News You Can Use April 2017

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Posted in Debt Help
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

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Millennials, Car Loans, Real Estate and Debt Repayment Scams

Welcome to the second edition of our Debt Free in 30 News You Can Use round table. Our first one aired in January 2017 and covered Walmart vs. VISA, 2017 Debt Repayment Predictions, Bank of Canada Warnings and Paid Promotions vs. Personal Finance Advice. This month we have a whole new panel of experts and a whole new stock of stories to cover.

Today's guests are Blair Mantin from Sands & Associates in British Columbia, Daniel Budd from M. Diamond & Associates in Montreal, and Ian Penney from Janes & Noseworthy in Newfoundland & Labrador. As you might have guessed from the firm names, we are all Licensed Insolvency Trustees. Specific bankruptcy details vary from province to province and we're all facing different economic factors depending on where you are in the country. Our panel of experts today provides insight from coast to coast.

Story #1 Millennials and Debt

Audio segment starts at 2:30

As we know from our Joe Debtor study, millennials are becoming more and more likely to file insolvency. Our study found that student loans cause financial trouble for millennials. That paired with part-time or stagnant work pushes them to payday loans for short-term help with their cash flow.

Their biggest problem isn't debt - it's insecure income.

Millennials have an average net income of $2,028 per month. Now that's 15% below our average Hoyes Michalos client and our average client is around 40% below the median income in Ontario. Around 85% of millennials who filed insolvency with us were employed but a lot of them have low paying or part-time jobs.

Our panelists give practical examples of the millennials they've helped in their practices across the country.

Story #2 Car Loans

Audio segment starts at 13:16

Canadians are now twice as likely as U.S. buyers to stretch out payments on a car loan. The length we're willing to keep making those payments? Eight years.

The year 2016 was a third straight record year for car sales in Canada, which leaves Canadians with a lot of car debt. Blair Mantin explains what it means to be "underwater" on a car loan, and the panel gives their advice for dealing with car loan debt.

Like many topics, this varies from province to province and Jones Noseworthy from out east specifically speaks about the culture of pick-up trucks and SUVs and how that debt can easily accumulate if you're rolling your car loans into each other.

Story #3 Real Estate

Audio segment starts at 20:30

The panel describes the state of real estate in each of their respective provinces. In Ontario, our market is still booming. A big worry is that some mortgage brokers are recommending people shift into variable rate mortgages again. That is very risky for the borrower if mortgage rates increase.

Our Joe Debtor study found that homeowners are now less likely to file insolvency. This is primarily because they can use the increasing equity in their homes to refinance and deal with other debts.

It's important to see a home purchase as it is: a business transaction. Ensure you're educated on all of the costs of purchasing, not just your agreed value on the home.

Story #4 Debt Repayment Scams

Audio segment starts at 31:26

On April 5, 2017 the Financial Consumer Agency of Canada (FCAC), a division of the federal government issued a press release. This release advised consumers to be cautious when seeking help to pay off your debt or repair your credit.

We've been advocating this for a while and today our panel noted it again:

only a Licensed Insolvency Trustee can file a bankruptcy or a consumer proposal on your behalf

There are no short cuts, or quick fixes to improving your credit. Professional help is essential to getting your fresh start.

Resources mentioned in the show: 

Our expert panel

Blair Mantin - Sands & Associates, British Columbia

Ian Penney - Janes & Noseworthy, Newfoundland & Labrador

Daniel Budd - M. Diamond & Associates Inc., Montreal

FULL TRANSCRIPT show #137 with Blair Mantin, Daniel Budd, and Ian Penney

news-you-can-use-april-2017-transcriptDoug Hoyes: This is the second edition to the Debt Free in 30 round table. Unlike our regular shows where I just have one guest, today we’ve assembled a panel of experts from across Canada so we can over all of the issues from all of the angles. We're recording this over Google Hangouts so in addition to the audio podcast on iTunes, you can go to the Hoyes Michalos YouTube channel and watch the video of the show as well.

So, let's get started and welcome the panel. Starting out west, Blair Mantin is a Licensed Insolvency Trustee. Blair has appeared on the show twice before way back on show #8 in 2014 and then show #60 in 2015 and we skipped 2016 for some reason. So, great to have Blair back here in 2017. So, Blair where are you today and what's the name of your firm?

Blair Mantin: Thanks Doug, my pleasure to be here. So, I'm based in Vancouver and my firm is called Sands & Associates. We've been founded in 1990 and we're the largest firm in B.C focused on helping individuals and small businesses solve their financial problems.

