At TD Securities' annual financial services conference last week, Canada's top bank cop, Peter Routledge, reminded everyone how he's not a fan of fixed-payment variable mortgages.

He told the audience, "We’re making changes to capital requirements that 1) ensure both lenders and mortgage insurers are holding adequate capital for the risks presented by negative amortization, and 2) set incentives for lenders to prevent negative amortizations to begin with. Published October 20th and coming into effect, now in fiscal Q1, 2024."

"Ultimately, these are decisions that will be made at the lender level," Routledge added, and he's right. We recently spoke with a major bank exec on background about OSFI's efforts to discourage fixed-payment variables, which are arguably misguided. He suggested there's little appetite among most banks to do away with these products.

Canada's closely-watched 5-year bond yield is suddenly 38 bps higher year-to-date. That's swung bond market sentiment from partly sunny to cloudy in a hurry.

It makes this an opportune moment to dust off an old cliche: rates don't drop in a straight line. We've got to brace for intermittent zig-zags, the only normal in downtrends.

Of course, we hear this all the time. It's more instructive to actually see it.

On that note, you'll find charts below of all five BoC rate cut cycles this millennium. The arrows point to bond selloffs (yield rallies) in an overall downtrend. The terminus is the same in each case—rate cuts—but as you'll see, yields take many temporary detours along the way.

After almost 18 years, the man who built Scotiabank’s mortgage broker business retired last month. John Webster’s departure and Scotiabank’s pullback from mortgages last year left some wondering how committed the bank was to brokers and rate competitiveness.

To find out, we connected with the person stepping into Webster’s big shoes, Tracy Gomes, Senior Vice President of Real Estate Secured Lending at Scotiabank.

In this important interview, a gracious and transparent Gomes talks about how brokers fit into Scotiabank’s long-term plan, rate competitiveness, the bank’s digital eHOME channel, mortgage funding and branch relevance.

Here’s what she had to say on that and much more (key points are highlighted)...

On whether the bank's commitment to mortgage brokers has changed

The Bank of Canada is feeling tension after Tuesday's frustrating inflation data. But economists never expected great things from this report to begin with. Inflation's acceleration last month was as foreseeable as sunrise, mainly because the year-ago comparable was so unfavourable.

It's what happens this quarter that really matters. And now it gets real because Canadian and U.S. headline inflation have made no progress for six months. Moreover, challenging #base effects# are out of the way and can no longer be used as a scapegoat.

If the BoC doesn't get what it wants in the next few reports, we may shift from speculating about rate reductions to having a heart-to-heart on hikes. But that's not the mainstream expectation, so we might as well stay optimistic.

Before getting into the devilish details, here are today's latest readings:

• Headline inflation: + 3.4% (v.s 3.1% last month and 3.4% consensus)
• Avg. core inflation: +3.73% (vs. 3.67%, and up a disappointing 0.4% m/m)

Commentators blamed those aforementioned base effects for the uptick in the headline number, with gasoline prices playing a pivotal role—an inflation phenomenon felt globally, not just in Canada.

The real head-turners for the Bank were the two core measures. Markets expected them to slow. Instead, they not only rose, but prior months were revised higher. And note, "These are central tendency inflation measures totally unaffected by outlier price changes like mortgage interest," reminds Scotiabank Economics economist Derek Holt.

Predicting lower rates has become a national pastime. With millions of mortgage shoppers becoming armchair forecasters, rate-cut expectations have led to a higher-than-normal share of Canadians considering short-term mortgages.

Yet, for months, such borrowers have been frustrated by the fact that longer-term rates (e.g., 5-year terms) have fallen much quicker than 1- and 2-year rates. Well, hold on to your toques because there's finally good news on that front.

Two-year bond traders are going all-in on rate-cut bets. Exhibit A is the following chart. It shows Canada's 2-year yield, a leading indicator for BoC rates. It just made an 8-month low on Friday after failing to rebound above its 18-month average.

To some, technical analysis might seem like financial voodoo, but history doesn't lie. When the 2-year yield undershoots its 18-month moving average without a significant bounce, that's historically been a harbinger of BoC cuts within three to twelve months.

