Markets tumble as automaker bailout plans are rejected
Who’s steering the auto industry now? See article at bottom
· TSX -224.84 the rally that has sent equities surging for most of this month ground to a halt amid a jolt of worry over GM and Chrysler may be forced into bankruptcy after the U.S. government said the plans they’ve submitted are not acceptable to receive more federal bailout money.
· DOW -254.16.
· Dollar -1.56c to 79.25USD
· Oil -$3.97 to $48.41US per barrel.
· Gold -$7.70 to $915.50USD per ounce
· Canadian 5 yr bond yields -.09bps to 1.79
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Mortgage brokers find a larger niche
Buyers Market; Field widens as competition from banks fades away
Derek Sankey, Canwest News Service Published: Monday, March 30, 2009
More than a decade ago, Bob Alexander was working as a professional accountant when he walked into a bank to get a mortgage. When he got turned down, he was completely baffled.
“My friend told me I should go see a broker,” Mr. Alexander says. It was a perception that was prevalent at the time: Mortgage brokers were seen as the place you went when the banks turned you down.
Mr. Alexander went to see a broker, secured a mortgage and bought a home. He was so intrigued by this often-misunderstood field that he decided to switch careers and become a broker himself.
“Ten or 15 years ago, mortgage brokers used to be the lenders of last resort,” says Jim Murphy, president and chief executive of the Canadian Association of Accredited Mortgage Professionals (CAAMP), the organization that certifies the AMP designation.
“The mortgage broker channel has grown enormously,” Mr. Murphy says. “I think the consumer sees it in a much more positive light.”
In fact, about 30% of all mortgages in Canada today are secured through mortgage brokers, according to a study from CAAMP. There are 3,800 certified professionals with the AMP designation working across Canada.
When CAAMP introduced the certification four years ago, Mr. Alexander– whose been a broker for eight years now — decided to earn his designation.
Banks used to compete directly with brokers, using their own sales forces to go out and source new leads. The brokers, meanwhile, would charge their own clients a fee to find them a mortgage.
Now, most banks have chopped those sales forces and instead enjoy a more mutually beneficial deal with brokers, who no longer charge the client a fee.
Mr. Alexander, like other AMP brokers, provides his services free to the client. The lending institution pays him a finder’s fee based on the size and type of the mortgage he secures for his clients.
“Lenders out there realize it was actually more efficient to get rid of their in-house sales force and use an independent person like myself to source their leads,” says Mr. Alexander, who works for Canada Mortgage Direct in Calgary. “The finder’s fee I’m paid is roughly the same across all lenders, so I’m not incented to take you to Lender A over Lender B.”
No longer are brokers seen as the last resort, but just another player in the market working to find you a competitive mortgage. It’s important for clients to know they’re dealing with someone qualified and experienced.
The AMP designation requires two years of industry experience, an entry-level certification course plus 10 hours of continuing education every 12-month cycle to remain current.
“It’s really important because a mortgage is the biggest financial investment most people will make in their lives, so they want to make sure the [broker] is knowledgeable, trained, knows the issues and the market and is able to give the consumer good advice,” Mr. Murphy says.
Since brokers such as Mr. Alexander have access to 40 lenders offering upward of 400 different products, the field has evolved in recent years to become a viable option for anybody seeking a competitive mortgage. While he works with the big five banks in Canada, he also taps into other lending institutions such as First National Financial LP and Australian based lending giant Macquarie Financial (Canada) Ltd.
When anybody walks into Mr. Alexander’s office, his job is to match your credit level — A, B, C, or D– with an appropriate lender that caters to the same type or types of customers.
What has changed in recent months, due to the economic recession, is there are fewer Dlevel lenders around, especially the U. S. banks that ventured north prior to the subprime market collapse last year.
“As a result of the U. S. subprime fallout, a lot of the Dlevel lenders have vanished,” Mr. Alexander says. “A lot of fringe clients are finding it much more difficult to get a mortgage than [it was] two years ago.”
Even some of the A-level lenders now require more documentation and verification than previously. “We’ve seen a general tightening [of credit] right across the board,” he says.
Mr. Murphy says in any kind of economy, it’s important for potential homebuyers to realize — and utilize — the new brand of mortgage professional.
Mr. Alexander agrees, but cautions people to do a little research, make sure they’re comfortable with the person across the table and ask questions. “The first thing you should do is look for someone with that AMP designation,” he says
Who’s steering the auto industry now?
GM, Chrysler get last crack at fixing business
Nicolas Van Praet and Paul Vieira, Financial Post
After 100 years of building Corvettes and Wranglers, billions of dollars lost, and hours of committee hearings trying to explain to politicians how it all went so wrong, General Motors Corp. and Chrysler LLC will get one last crack at fixing the mess they find themselves in. Otherwise, a bankruptcy judge will do it for them.
The Canadian and U.S. governments Monday rejected pleas from GM and Chrysler for as much as US$32-billion in new loans to keep them alive through the worst auto industry crisis since the Great Depression, vowing instead to back the companies with temporary aid and demanding they make more drastic changes or allowing them to be pushed into bankruptcy court by June.
Canada will provide the carmakers with $4-billion in bridge loans. The United States, which has already given the companies US$17.4-billion, will fund their working capital as they scramble to meet their new deadlines for cutting costs. It will also guarantee warranties for GM and Chrysler vehicles in the United States to ease the fears of consumers shunning the companies.