Doug Hoyes: Excellent. So, thanks for being here Blair. So, let's move to the opposite end of the country and welcome Ian Penney, a Licensed Insolvency Trustee who was a guest back in show #38 in 2015. So, it's been almost two years since Ian's been on the show. Ian, welcome back, where are you today and what's the name of your firm?

Ian Penney: Thanks Doug, I run an independent firm Janes & Noseworthy. We're the largest insolvency firm in Newfoundland with offices, six offices across the province and I work out of our St. John's office.

Doug Hoyes: Excellent, thanks very much Ian for being here. So, we've touched the west coast and the east coast, let's touch the middle of the country with a first-time guest, Daniel Budd, who is a Licensed Trustee as well. Daniel, welcome to the show. Where are you today and what's the name of your firm?

Daniel Budd: Hi Doug, pleasure to be here. I'm at Diamond & Associates here in Montreal, we're a boutique, firm with three trustees but we do a volume game, so it's a pleasure to be here.

STORY #1 MILLENNIALS

Doug Hoyes: Excellent. Well, thank you very much to all of you. We've got four stories we want to cover today, that's how we do it on the roundtable so let's get started with story number one. As the panel knows my firm, Hoyes Michalos released our Joe Debtor study a few weeks ago where we profile people who are filing bankruptcy or a consumer proposal. Now our study only covered Ontario so I'd like to get your input on whether you're seeing in the rest of Canada what we're seeing in Ontario.

Specifically one the most surprising findings for me was the big jump in millennials getting into financial trouble. And millennials, it's kind of hard to define, but basically it would be people kind of under 30 years of age, somewhere in that range, 20’s years old maybe their early 30s. Two years ago only 12% of our clients were under the age of 30, now it's 14% and it's growing.

Our study found that student loans caused financial troubles for millennials and often they turn to payday loans. So, the biggest problem isn’t debt, it's insecure income. They have an average net income per month of just over $2,000 and that's 15% below the income of our average client and our average client has income that's just over 40% below the median income in Ontario. 85% of them are employed but obviously a lot of them have low paying and part-time jobs.

So, I want to start with the youngest guy on the panel, Daniel Budd, do Daniel if you don’t mind me asking how old are you?

Daniel Budd: I'm 30 Doug.

Doug Hoyes: Okay so you actually qualify as a millennial then. So, give me an example of somebody who you have helped who is on the younger age of the age spectrum.

Daniel Budd: First of all I'm just going to clarify one thing, I don’t consider myself a millennial. So I'll just lunge right into it. What we're seeing with millennials I have give really two examples because it's about 50/50. We're seeing like you were describing in your study, a lot of millennials who are coming out of school under employed or unemployed aren’t able to see any upward mobility in the field that they're working in, not able to pay their student loans as well as their regular unsecured debt that they've accumulated over the course of their studies.

And we're also seeing a lot of millennials who are actually just spending above and beyond their means and are coming to see us basically with bills that just fresh out of university [are their enjoyment]. They're saying I overspent in school, what am I supposed to do now? So, those are the two cases we're really seeing. We're obviously trying to help people out to negotiate and settle their debts as fast as possible. One big problem for millennials that we can see is that with student loans, if you haven’t been out of school for more than seven years aren’t dischargeable in a bankruptcy.

So, if they're coming to us exclusively for student loans the issue is they're in a hard sell because they don’t really have much relief under the bankruptcy act. The student loan's department will work with you for the first couple of years after school, but once you're running on years three and four they're really leaving you on your own and you're going to be stuck with those payments, which are at that point quite cumbersome and delaying millennials real entry into productive society.

Doug Hoyes: Absolutely. And what you're referring to is the rule in the Bankruptcy Insolvency Act that says a student loan is only automatically discharged in a bankruptcy if you have been out of school for seven years. So, it doesn’t matter when you got the loan, it's how long have you not been student for. So, obviously someone who graduated from college or university when they're 22 years old, they've got a student debt, they can't go bankrupt at age 23 and get rid of it. And we can debate whether that's good or bad for society but we won't have that discussion today.

So, let me go over to you Blair and have you give us your thoughts on, you know, what are you seeing, are you seeing the same kind of things that Daniel's seeing or is it different in Vancouver?

Blair Mantin: Well, I think Doug something different that I'm seeing I'm seeing a lot of folks who have been out of school a number of years and they're past that seven year mark. They've been trying, doing their best to try to make good on their student loans but they're just having difficulty. And especially in Vancouver what I see here is the income in Vancouver is quite low and the cost of living is often the highest in the country, definitely from a real estate perspective and a lot of other ancillary costs. So, there's definitely - there's income insecurity. And I'm seeing folks where student loans is taking increasingly aggressive collection actions in terms of freezing bank accounts, in terms of seizing wages.

