Introducing our new Speaker Series, where we’ll be interviewing experts in various fields within the real estate industry.
For our first session, we are joined by Samantha Comito, partner at Outline Financial. Watch the video above or read the transcript below as we delve into the mortgage industry, covering a breadth of topics from mortgage basics, rising interest rates, to the potential impact of Silicon Valley Bank’s collapse.
Maggie Lind: Hi there, it’s Maggie Lind from Chestnut Park Real Estate, and welcome to our first Speaker Series. Today we have Samantha Comito here from Outline Financial, and Samantha is going to fill us in on what we need to know about mortgages. Samantha, thank you for joining us.
So let’s talk about power of sales, because I think everybody was anticipating seeing a huge number of power sales come to market this year, given the very quick rise in rates last year. In doing a quick search on MLS, I’m only seeing about 60 in the central core, and while 60 power of sales is a lot, it’s not a majority of our marketplace. Do you see clients in your portfolio that are under duress? Where are all these power sales? Is it going to happen in the fall? Are they going to happen at all? What’s your prediction?
Samantha Comito: So far we haven’t seen that. We definitely have been having calls with our clients who have taken variable rates and have seen rates increase. We try to be very proactive in reaching out to our clients and explaining what’s going on. So far, no, they’re still holding tightly and able to manage. Do I think more may come? I think that’s going to be a matter of if the rates continue to go up because I think at some point it will be difficult, especially for a client whose payment has increased by a thousand or two thousand dollars. At least of my clients, not many of them have that kind of disposable income. So I think if rates do increase, potentially yes, but so far we haven’t seen that.
Maggie Lind: Right, let’s talk about refinancing then. Your clients that are coming up for refinancing, their rates are going to be much higher. They probably had a stress test when they took their original rates but weren’t anticipating having to actually pay that stress test amount. Are they comfortable? Are they able to continue with their payments on these refinancing rates?
Samantha Comito: Right, that’s a great question. When coming up for renewal, you’re right, they’re coming into rates that are higher than what they currently have. A lot of them had rates anywhere from 2.25% to 2.50% to 3.50%, and now they’re high, being 5%, which is a big jump and we weren’t necessarily anticipating it. So the challenge could be because the stress test exists, and what that means is if you want to qualify for a mortgage, you need to qualify at the rate that you’re getting plus 2%. So if you want to renew your mortgage and you’re staying with the lender that you’re with great news, you don’t need to requalify, you don’t need to change anything and the lender isn’t going to ask you: are you still at the job that you were at five years ago? So that’s really important to mention. But if you want to leave that lender and go somewhere else, you do have to requalify, and now the stress test is going to apply, and so in some cases, there are some clients that may not qualify and the advice is: you just need to stay put and in a situation like that we try to work with them and we try to understand the situation. Are you being offered great rates? Are they comparable to what’s currently on the market? And sometimes they might say to the lender that they’re talking to “I’m negotiating with you, but I’m talking to my broker still,” and that gives the lender an “Okay, maybe we should give you the best rates on the first go”. So we try to help there. But if they do qualify and can go elsewhere and it makes sense for them, then we give them that advice.
Samantha Comito: I think for us the biggest piece ties back to “How are we different as mortgage brokers at Outline?” For us it’s a relationship, it’s not a deal; our guiding principle is we’re here for the relationship, we do everything based on the relationship, and so if it doesn’t make sense, we’re going to let you know that, we’re going to lay out all the options, and then let you take that information in, analyze it and decide, “Hey, is this what I should be doing or do I want to move forward?” I think if I didn’t give that advice, or our team didn’t give that advice, we would have a lot of angry clients right now who had taken a variable rate because the rates have increased so significantly. So I think ultimately, you have the information, you’re powered with it, and now you make a decision that’s right for you and your family.
Maggie Lind: Excellent advice. Okay, so we’re going to get into a discussion now about the Office of the Superintendent of Financial Institutions, which we call OFSI, is proposing some pretty drastic changes on April 14th. So fill us in about OFSI and what they’re proposing, and how that would happen in the real estate world.
