Canadian Mortgage News

Once again, the Bank of Canada announced it would keep the key interest rate at a record-low 0.25 per cent to achieve its inflation target of two per cent.

While the Bank said economic growth in Canada resumed in the third quarter of 2009 and there has been a slightly higher than expected rate of inflation in recent months, it reiterated that the economy is still lagging, particularly due to factors like a strong Canadian dollar and low levels of U.S. demand.

Repeating many of the same projections as its October monetary policy report, the Bank predicted the economy to return to full capacity and reach a two per cent inflation rate in the third quarter of 2011. It forecast the economy to grow by 2.9 per cent in 2010 and 3.5 per cent in 2011.

The next Monetary Policy Report will be released Friday and the next rate announcement will be made March 2.

The rate on a CHIP Home Income Plan reverse mortgage dropped to 3.75 per cent today, down from 4.95 per cent, as a result of HomEquity’s recent transformation to a chartered bank.

“Becoming a Schedule 1 Bank has allowed us to lower our rates because we now raise funding the same way that other banks do,” said Greg Bandler, senior vice-president of HomEquity Bank, adding the company is seeing more demand for reverse mortgages due to the growing population of seniors in Canada.

Along with the lowered rate, HomEquity Bank – which now issues GICs – is also offering a discount program for customers who pay their full interest annually. The program reduces the interest rate on a CHIP mortgage to as low as 3.25 per cent.

At the end of September, HomEquity’s reverse mortgage portfolio totaled about 7,000 with an accrued value of $837 million.

Canadian Home Income Plan Corporation is now HomEquity Bank

Toronto, ON – October 13, 2009 – HOMEQ Corporation (TSX: HEQ) (HOMEQ) today announced that its operating subsidiary, Canadian Home Income Plan Corporation, has received its Letters Patent and Order to Commence as a federally regulated Schedule I bank from the Minister of Finance, effective immediately.
Canada’s newest chartered bank is called HomEquity Bank (Banque HomEquity). As a chartered bank, HomEquity Bank will have immediate access to retail deposits sourced through deposit brokers.
HomEquity Bank’s predecessor, Canadian Home Income Plan Corporation, has been the main underwriter of reverse mortgages in Canada for more than 20 years. HomEquity Bank will continue to provide reverse mortgages to Canadian homeowners aged 60 or older under the CHIP Home Income Plan brand.
“The continuance as a bank is part of a strategic initiative that allows access to additional cost-effective and reliable sources of funding, which will directly enhance our ability to offer competitively positioned products and services to meet client needs and grow our business overall,” said Steven Ranson, President and CEO.
“We have demonstrated that a company with a trusted brand, high-demand products and strong customer and partner relationships can forge ahead and achieve significant milestones,” added Ranson. “Our established corporate culture, well-defined business philosophy and innovative, capable team have all played a major role in our success in the past and through the bank application process. Undoubtedly, they will continue to play a vital role in our future growth.”
Canadian seniors will benefit from lower interest rates on reverse mortgages through HomEquity Bank’s ability to access retail deposits, diversifying the bank’s sources of funding and lowering its cost of borrowing. With reverse mortgage interest rates already at an all-time low, in anticipation of becoming a bank, rates were recently further reduced by up to one per cent to as low as 4.95 per cent.
“Reverse mortgages have no income, credit or health qualifications. Unlike traditional loans, borrowers don’t have to service the interest or repay the principal for as long as they own their home and are living in it. This makes reverse mortgages appealing to seniors who have a large portion of their equity tied up in their homes,” said Greg Bandler, Senior Vice President.
HomEquity Bank will continue to evaluate additional features, options and products with the objective of providing Canada’s seniors with an ever greater number of home equity borrowing options.
“The seniors market is the fastest growing segment of the population and we will use our accumulated experience and understanding of Canadian seniors and their financial needs to provide even more flexible solutions,” added Bandler.
HomEquity Bank will continue to partner with Canada’s national chartered banks, mortgage brokers and financial planning organizations to offer its reverse mortgage solution to Canadians aged 60 and over.
By obtaining chartered bank status, significant benefits are anticipated in the following areas:
• Retail deposits represent a stable and cost-effective source of funds that will diversify the wholesale funding strategy previously used;
• Access to additional cost-effective and reliable sources of funding will enable HomEquity Bank to meet the growing financial needs of Canadian seniors, allowing it to increase annual originations and the resulting value of its portfolio of reverse mortgages;
• Access to cost-effective sources of funding will improve margins and enable HomEquity Bank to offer lower consumer pricing;
• HomEquity Bank will benefit from the efficiency of being federally regulated. This will elevate reverse mortgage supervision to a consistent national standard, and in so doing will raise awareness and greater understanding of a solution that meets the specific financial needs of a growing segment of the population.
In the quarter ended September 30, 2009, HomEquity Bank will increase its portfolio reserves by $1.7 million following which the total of its non accrued interest and portfolio reserves will be $2.1 million, equivalent to 0.25% of the total value of the mortgage portfolio. The increase follows a comprehensive assessment of statistical and qualitative analyses of the underwriting performance of each mortgage as well as changes in the characteristics of the portfolio. The assessment included a review of general real estate conditions and trends and their potential impact on the portfolio. In determining its level of portfolio reserves, HomEquity Bank also considered OSFI’s Guideline C-5 General Allowances for Credit Risk. The increase in reserves will result in HOMEQ taking a non cash, after-tax charge of $0.08 per share in the quarter ended September 30, 2009.
HOMEQ estimates that the pro-forma Total Capital Ratio of HomEquity Bank at June 30, 2009, including the impact of the above noted increase in reserves, would have been in excess of 16%.