There's a lady that I worked with very recently who is 30 years old, a single mother, who had $22,000 student loans and they were starting to garnishee her wages so she wouldn’t be able to support her kids. So we were able to file a consumer proposal and the good thing is once it's been seven years, student loans from my experience is very open to considering consumer proposals. We were able to bring her total debts down from about $27,000 down to $9,000. Monthly payment of $150 a month was a lot better than what student loans was asking for and certainly a lot better than a garnishee would have been. So, once you've passed that seven years there's definitely options but I've seen an increase in how adamant and how aggressive student loans has become in collecting outstanding balances.

Doug Hoyes: So, Ian let's go to the east coast then. Are you seeing the same thing with student loans being aggressive and, you know, question number two what are you seeing in general with the younger crowd?

Ian Penney: Some of the same things that Daniel and Blair have been saying, sort of the under employed, unemployed. In my world that tends to be the single mom, you know, working a minimum wage job kind of thing, just can't make ends meet and pay the student loans. A lot of the male millennials I see have been fortunate in recent years to find high paying construction jobs either in Newfoundland where there's a number of mega projects on the go. And there's also a lot of Newfoundlanders, I think a lot of Atlantic Canadians generally, going to Alberta still to work.

But what's happened now is sort of a perfect storm. These people are used to making big money, they've overspent, they're driving expensive pick-ups typically, the probably bought a house in Newfoundland at the peak of the market. Housing is now down about 30%, a lot them have lost their high paying Alberta jobs or even their high paying construction jobs in Newfoundland and are now making a third or half less than what they were a year ago at the same as their house is now worth a third less than it was two years ago and it's almost like a perfect storm and there's just nowhere for them to come.

So on one hand you can say they've overspent, they've probably been over optimistic thinking these high paying jobs would last forever but now the decisions they've made are coming home to roost. They're under water on their house, they got a big pick-up they can't afford anymore and their paycheque is not what it used to be. And sometimes student loans is mixed in there too but I think the other problems are the bigger issues for most of the male millennials that I'm dealing with.

Doug Hoyes: So that's interesting, we're all seeing similar but not exactly the same depending on where in the country you are. So, let's talk practical advice here 'cause the whole point of this show is to be giving practical advice to people who are watching. So, I want to start - well, let's go west to east on this one. So, Blair, let's start with you, what practical advice would you give to millennials?

Blair Mantin: Yeah I'd say Doug if there was one piece of advice I wish and I have clients tell this to me, that clients wish they knew this earlier on in their financial career as opposed to learning it later, is this idea of focusing on your financial health instead of your credit rating. I think we're conditioned everywhere these days, focus on your credit rating, get your credit score, monitor every single month.

But what we don’t understand is that quite often the activities you do to improve your credit rating, like incurring debt, like paying interest, making all the minimum payments, they're often completely the opposite of what you should be doing, which is trying to put some savings away. If you eventually want to get real estate you've got to save a down payment but if you're focused on your credit rating alone, you may never get to that point.

So, I'd definitely caution people that if you think you need 10 years to build positive credit, you don’t. You can go from a bankruptcy to getting good credit, you know rebuilding credit, in just a few years, two to three years.

Doug Hoyes: Excellent. Well, that's good advice. Daniel, what kind of advice do you give people in these situations?

Daniel Budd: Well, I would say the advice Blair gave was excellent. It was something that we are telling people at this point. But there are two other points that we are mentioning to people. One is to really reconcile your needs with your wants, so in order to determine what you're spending, determine actually what you need to spend as opposed to what you want to spend.

As well one of the complaints we're seeing from a lot millennials is lack of upward mobility, especially within the professional class. So, what we've been seeing a lot more of, what we've been suggesting is to look at different [unintelligible [00:11:29] everybody was just looking for a straight bachelor's degree, in Quebec there is a huge lack for people who are going for a technical degrees two year trade schools. So, they're telling people to avoid income insecurity, look at a field where you're going to be able to achieve that revenue that you're looking for as opposed to one you were hoping to achieve that income for.

Doug Hoyes: Yeah, I think that's very good practical advice. Hard to do when you're young, to be looking forward, but it's absolutely something you need to do. Ian, last word to you on this question, what kind of practical advice do you typically give out?

Ian Penney: Well, I actually planned to talk about exactly what Daniel just did along the lines of choosing a profession where you're going to find a job not necessarily something you just like and sometimes find it hard to reconcile those two things and it's hard to predict three, five, 10 years down the road where the needs are going to be but you really need to be careful the field you study in and what your employment prospects are.

The other big one I see is that people are very focused on monthly payments or biweekly payments or even weekly payments and they lost sight of the fact that, you know, just because a car is $200 weekly payment I mean that's almost $1,000 a month. That's a lot of money for a car payment. They just look at the biweekly payments, they're focused on, you know, cash in, cash out every month without really looking at the balance sheet of their life, am I accumulating wealth?

