.7% in Calgary and 0.6% in Toronto. Prices in Edmonton were flat. Prices were down 1.9% in Quebec City, 1.4% in Winnipeg, 0.5% in Ottawa-Gatineau and 0.4% in Montreal. The composite index was at an all-time high in September for a seventh consecutive month, though only the Victoria, Vancouver, Hamilton and Toronto component indexes matched it in this regard. The resale market in those centres is a seller’s market by the Canadian Real Estate Association criterion of sales relative to new listings. For the last three of these four markets it was the fifth consecutive monthly rise. For Edmonton and Quebec City, it was a fourth straight month with no rise in prices. The Vancouver index, at 201.2 in September, is the first to top 200, meaning that prices in that market are slightly more than twice as high as in June 2005.

In September the composite index was up 5.6% from a year earlier, the largest 12-month rise since May 2012. The 12-month gain was well above the countrywide average in Hamilton (10.6%), Vancouver (10.4%) and Toronto (8.6%). It was close to the average in Victoria (5.9%). Prices were barely up from a year earlier in Edmonton (0.8%), Calgary (0.3%) and Ottawa-Gatineau (0.2%). Prices were flat in Montreal, and down from a year earlier in Quebec City (−2.9%), Winnipeg (−2.3%) and Halifax (−0.2%).

Multiple Listings Service – The Best Tool for Lenders/Investors to Validate Value?

The multiple listings service (MLS), for a long time, has been what many real estate professionals and lenders alike have used to pull sales comps when trying to establish the list value of a property. Comparably, many appraisers have also relied up upon tools like the multiple listings service and GeoWarehouse to pull sales comparables.

But do mere sales comparables go far enough in today’s lending environment?

In the past 10-15 years, this practice has changed significantly. The internet and technological advances have brought us other tools such as Automated Valuation Models (AVM), and have provided a more comprehensive way to crunch data in order to generate property value.

Automated Valuation Models generate a value based on all comparable sales in an area entirely, not just 2 or 3 that appeal - what often occurs when a human is browsing their local MLS. 

The multiple listings service is a database that stores information around sales and listings, while AVMs have their own respective data sources and methods for analyzing the data. The 3 most common types of AVMs draw their data from distinctive sources or using different approaches.

1.    The House Price Index Model – This model looks at multiple repeat sales which then result in house price indices in different geographical locations. This is then applied to the past transaction price to generate a current valuation.

2.    The Tax Assessed Value Model – This uses data from municipalities that store property value information in connection with tax assessments. In this model past values and subsequent values are used to create a ratio which is often relied upon when updated the tax assessed values of properties.

3.    The Hedonic Model – This model uses price information about all sales related to comparable/similar properties in an area using property specific attributes. The value is then generated using a radius search pattern and other logical search parameters.

Some tools only produce AVMs, while other tools produce AVMs within a report containing other property data.

·        The old fashioned way of investing in real estate: See a property, ask to see multiple listings comps, if deciding to move forward – order an appraisal.

·        The new way of investing in real estate: See a property, generate an AVM on your tablet or at the office, if moving forward you may or may not request an appraisal to accompany your AVM depending on equity.

Appraisals are not AVMs and AVMs are not appraisals. AVMs don’t take into consideration the condition of a property or things that real-time boots on the ground can. Lenders who want to dig deeper use their AVM as a first search measure and then couple it with an appraisal to get a more complete and accurate picture.

Sound complicated? Not so much. In fact, the big banks have been using AVMs for the past 10-15 years. Technology has made them so much more accessible that many smaller lenders, such as credit unions, finance companies and even individual private lenders, have integrated the use of AVMs into their workflows.

Get more information on why an AVM is the new way of doing things by visiting https://lenders.purview.ca/property-valuation.php.

Real Estate Fraud 101 – What Every Underwriter Needs to Know

We continue to bang the fraud awareness drum! Why? Because it is too costly to our industry to be ignored. There are so many types of real estate fraud that while the financial industry as a whole is dealing with the latest and greatest schemes to hit the marketplace – the fraudsters are already working on a strategy to roll out a new one.

While focusing on types of real estate fraud helps us to learn from others in the industry about what to look for, focusing on fraud awareness techniques can help you to uncover these types of fraud and even more issues that could be prevalent on a deal.

There are easier ways that you can go about doing this – and of course more difficult ones - but all hinge on you taking the steps to really review your client’s information, verifying it, and asking the questions needed to ensure that there is no funny business going on.

You can also make your own checklists to ensure that you cover your bases:

• Was the last transaction a cash sale? 
• Have you checked for real estate fraud? Has there been a recent sale or multiple sales activity on the subject property?
• Is the property profile suspect? Who was the previous owner? Is the property in power of sale, owned by a corporation or a party to the transaction like the real estate lawyer?
• Is it a non-arm's-length transaction? Is the person taking out the mortgage a past owner of the property or are parties to the transaction related? 
• Have you checked for title fraud? Has there been any recent discharge of mortgages following a recent transfer where mortgagor is the same?
• Have you checked for value fraud? Have you looked at an AVM to ensure that the property is actually worth what was stated in the application?
• Have you checked for fraud by income? This is something technology can’t do and is something where mere moments can mean all the difference – did you call the employer to verify employment?

We sound like a record on repeat: reviewing the legal homeowner, the sales/transaction history on a property, financial encumbrances and value are the fastest way to identify real estate fraud. Checklists are helpful too! Some technology summarizes information for you:

These are some examples that you can put into your checklist to cover your bases and ensure that you are doing everything you can to avoid real estate fraud. As an underwriter you have a lot of responsibility on your shoulders – the more organized you are and the more tools you have at your disposal the easier it is to perform your very vital role.

Purview For Lenders’ Fraud Check is just one of the many tools we offer to help you mitigate mortgage fraud - contact us today at 1.855.787.8439.