Samantha Comito: So right now they’ve come in and they’re really looking to first, increased capital requirements that a lender needs in order to lend. That, in theory, is not impacting the consumer just yet, it’s impacting the lender. Our banking system is quite strong and they want to strengthen it further. So that’s one thing that they’re proposing. The other thing that’s going to have a direct consumer impact is they want to cap the lending. So right now, if you take an insured mortgage, you’re capped at 39% of your income that can be used towards qualifying for a mortgage, and that is used towards your mortgage payment, the property tax payment, the interest on the mortgage payment and heat. Then, if it’s a condo, 50% of the condo maintenance fee. What they want to do is say: well, even if you’re putting 20% down, we also want to cap you at 39% of your income. Why this is so impactful is because a lot of times anybody who’s putting 20% down, we can actually toggle that upwards, so we could say 45%, even 50% in some cases, of your income. Why is that? Because the lender looks at the total picture and say: well, this client has a 50% loan against the value of their property. The risk, they feel, is mitigated so they’re comfortable going that way. Or, this client has a lot of net worth within their portfolio, like savings and ASPs and so on, so we’re comfortable stretching their cap. If OFSI comes through and says no, you’re going to be limited now, it’s really going to have an impact. So I would say: anybody that actually needs to refinance and take out equity, your call to action is now. You might want to do it now. We don’t know if this is going to happen, but if it does, you likely don’t want to get caught with your pants down. Just kidding, but you know what I mean!
Maggie Lind: So in general terms, it’s going to limit how much money they will lend you, no matter what your qualifications are.
Samantha Comito: Right, and with a stress test already in play and now this, and there’s no talk of eliminating the stress test, this could have an impact. We hope it doesn’t come into play, but something to be mindful of.
Maggie Lind: And those are things that you’re are you already talking to your clients about this? You’re talking to people refinancing and prequalifying, right?
Samantha Comito: Right, and there are some whispers that they might want to make it harder for the investment property scene as well.
Maggie Lind: And how would they do that?
Samantha Comito: So it’s already difficult to qualify to buy an investment property. You have to put in at least a 20% down payment; depending on the lender, you may be required to put in more. Lenders are not using all of the rental income as income towards that qualifying.
Maggie Lind: Sometimes that’s also around the legality of it right? If the basement apartments are not legal or something like that.
Samantha Comito: Right, so there could be an issue there. They already want to limit how many investment properties you can have. It used to be that a lender would see, say you make enough money and you qualify, and you have a portfolio of six rental properties and your principal residents. It used to be that a lot of lenders would want to have no more than four of those properties in their book of business. Now they’re saying, we won’t lend to you if you have six. It’s been suggested that this could happen. Some lenders have already implemented it, not any of the big banks, but if that comes down the pipe then it will be very hard to access that equity in those investment properties because they really are handcuffed on whether they can lend to you.
Maggie Lind: So would that be the same case if I owned six rental properties right now and I’m coming up for refinance, will they be able to continue to extend those because of the new rules? Do I get grandfathered?
Samantha Comito: That’s a good question. I would think you would get grandfathered in if you’re up for renewal, but I think if you wanted to access equity, you potentially may not be able to. But these are things that haven’t come to fruition, these are just topics that are being placed up for discussion, and they are currently intaking commentary from different individuals and professionals to see if this is something that will come into play.
Maggie Lind: And here’s a question that you may or may not know the answer to, but just why would they do that now? Why would they put more restrictions on lending institutions when prices are coming down? The market has interest rates that are higher, as opposed to being in the feverish market of spring 2022, when everything was going crazy and prices made no sense whatsoever, it was like throwing a dart at the board to see what price it landed on. Why wouldn’t they have taken more actions during an out-of-control market, as opposed to one that’s somewhat levelled off since? Any insight?
Samantha Comito: I know, it’s so interesting. I would be lying if I said that I knew anything that is going on these days because it really is different every day. So much data comes out and it really impacts things in ways that we wouldn’t think it would. The laws of economics are not really prevailing in some cases, so it’s hard to say. I would think it has to do with them really wanting to strengthen our banking system further in case there is something on the horizon. Canadians also are quite indebted, so I think that has something to do with it. It’s an unfortunate position to play because most people build their wealth through real estate, so it really is unfortunate. However, I think those could be the reasons. It’s hard to say.