And I think that's the key is to show year over year you should be building equity in your assets, building equity in your home, building equity in your vehicles, putting away some money, RSPs, RESPs, all those things. And I think people just look at is there enough money in my paycheque to make that next payment and you really need to look a lot farther down the road for long-term financial health.

STORY #2 CAR LOANS

Doug Hoyes: Totally agree. And you've raised the issue of cars and that's what I want to talk about is story number two. So, let's get to that right away. And this is something that impacts millennials but it also impacts most other Canadians and that's, you know, car loans. So, there was a story in the Financial Post a few weeks ago and I want to quote directly from it. So, Ford Motor Company is seeking to limit the growth in long-term auto loans and leases in Canada where consumers are twice as apt as U.S. buyers to stretch out payments to as long as eight years in order to afford a car.

In Canada auto makers are selling about 41% of vehicles with loans of at least six years or leases of at least five years. Demand for long dated deals are helping drive Canadian passenger car sales which hit a record for the third straight year in 2016. About 85% of them are bought with debt according to Derosa Automotive Consultants. Since vehicles depreciate over time longer dated loans significantly increased the chance that an owner ends up owing more than their car is worth, according to a report by the Financial Consumer Agency of Canada.

The share of Canadians trading in vehicles with negative equity rose to 30% in 2015 and on average they were underwater by $6,700 according to statistics by JD Powers. So, that's - those are some amazing numbers. I want to start with you on this one Blair. Give us the definition first of all, what are we talking about when we say somebody is underwater?

Blair Mantin: Sure Doug. So, that's - being underwater is the simple concept of you owe more than what the asset is worth. So, 2008 when you heard about the real estate crash in the U.S. and people were throwing their keys back to the bank, that's because they were underwater. They knew if they were going to sell their house, they would never be able to pay off the mortgage.

So, almost by definition as soon as you buy a car, unless you put a lot of money down, you drive off the lot, it depreciates, you know, 20 to 30% almost instantly, your financing goes down in a straight line. So, for the majority of time when you've got a car loan you're probably underwater and that's not necessarily a horrible thing, it can be good, bad or indifferent. But where it can get really terrible is if you start to roll negative equity or you start to consolidate other debts into your car loan. I've seen people owing $60,000 for a Kia Rio for example, for just a basic car that you would never finance for $60,000 but this might be their second or third time that they've rolled some debts into a car loan. So, it really can get out of hand very quickly.

Doug Hoyes: Yeah once you start rolling you're pretty much dead. So, Daniel do you see the same osrt of thing in Montreal or is Montreal everyone takes the bus and no one has a car and you've never heard of what we're talking about? What do you see there?

Daniel Budd: No, we're seeing a lot of people coming to see us with negative equity, as you were saying, underwater on a car loan. I'm not seeing it to the same extent, you know, $60,000 on a Kia Rio, but we're seeing year four, five their car loans still haven’t built any equity whatsoever. Their cars were getting to a point where they're not driveable and they need to be switched to something else because Montreal winter tends to be pretty rough on cars. And as a result you're seeing people who are taking negative equity, refinancing it into another car with negative equity and they're never actually getting out from being underwater on their car loan. They're always in a position where their car is worth significantly less than the amount they have less to pay.

Doug Hoyes: So, in both cases we're seeing people being significantly underwater, do you see the same thing out east Ian?

Ian Penney: Yeah for sure. We tend to be a pick-up truck and large SUV market out here and those things are very expensive to buy and very expensive to operate. And for whatever reason people think they're entitled to a new one every three of four years and so we're seeing a lot of the rollovers. Same type of thing buying pick-ups that are 60, $70,000, you're $20,000 short when you trade in the old one so now you've got a $60,000, $70,000 pickup that as Blair said the second you drive off the lot is worth 50 and you got to finance for 90. So, right off the gate you're 30, 40 grand in the hole and it's very troubling particularly with the high operating costs of these types of vehicles.

Doug Hoyes: So what's the solution then Ian, what - how would you advise people that are in that situation?

Ian Penney: Well, you know, I was interviewed by CBC a couple of months ago and I told a little story. I'm one of our senior partners here and I drive one of the oldest cars on the lot. I drive a seven year old vehicle because I own it, it works fine, I own it and, you know, the next one if I have to finance it I'll pay that off and I'll own it for awhile too. So, I think it's a matter really, not everybody obviously can put down a down payment or pay it off quickly, but I think if you can't afford to pay off a car in five years, you need to go to a cheaper car.