Forward Looking Statements
From time to time, HOMEQ Corporation makes written and verbal forward-looking statements about business objectives, operations, performance, and financial condition, including the likelihood of HOMEQ’s success in developing and expanding its business. These may be included in HOMEQ’s or its predecessor’s Annual Reports, regulatory filings, reports to shareholders, press releases, presentations and other communications. These forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of HOMEQ. Actual results may differ materially from those expressed or implied by such forward-looking statements. HOMEQ does not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time.

About HomEquity Bank and HOMEQ Corporation
HomEquity Bank is a Schedule I Canadian Bank and a wholly-owned subsidiary of HOMEQ Corporation. HOMEQ’s shares trade on the Toronto Stock Exchange under the symbol HEQ.
HomEquity Bank is the only national provider of reverse mortgages to homeowners aged 60 and over, Canada’s fastest growing demographic segment. HomEquity Bank originates and administers Canada’s largest portfolio of reverse mortgages under the CHIP Home Income Plan brand. As of June 30, 2009, the mortgage portfolio comprised approximately 7,000 reverse mortgages with an accrued value of $833 million, secured by residential properties across Canada worth approximately $2.3 billion. HomEquity Bank’s predecessor, Canadian Home Income Plan Corporation, has been the main underwriter of reverse mortgages in Canada since pioneering the concept in 1986.
HomEquity Bank has an effective direct-to-consumer distribution model as well as a well-established referral network. This extensive referral network includes all major Canadian banks, credit unions, mortgage brokers, investment and financial planning firms.
HomEquity Bank also offers competitive Guaranteed Investment Certificates (GICs) to investors across Canada through independent deposit brokers and major Canadian banks. For more information about HomEquity Bank, please visit www.homequitybank.ca. Additional information on HOMEQ, including annual and quarterly reports can be viewed at www.homeq.ca.

Currently in Canada when you borrow money for the purposes of investing to earn income, the interest paid on that borrowed money is tax deductible. You can do the same with your reverse mortgage loan; and the best part is it’s not even money out of your pocket you’re able to deduct!

With a Reverse Mortgage loan you do not have to make any regular interest payments. But if you take the money you receive from your reverse mortgage and invest it in an income generating investment such as a mutual fund, GIC or savings bond you can claim some or all of the interest that is being charged on your mortgage…even though you’re not paying it out as an expense right now.

For example; say you qualify for a $100,000 reverse mortgage loan. When you receive the money you immediately invest the entire amount in an income generating mutual fund. You receive a regular income stream from the investment and get a tax deduction for the interest accruing on your mortgage. This also works if you only invest a percentage of your mortgage proceeds as well; if you only use 50% to invest you can only claim 50% of the income etc.

It is very important that you do not attempt to implement this plan by yourself, talk to professional Financial Advisor or Accountant first. If you do not set up your plan properly CRA can disallow the deduction.

The Bank of Canada today announced that it is lowering its target for the overnight rate by one-half of a percentage point to 1/2 per cent. The outlook for the global economy has continued to deteriorate since the Bank’s January Monetary Policy Report Update, with weaker-than-expected activity in major economies. The nature of the U.S. recession, with very weak auto and housing sectors, is particularly challenging for Canada.

Stabilization of the global financial system remains a precondition for the global and Canadian economic recoveries. The timely implementation of ambitious plans in some major countries to address toxic assets and recapitalize financial institutions will be critical in this regard.

The effects of the recent aggressive monetary and fiscal policy actions in Canada and other major economies will begin to be felt in the second half of this year and will build through 2010. Once the global financial system stabilizes and global growth recovers, the underlying strength of the Canadian economy and financial sector should ensure a more rapid recovery in Canada than in most other industrialized economies.

The Bank’s decision to lower its policy rate by 50 basis points today brings the cumulative monetary policy easing to 400 basis points since December 2007. Consistent with returning total CPI inflation to 2 per cent, the target for the overnight rate can be expected to remain at this level or lower at least until there are clear signs that excess supply in the economy is being taken up.

The Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve its 2 per cent inflation target over the medium term.