Maggie Lind: Always good to be careful, but they sound like they could be really impactful to the consumer. So let’s talk a little bit about the difference and the impacts of what’s happening in the US versus Canada and how what they’re doing there impacts the decision-making process for mortgages here in Canada. So yesterday the Fed increased their rates by 25 points, indicating that they were getting to the end of their increases. Do you think they would have increased it more or less had they not just had those two bank failures recently? And as a second question, how does it directly impact what we do here as a result?
Samantha Comito: So prior to the Silicon Valley Bank collapse, it was being priced in that the Feds would have raised the rates probably by 0.5%. It was 50/50 on whether they go 0.25% or 0.5%. Then, of course, SVB happened and the statistic changed. A small percentage suggested there would be no increase whatsoever, but the majority were saying it’s likely going to be 0.25%, and so that’s exactly what we saw play out.
How it impacts us? I mean, they’re our biggest trading partner. There definitely is an impact, and if they increase the rate there’s an impact on our currency if we keep ours as is. Interestingly enough, prior to SVB happening we were actually preparing for rates to increase here. Our team, we were looking at our book, updating our clients and saying “you have this rate held until a certain date”, so if there were increases, there might be a signal to them to get in a little sooner. SVB happened, and it was like music to our ears in a way, because rates kind of came tumbling a bit, and that helped our clients. So there is a correlation, and there is an impact. If the Feds do stay as is, that’s good for us, because it could signal that we’ll stay as is.
Canadians are quite indebted, and increasing the rate for us has more of an impact than it does in the US, as the US is not as indebted as we are. Their mortgage terms are longer. So even those who are coming up for renewal in the US aren’t necessarily getting this impact of the rate because their renewal terms are 25 or 30 years, so that plays into it. They put in some stringent measures during the financial crisis of 2008, which created a situation where they couldn’t be as indebted as they want to be. That’s why we’re not seeing inflation drop as quickly, or the numbers go in the direction that we really want to see them go. Whereas here, we’re seeing that because we are so indebted, seeing the numbers overall, month over month, indicate what we want it to be. Where we want it to be is that things are getting better, and we’re moving in the right direction. I think that’s really important to note and it’ll be interesting to see how it all unfolds.
Maggie Lind: How do you start your day? Do you have to read all the news immediately when you wake up because it seems like everything is so volatile every day that it can change at a moment’s notice. How do you stay on top of it all?
Samantha Comito: I know, it’s crazy. One thing that I have to say is that at Outline we work collaboratively, we collaborate with one another, and that helps because we can share thoughts, ideas, bounce things off one another, and really talk it through. Sometimes it’s just so important to have a sounding board and say: “Hey, I read this, this was my take. Did you read that same article? What was yours?” And then, luckily for us, we have some very intelligent people on our team with every letter behind their name in the alphabet of all these degrees that they have, that can help us kind of distill the information down too. To your point, I start my day, I do read a lot of the information, and then we have a chat within our team that if something is important it gets posted and there’s a lot of commentary, so I read that. We do have team meetings and calls, so we keep each other posted and up-to-date. When SVB happened, we had an urgent meeting right away to get an understanding of all the information. Make sure all of us understood it because we knew that our referral partners were going to call us and would want us to have an understanding. So that’s typically how I start.
Maggie Lind: And to that point I would say, that collaboration from Outline to our team and all of the information that you feed us and what you’re seeing and what you’re anticipating is so helpful for us. Because we’re while we’re not mortgage brokers, we get mortgage questions all the time when we’re out showing houses, when we’re meeting with new clients, so it’s really beneficial for us as well. I can say that every client that we have ever referred to Outline has been incredibly well managed, well-advised, and we’re just thrilled to have such wonderful collaborative mortgage brokers in our Rolodex and so close to us. So thank you so much for your time today. I think this has been incredibly informative, I learned a few things too! We’ll look forward to our next speaker series. Thank you, Samantha.
Samantha Comito: Thank you so much for having us, thank you.