And, you know, just because you made that last payment doesn't mean you have to run to the dealership and get a brand new one. Drive it for a year or two, build up some equity. Go in and the next time you've got a down payment it'll be that much easier to pay it off in five years and over time you can actually build equity in a vehicle although not very many people ever achieve that.

Doug Hoyes: Right. So, Blair I'll give you the last word on this particular one then. So, again practical advice, what should someone do who's underwater and how specifically does it work with a car loan if I do have to go bankrupt or file a consumer proposal?

Blair Mantin: Yeah Doug so, if you go into a bankruptcy or file a consumer proposal, a car loan is just one of these other obligations that you have, the option of restructuring. You know, if you feel the right thing for you to do is continue to be underwater on your vehicle and you continue to make the payments if you file a bankruptcy or consumer proposal the trustee is not going to have an issue with that other than trying to counsel you are you sure this is the right decision? You'll be allowed to keep that car even though there's negative equity.

Now conversely, if you need a chance to take a break from this type of contract, bankruptcy or a consumer proposal can be the perfect method for you to restructure everything in your life including your car loan and your obligations and perhaps get a car that's more in keeping with what you can afford that doesn't have huge amounts of negative equity. It's really important that you understand the different provincial laws that may apply when you're either stopping to pay on a car or giving it back or things like that. Because in the province of B.C. you may not be held accountable for negative equity whereas I'm aware in the province of Ontario you probably would be held accountable for that negative equity outside of a bankruptcy or proposal. So, if you stop paying make sure you understand which province you're in, what the protections are or maybe are not.

Doug Hoyes: Yeah and I guess the final word on this, unless anyone else wants to jump in, is exactly that, you should get some expert advice on this. In Ontario you are allowed to keep a car worth up to a certain amount and if you have a car loan, exactly as Blair said, you can keep the car and keep paying for it. But if the car is worth $10,000 and the loan is $30,000 then does it really make sense to agree to keep paying $30,000 for a car that's worth 10? Maybe you'd be better off to be surrendering the car before you file your bankruptcy or your consumer proposal. That shortfall then becomes one of your debts that gets included in the proposal or bankruptcy and that's truly giving you a fresh start.

So, I think that's all good practical advice. And again this is an area where you've got to get professional advice to decide what to do. Now there are two big purchases we make in our lives, cars are one of them, real estate is that other so that's story number three, let's talk about real estate.

STORY #3: REAL ESTATE

Doug Hoyes: And both Blair and Ian have discussed this on past shows so I'd like to get an update from both of you. Vancouver's been in the news with all the crazy real estate that's been happening there, has that eased off Blair? I mean now we're into April of 2017. I know there was some new foreign buyer’s taxes or things that have come into place. Have things changed in Vancouver or is the real estate market still crazy?

Blair Mantin: Still crazy is what I would say Doug. The government is not helping essentially because they're putting measures essentially in two sides. They're trying to calm the market by putting on foreign buyer taxes and putting in empty house occupancy taxes. So, if you're speculating, you're buying a house, if it's unoccupied, you'll pay a tax on that every year. But on the other side they now instituted a down payment matching program.

So, if you're a young individual or a couple and it's your first-time homebuyer, the government will match your down payment I believe it's up to $50,000 or so interest free for the first five years, no payments. And what they're doing is throwing gas onto the market once again and putting every taxpayer investing into it.

What I've seen is kind of a lull these days, the market seems to be holding in terms of values but a lot of people are really having trouble because if they've got a bunch of debts and notionally they've got a lot of equity in their house, they're really having trouble accessing that equity. And I'm seeing a lot of mortgages that are really ridiculous fees to arrange and higher rates. And so, folks I think it's notionally great that your house has gone up so much but if you can't access that equity it can really constrain and I think a lot of folks are going to face a difficult decisions of perhaps having to sell to pay off some debts and not being able to purchase anything close to what they had before.

Doug Hoyes: Yeah and it's crazy that the government on the one hand keeps interest rates low and then they in Vancouver, and B.C. as you say, they have put in these things to help you buy a house but then on the other hand they put in taxes to discourage it. I almost wonder if maybe they just stayed out of it. But we won't get into that discussion here today either.

Ian, you're in a province as you already described is impacted by the price of oil, which is lower today than it was a year or two or three ago. Is that impacting the real estate market in Newfoundland or are you seeing anything different than we're seeing in places like Vancouver for example.

Ian Penney: Well, we've sort of been through the boom and now we're arguable getting into the bust. So, in the last 15 years we've gone from a very stable, relatively low priced real estate market to one since about 2002, 2003 that houses roughly tripled in value in about 15 years. The last year they probably gone down about a third so they're probably somewhere in the middle of where they started and where they were at the highwater mark.