“Year after year, decade after decade, we have seen problems papered-over and tough choices kicked down the road, even as foreign competitors outpaced us,” U.S. President Barack Obama said at the White House. “Well, we have reached the end of that road.”
The government cannot let the auto industry vanish, Mr. Obama said. But he said it cannot continue to excuse poor decisions.
“What we are asking is difficult. It will require hard choices by companies. It will require unions and workers who have already made painful concessions to make even more. It will require creditors to recognize that they cannot hold out for the prospect of endless government bailouts.”
GM will now have 60 days to develop a more aggressive viability plan under new management. That may include shutting more plants, further consolidating its brands, and slashing more debt. The company also has to win new agreements with unions in both Canada and the United States on lowering health care and retiree costs.
GM chairman and chief executive Rick Wagoner, who has steered the automaker to US$82-billion in losses over the past four years, was ousted. Mr. Obama said it will take “new vision and new direction” to create the GM of the future. Current chief operating officer Fritz Henderson will take over as CEO.
“We need to do more and do it faster,” Mr. Henderson told reporters yesterday.
Taxpayer support for a rescue of the Detroit manufacturers was tepid at best. Analysts said the U.S. President needed to show he was pushing for tough change at the companies. Sacrificing Mr. Wagoner, the industry’s top CEO, was a symbol that all stakeholders need to get serious about working toward a solution.
“In the end, this is less of an indictment of [Mr. Wagoner's] tenure as CEO and more about the political need for a scapegoat before unpopular loans could be offered,” said Jeremy Anwyl, chief executive of auto research firm Edmunds.com.
Chrysler’s CEO, Robert Nardelli, was not asked to step down. But the automaker is on a tighter leash. It has 30 days to finalize a partnership with Italian automaker Fiat SpA guaranteeing that Fiat build fuel-efficient cars and engines in the United States. The president’s auto task force concluded that Chrysler, whose lineup is heavily weighted towards trucks, does not have the scale or product mix necessary to compete on its own.
If the Fiat deal fails, “the most effective way for Chrysler to emerge from this restructuring with a fresh start may be by using an expedited bankruptcy process as a tool to extinguish liabilities,” the task force concluded in its report.
U.S. auto sales have fallen to levels not seen in 30 years, starving the carmakers of the revenue they need to fund their restructuring. To help drive sales, Mr. Obama said the Internal Revenue Service will launch a new program allowing some new car buyers to deduct sales and excise taxes. Washington will also consider implementing a program to pay consumers to trade in their old clunkers.
The Canadian and Ontario governments have pledged to help GM and Chrysler in order to protect Canada’s roughly 20% share of their continental assembly volume. On Monday, they committed $3-billion for GM and $1-billion for Chrysler, the same amounts as the yet-unused loans they first promised in December. A financing deal for Chrysler is to be completed Monday, and will see a $250-million tranche forwarded immediately. A pact with GM is to follow shortly, federal officials said.
“Very clearly if the money had not been forwarded today, they would not have been able to meet payroll today or tomorrow,” federal Industry Minister Tony Clement said. “We were faced with this choice of a disorderly bankruptcy where” the companies’ factories could have been “ripped up from Canadian soil.”
Like the United States, Canadian political leaders also demanded the companies come up with new credible restructuring plans that contain more fundamental change.
“As it stands, neither company is “viable going forward,” based on the business plans they have shared with Ottawa, government officials said. Canada set the same deadlines for presenting the plans as the United States.
The loans for both companies will carry an interest rate no less than 5%. Ottawa will receive an interest-bearing note in return.
The money is to be used exclusively to finance operations, and cannot be used to pay back taxes. That is an issue for the privately-held company Chrysler, which is in a $1-billion tax dispute with the Canada Revenue Agency.
Getting all stakeholders to agree to further painful cuts in such a short period of time could prove an impossible task. Mr. Obama and his closest advisors are said to favour bankruptcy as the best way out. They are working on a scenario that would let both GM and Chrysler use creditor protection to cast off the most onerous parts of their business while the good parts survive.
A committee representing GM’s bondholders, many of whom are average retail investors, said Monday the lenders were committed to finding a solution in which GM “emerges a leaner, more competitive entity.” But they have said the terms imposed on them previously – swapping two-thirds of its US$27-billion in debt for equity and new bonds – were too onerous. New terms could prove even more unacceptable.
Talks with dealers and unions are equally complex.
GM owes the United Auto Workers union US$20-billion for their retiree medical benefits. The automaker is trying to work out an agreement that would offer the union US$10-billion in cash over 20 years and $10-billion in stock. Chrysler is trying to strike a similar deal.
In Canada, getting the Canadian Auto Workers onside will prove key.
CAW President Ken Lewenza said his union will not reopen a new labour contract negotiated with GM earlier this month because wages and compensation for current CAW factory workers are competitive and don’t need to be changed. He added that he is nevertheless open to discussing retiree health care and pension and other legacy costs with the government and the company outside the bargaining process. The CAW is still looking to strike a separate labour deal with Chrysler Canada in the next few days providing the company is willing to negotiate, Mr. Lewenza said.
“I’m shocked at what’s happened in the last 24 hours,” Mr. Lewenza said. “We are pawns in a bigger drama.”
Jim Flaherty, the Finance Minister, said he hopes Mr. Lewenza understands what’s at stake. “This is very serious,” he said. “This is about saving thousands of jobs in Ontario and in Canada. We want to save those jobs.”
Sincerely,
Dan Mass, AMP
dan@canadafirstmortgage.com
403-294-0033