TORONTO, Feb. 3 /CNW/ – Home Equity Income Trust (TSX: HEQ.UN) (”HOMEQ”)
today announced that it intends to apply to the Minister of Finance for its
operating subsidiary, Canadian Home Income Plan Corporation (CHIP) to become a
federally regulated Schedule I bank. The new bank will be called HomEquity
Bank in English and Banque HomEquity in French. Subject to the review and
approval of its application by the Office of the Superintendent of Financial
Institutions (OSFI) and the Minister of Finance, HOMEQ hopes to be operating
HomEquity Bank commencing in the third quarter of 2009.
HOMEQ’s consolidated income is derived from the spread between the
interest earned on reverse mortgages and the interest paid on debt used to
fund these mortgages. The objective of obtaining a bank charter is to enable
HomEquity Bank to access retail deposits sourced through deposit brokers and
directly hold reverse mortgages so as to grow HOMEQ’s consolidated reverse
mortgage portfolio and increase its spread income. Retail deposits represent a
stable and cost effective source of funds that will be used to supplement the
wholesale funding strategy HOMEQ has followed since its IPO in 2002.
“It is imperative for our organization to have access to reliable and
effectively priced sources of funding in order to continue to service the
financial needs of Canadians 60 and over,” said Steven Ranson, President and
CEO of Home Equity Income Trust. “Access to retail deposits is a prudent and
sensible step at this stage of our evolution and will enable us to meet the
growing demand for our product experienced in recent years.” he continued.
Subject to unitholder approval, HOMEQ will convert its business structure
from an income trust to a taxable corporation prior to HomEquity Bank being
continued as a Schedule I bank by the Minister of Finance. Until such time,
HOMEQ expects that it will continue to pay monthly distributions of $0.06 per
unit. Prior to conversion, the Trust will determine an appropriate dividend
policy to be adopted after conversion. HOMEQ plans to call a meeting of
unitholders for the last week of April to approve this conversion. A circular
providing information about the conversion, including the anticipated dividend
policy, will be distributed to unitholders in advance of the meeting.
HOMEQ expects that conversion of CHIP to a bank will not affect the
outstanding notes of CHIP Mortgage Trust, although access to retail deposits
will likely result in future financing being conducted through HomEquity Bank.
“Reverse mortgages are a critical component in retirement planning and
seniors are turning to our product in increasing numbers. We are committed to
constantly enhance our offering and to deliver the best value to our clients,”
said Pierre Lebel, Chariman of the Board of Home Equity Income Trust. “We will
continue to partner with Canada’s national chartered banks, mortgage brokers,
and financial planning organizations to offer our product to Canadians 60 and
over.”

Forward Looking Statements

Home Equity Income Trust from time to time makes written and verbal
forward-looking statements about business objectives, operations, performance,
and financial condition, including, in particular, the forecast of cash
distributions and the likelihood of HOMEQ’s success in developing and
expanding its business. These may be included in the Annual Reports,
regulatory filings, reports to unitholders, press releases, Trust
presentations and other communications. These forward-looking statements are
based upon a number of assumptions and estimates that are inherently subject
to significant uncertainties and contingencies, many of which are beyond the
control of HOMEQ. Actual results may differ materially from those expressed or
implied by such forward-looking statements. HOMEQ does not undertake to update
any forward-looking statement, whether written or verbal, that may be made
from time to time.

About Home Equity Income Trust

Home Equity Income Trust provides unitholders with monthly cash
distributions from a portfolio of reverse mortgages originated by its wholly
owned subsidiary Canadian Home Income Plan Corporation. As of September 30,
2008, the portfolio generating cash returns to the Trust comprised
approximately 7,000 reverse mortgages with an accrued value of $798 million,
secured by residential properties across Canada worth approximately $2.2
billion. CHIP (www.chip.ca), has been the main underwriter of reverse
mortgages in Canada since pioneering the concept in 1986.
The Trust’s units trade on the Toronto Stock Exchange under the symbol
HEQ.UN. Additional information on HOMEQ, including annual and quarterly
reports can be viewed at www.homeq.ca.

For further information: Gary Krikler, Senior Vice President and Chief
Financial Officer, (416) 413-4679, gkrikler@chip.ca

In an effort to stimulate the economy the Conservatives included a bunch of bonuses for those looking to buy a new home or renovate their current one, along with some measures to inject more liquidity into the mortgage market.

A few Highlights:

• A First Time Homebuyers Tax Credit of $750.00 to help with closing costs such as land transfer taxes, legal fees and disbursements.
•  First Time Homebuyers can now withdraw up to $25,000 from their RRSP under the Homebuyers Plan (HBP), up from the previous limit of $20,000. This money can be withdrawn for a first time home purchase tax and interest free.
• A 15% Home Renovation Tax Credit of up to $1350.00 on eligible home renovation expenses undertaken before Feb. 1, 2010.
• The government is allocating $300 million for ecoENERGY Retrofit Grants.
• There will be up to another $50 Billion in Mortgage Buybacks, designed to insure that Canada’s mortgage market remains stable and there is a steady supply of money available at decent interest rates.
• The Government has promised more disclosures for mortgage insurance designed to “help consumers better understand the mortgage insurance transaction. The Government will also propose new measures to ensure that Canadian consumers are charged no more for mortgage insurance than the true cost of obtaining that insurance.”