Again, what we saw during the boom here, which ended about a year and a half or two years ago, was a lot of people refinancing houses, speculating on houses, a lot of very expensive houses that are for sale but there doesn’t seem to be a market for anymore. A lot of people that refinanced or put 5% down kind of thing when they bought or finding they're underwater on their house, maybe lost a job or a reduction in income, really, really struggling to make that mortgage payment now and little or no market for the house and anything approaching what they're into it for. So, a very, very challenging time for real estate in Newfoundland for sure.

Doug Hoyes: Wow and that's the problem with owning a house obviously, they go up and they go down. So, I'll talk about in Ontario but first of all what's happening in specifically Montreal or Quebec more generally, I'm assuming Daniel you're a bit insulated from the whole oil boom and bust we've seen in other provinces. What's been happening in Montreal?

Daniel Budd: The truth is Montreal and Quebec have had a relatively, and when I say relatively stable housing market because it's had modest increases that everyone has seen. There's been no exponential boom or bust.

But we are seeing that the island of Montreal, I'm not as aware of what's happening with Quebec City, other major metropolitan area, but on the island of Montreal you have modest growth certain areas you had a little bit higher growth. The condo market has been booming but a lot of people are very skeptical because a lot of it is like we see in Vancouver, foreign investment, it's coming in, there's a lot of empty units, a lot of large corporations who are buying up units to be able to rent out on it on a daily, weekly, monthly basis to workers who are coming in for specified periods. But we haven’t seen too many people who are experiencing massive growth in the value of their houses. It is because the economy in Quebec has been relatively stagnant for the past few years.

What we have seen is that first-time home ownership has reduced. You are also talking to a first-time home owner in the last year so maybe I have a bit of a skewed perspective myself. But what we are seeing is less younger individuals looking to purchase homes, whether that's going to have an impact on the market in the short or medium term we have yet to see. But for now all I can say is it's been pretty stable. Outside the island of Montreal we have seen some decreases depending on specific areas. Areas that are more depressed economically are obviously having worse times but by in by relatively stable.

Doug Hoyes: So, that's interesting, we've got boom and bust on the east and west coast and Montreal has been a little bit more stable. I can tell you what's happening here in Ontario. And again as we record this in the middle of April, 2017 the real estate market is still absolutely crazy. House prices in Toronto and all the outlying areas are still going up substantially.

And as a result in our Joe Debtor study we found that homeowners are now a lot less likely to be filing insolvency. Back in 2013 almost 30% of our clients were homeowners. But 2015 it had dropped to 24% and in our latest study it's down to 17% and it's pretty easy to see why. If your house has gone up in value you can refinance and use the money to pay off your debts.

But here's the problem, refinancing your house buys time but it doesn’t buy security. So, it's not dealing with your underlying debt problem and in fact of our clients that are homeowners, their average unsecured debt, so this is not your mortgage, not your car loan, your unsecured debt was over $72,500, which is much higher than the average of $54,000 that are typical insolvent client sees. So, it's obviously a pretty serious problem.

So, okay let's talk practical advice here and maybe I'll start with you Daniel because like you said you're the new homeowner, what are you telling people either when they're thinking about buying a home or when they've bought a home and perhaps they don’t have the equity that they were hoping for?

Daniel Budd: It really depends on the specific situation as always. For people who are looking to buy a home what we're telling them is make sure your ratios work. One issue I've been promoting quite a bit here in Montreal is financial education at a young age and teaching people what proper ratios are to be able to spend on your houses versus your transportation versus your food versus your savings.

So, what I tend to tell people is really do your math, crunch your numbers and make sure you can afford this house. And don’t forget if you're not putting down 20% CMHC insurance that you're going to have to pay into your calculations because most people don’t remember if you're not putting down 20% you're getting the added insurance on top and your mortgage payment isn’t necessarily going to be what you're planning for it to be.

As a first-time homeowner, my advice is it's going to cost you much more than you ever possibly expected so really be ready for everything to come out of the woodwork. You have to have additional expenses that come out of nowhere and don’t forget about property taxes, condo association fees, school taxes, because again these are part of your housing costs and should be taken into account in those same ratios.

Doug Hoyes: Makes perfect sense. So, are you seeing the same thing Ian? And would you have the same kind of advice to people or are you seeing anything differently? And again, let's keep it to practice advice here, what are you telling people they should be focusing on?

Ian Penney: Well, you know, I often see people that are underwater on their house and in that circumstance, you know, you sort of suck it up and you say I'm going to get rid of my unsecured debt but I wanted to have the house and I won't be able to qualify for another mortgage in the short-term so I'm going to accept that I'm paying more for a house than it's worth.