This could be the best year for mortgage investment corporation (MIC) returns in decades, at least for some of them.

That's the outlook from the head of Canada's largest residential MIC, Will Granleese, Director and Portfolio Manager at Antrim Investments. His MIC has been around for three decades, and when asked about 2024, his reply was glowing: "I see this as a golden age for private lending."

That would strike some as unintuitive—i.e., that a MIC manager is popping champagne bottles when the housing market is supposedly heading towards recession. To get some context, we caught up with Will a few weeks ago. He served up an insider's scoop on why non-institutional mortgage lending could be this year's Cinderella finance story.

For those with a few bucks and a dream, playing Monopoly with real-life rental properties could again become a pastime in 2024/25.

To set that stage, let's start with six truths that bolster the case for rental investing:

1. Rents have soared double-digits to record highs — any higher and they'd need a space suit
2. Mortgage rates should test gravity further in 2024, with at least four BoC cuts now fully priced in
3. Lower rates stoke demand and appreciation; other things equal
4. 7-figure population growth also fuels our extreme housing demand
5. Almost no reputable economists are projecting high unemployment
6. Despite government incentives, it may be years before builders are willing and able to build fast enough.

Knowing the above, countless potential property investors wonder if they should take the plunge and buy before the crowd. They know what prices can do when rates dive in a tight real estate market. And they know that the best way to build wealth in a country where ¾ of us say we're overtaxed is to amass tax-efficient capital gains.

So with that, let's unwrap this mystery box of a question, and sprinkle in some investing best practices while we're at it.

In the last three months of 2023, the 4-year swap rate—a leading indicator of fixed mortgage pricing—plunged 125 bps. The descent trimmed down fixed rates by about 60 bps.

For the average Joe/Josephine getting a new $300,000 mortgage, that means a cool $8,700 that they don't have to fork over in interest over the next five years. It's like finding a forgotten tax refund in your junk drawer.

Now, a 125 bps drop is no small decline, but it's a somewhat typical move when the market thinks rates have peaked. In the short term, however, some say the drop in yields was excessive, and maybe we all overdid it with the confetti and rate cut talk.

Or did we?

In 2024, the pulse of the economy might as well be taken by checking the mortgage market's blood pressure. Mortgages are that critical to Canada's outlook.

Millions of borrowers want to know what lies ahead, as do mortgage pros. But we didn't want to write some dry-as-sawdust mortgage prediction article. Luckily, when MLN needs answers, we know who to ask.

In today's bulletin, these seven industry all-stars foretell what's on the mortgage horizon for 2024, sharing essential advice in the process:

• Collin Bruce, Lead Broker of the DLC Collin Bruce Team
• Dan Eisner, CEO of True North Mortgage
• Hash Aboulhosn, President & Co-Founder of Rocket Mortgage Canada
• James Laird, Co-founder of Ratehub & Co-CEO of CanWise Financial
• Jim Tourloukis, President of Verico Advent Mortgage Services
• Ron Butler, Mortgage Broker at Butler Mortgage
• Tracy Valko, Principal Broker, Valko Financial Ltd.

This isn't your run-of-the-mill crystal ball gazing. Each of these industry moguls dropped multiple truth bombs for the year ahead. Enjoy...
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Welcome to 2024, a year that promises to be easier on borrowers' wallets.

Sometimes, though, promises from the financial world are like that buddy who swears they'll help you move and never shows up.

That's why, even though the odds now favour floating-rate mortgages, it pays to account for unexpected twists. Excess fiscal stimulus, immigration, housing inflation and new supply shocks are just a few reasons why inflation could remain stubborn, keeping rates higher than expected (not a prediction).

Fortunately, there's a simple solution to hedge that risk economically: the hybrid mortgage. Think of it as the mullet of the mortgage market—business in the fixed front, party in the variable back.

If you're a mortgagor, here's to a year of lower rates and greater savings, so you can invest in your future and not in interest!

If you're a mortgage professional, here's to a thriving mortgage market, thrilled clients and seamless transactions.

And to everyone, most importantly, here's to a year of positivity, unlimited success, closeness with family and friends and doing whatever it takes for good health. You deserve nothing less!