Some people I see do have equity and refinancing is definitely an option for some people to get out of trouble. But what I always drive home then is you've got to change your behaviour. So, it's no good to get 50 or $100,000 out of your house, pay off all your debts and then go right back to, you know, spending $2,000 more a month than you're earning. So, that's the key there is to change the behaviour that caused you to incur all that insecure debt. If you are going to take the equity out of your house, take the hit to your balance sheet, remove most of the value [unintelligible [00:29:43] make sure you change your behaviour so you can protect it going forward.

Doug Hoyes: Yeah because whatever caused the problem probably won't be the solution to the problem. So, final word on real estate to Blair again, you kind of painted the picture for us what it's been like in Vancouver, what practical advice to you give people who are worried about their housing situation?

Blair Mantin: Yeah I would say and it's a very common thread here, is make sure you understand what the options are and you get the right expertise at the right moment.

You know, if you've got a bunch of equity in your house and the bank won't let you take it out because of whatever reason, their risk is high or things like that, there's a bunch of alternative lenders out there and you really have to go in with your eyes wide open.

I've seen clients come in and show me some term sheets from alternative lenders where, you know, they'll access $150,000 of equity from their house but the upfront fees are about $15,000. So, it seems a very high origination fee to me and then the rates that they're looking at are sometimes in the mid double digits and we're in a historically low interest rate environment.

So, if you're only able to get money out at very high origination fees and at very high rates, you really need to look at the bigger picture and say is this something I should be doing or is the right time now, as Ian said, change the behavior to restructure things and to look at can I stay in this house and if so what changes do I have to make.

Doug Hoyes: Yeah and they're tough decisions because a house is it's a home as well as a house. It's something that we feel very emotionally attached to. So, trying to separate the emotion from the numbers is not easy. But I see exactly what you're seeing Blair where people refinance, they get a second mortgage and the interest is massive so you kind of wonder if that was really a good decision. But that's good advice on that.

STORY #4 DEBT REPAYMENT SCAMS

Doug Hoyes: So, let's go right to story number four which I think will be of interest to everybody listening. On April 5th The Financial Consumer Agency of Canada, FCAC, which is a division of the federal government, issued a press release with the title consumer alert. They probably didn’t say it in the same terms but consumer alert, be cautious when seeking help to pay off debt or repair your credit.

Let me read from the first couple of paragraphs of this press release. FCAC is warning consumers who can no longer keep up with their debt payments to be cautious. Some companies are misleading consumers by promising quick and easy solutions to help pay off their debt or repair their credit. In some cases consumers may end up in a worst financial situation than before they got help. It's important to understand that these companies number one cannot guarantee that they can solve your debt problems, number two cannot quickly and easily fix your credit score and number three, should not encourage you to take out a high interest loan as a temporary solution until other repayment options are in place, they're probably referring to payday loans there.

So, let's go east to west on this one. So, Ian what are you seeing out east, are you seeing companies that promise these solutions, but are often not able to deliver?

Ian Penney: Yeah I don’t think they're quite as persuasive as maybe in some of the larger centres across Canada. But we definitely see, you know, we see debt counsellors, we see credit counsellors, credit repair people. I think the simple message here is really buyer beware. You need to ask questions. If you've got damaged credit, if you're over extended in terms of the amount of debt you’re carrying, there's no simple fix. You cannot fix this overnight, it's going to take work, it's going to take time. And if you're going to pay somebody to help you, you really need to ask questions. Make sure you do your research, talk to multiple people, understand the service you're getting for the fee you're paying. Because a lot of the services you pay for are actually available for free from people like ourselves, Licensed Insolvency Trustees.

I think it's important to remember that the only debt advisors that can reduce debt, compromise debt are Licensed Insolvency Trustees and we can do it through proposals and bankruptcies. We are the only ones that can do proposals and bankruptcies. Anyone else may be able to get interest reduced or forgiven but they cannot compromise your debt without a Licensed Insolvency Trustee. And some of them their model is to charge you a fee and then just introduce you to a trustee. It's something you can do yourself. So, I think the message would be for me do your homework for sure, talk to other people but make sure a Licensed Insolvency Trustee is on the list of people you speak to before you pay any money or make any decision.

Doug Hoyes: Excellent. Because as you said you're not going to be paying upfront when you come and talk to one of us. So, Daniel, I recall, and you're going to have to fill in the blanks for me here that in the past, Montreal and Quebec in general had had some issues with these kind of people but they kind of been managed to clip their wings. What's going on in Quebec with respect to these shady practitioners who pretend that they're able to help you but really can't?

Daniel Budd: The truth is that they had to really blitz the airwaves, TV, radio, lots of print advertising more than three or five years ago at which point and I believe it was the Bureau de la Protection du Consommateur consumer protection office here in Quebec, actually issues press releases advising people to stay away from these types of companies.

Their method of operations, which was essentially taking payments for three months, let the individuals go into default and hope for a good solution, really became aware in the province of Quebec. And now we do have generally a higher than average per capita insolvency rates compared to the rest of the country for whatever reason that might be. So, we really saw a prevalence of these types of individuals with the 2008 financial crisis. They were really quite busy for the next few years.

But people really saw them for what they were. And we tend to see less and less people coming to see us now coming from these types of agencies, whether they be credit counsellors or they call themselves consolidation houses. And a lot of the times at the end of the day what ends up happening is like Ian was saying they do just end up getting referred to trustees although the debtors ends up having to pay a fee unbeknownst to them through their Licensed Insolvency Trustee at the end of the day.

So, yes it was a problem, yes it still continues to be a problem, but not to the extent that we were seeing three or four years ago, it seems as though the population has woken up to a certain extent and understands that these services, like we said, are available for free from a Licensed Insolvency Trustee. And they're regulated when it's a Licensed Insolvency Trustee and that’s what people want to see, is the regulation.

Doug Hoyes: Yeah I totally agree with that. So, Blair last word to you. I know that there's a whole bunch of these companies operating in British Columbia as well. Are they still out there now and what kind of advice are you giving people to stay out of trouble with them.

Blair Mantin: Yeah, so definitely there's still some presence in the market here. It's better than it was in past years. In past years there were a lot of U.S. based companies whose model was outlawed in the U.S so they started to set up outbound calling, everything you do is over the phone but they were clearly not local folks. Here there's still a large presence of local business who still focus on credit repair and debt relief and for some clients they provide a service but for the vast majority of clients it's nothing they couldn’t do themselves or couldn't get for free from a Licensed Insolvency Trustee as we've said.

So, the old adage of it seems too good to be true it likely is. There's no easy way to reduce your debts and keep your credit rating pristine. As I mentioned earlier it's the magic trick of misdirection to get everyone focusing on their credit rating at the expense of your financial health. Often you need to compromise one to fix the other and the right decision is to take a hit on the credit in the short-term for your long-term financial health.

FINAL THOUGHTS

Doug Hoyes: Yeah, I totally agree and I think that's a great way to end it. We get focused on I've got to have a really high credit score but wait a minute you owe 50 or $60,000 on credit cards, payday loans, you're getting killed on interest, that's the bigger priority. Let's get your debt cleaned up and then worry about all the other things.

So, I think that's fantastic advice. I want to thank everybody for being here with me today. We're going to close the show I'm going go around the table and I want people to tell us how people can find you. So, maybe give us your website address, the name of your company again. And then what I will do is I'll put in the show notes links to all this stuff. But let's do it west to east again, so, Blair how can people find you?

Blair Mantin: So, we're Sands & Associates. Online you can find us at www.sands-trustee.com and we operate out of 15 offices stretching across the lower mainland, Vancouver Island and the interior of B.C.

Doug Hoyes: Excellent. Well, thanks for being here Blair. Daniel, what about you, how can people track you down?

Daniel Budd: Well, we're one centrally located in Montreal. You can always go to our website www.mdiamond.ca or you can give us a call 514-483-2303. We're always available to answer. I myself love to forward my phone to my cell phone so you'll always be able to get a hold of me to your benefit. Again, thanks for having me, it's been a pleasure.

Doug Hoyes: Excellent thanks very much Daniel. And Ian, how can people track you down?

Ian Penney: We've got six offices all across the island portion of Newfoundland and Labrador. You can get me at www.janesnoseworthy.ca and we actually launched a new landing site just a few months ago at nodebtnl.ca where you can do a checkup on your financial health and lots of great links and insights in there. And we're here when and if you need us.

Doug Hoyes: Fantastic. Again, thanks very much for being here guys and I will have full show notes in the show notes over at hoyes.com that’s h-o-y-e-s-dot-com and links to everybody that was here today. So, pretty much wherever you are in the country we can help you.

And I think the key message is we know people are dealing with a lot of debt but there is help out there. You don’t have to worry if you're way underwater on your house or your car as we talked about. There are solutions to that but debt problems don’t go away on their own. There is no quick easy fix where you can just pay some guy a few bucks and everything's perfect. But there are solutions that are actual real solutions regulated by the federal government, consumer proposals and bankruptcies being two of the most obvious ones and again, only a Licensed Insolvency Trustee can help you with that.

So, full show notes explain all of that. That's our show for today. Thanks for watching. Until next week I'm Doug Hoyes. That was Debt Free in 30.

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