Oddball mortgages make their own fundamentals.

Things aren’t quite looking up state-side yet: Countrywide Financial is starting to layoff employees and Capitol One is closing its mortgage unit, but things are certainly different up here.

The Canadian Real Estate Association has just announced that its product will sell very well this year predicting record home sales for 2007.

Klump said the home-financing market in the U.S. and in Canada are completely different.

“(Canadians) have to pass tighter credit standards in order to get home-mortgage financing,” Klump said. “So, there’s no unwinding in Canada as there has been in the States.”

Its good to know that here in Canada we’ve got higher standards for our No-Doc zero-down Neg-am 40 year specu-vestor mortgages.

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J
J
13 years ago

Your liability is not limited to the damage deposit but I doubt that would stop someone from using the subletting scheme I described. Understand I'm not saying I'd rush out and do it just that I can't believe people arn't doing it if the profit is as high as people are claiming.

freako
freako
13 years ago

But the thing is you only risking your damage deposit when you sublet so you worst case scenario is not so bad. Since when are potential damage liability limited to the size of the damage deposit?

freako
freako
13 years ago

hey freako, how much does elopinp cost? $43.78

satv
satv
13 years ago

freako,I think foreigner buyers and out of station buyers just hand over their units on lease to real estate agents or rental agencies on current market price,and I beleive they have to pay almost 15% of total rents to agents,but owners get satisfaction that some one taking good care of their units.so anything else like increase or decrease in rents is depend on demand and supply,thats the area where agents can make or break their profit, but because of lease agreement rental rates does not effect the then market,when owner pass their units to agents.

digi
digi
13 years ago

hey freako, how much does elopinp cost?

digi
digi
13 years ago

I don't know if its widespread or not, but I know personally of many people that have some iffy loans – I've worked with two freelancers that don't have work lined up beyond the month that just bought based on the premise that their current income is permanent. I know of two others who've gotten letters stating that their income is higher than it actually is and been offered the same by my employer. I've told them I'd rather have the actual money than a letter pretending I do.

J
J
13 years ago

Could it be that there are hidden costs associated with foreign students But the thing is you only risking your damage deposit when you sublet so you worst case scenario is not so bad. Imagine this I rent out a place at 1250$/month paying one months rent as a damage deposit. I then rent it at 2500$/month. I'm making pure profit after 1 month even if I lose my damage deposit and I was so foolish as to not require a deposit from the people I subletted to. In short that sort of situation just does not exist for long if at all.

freako
freako
13 years ago

thats already in action since decade. Then why does it persist? Wouldn't competition cut the profit until it was barely worthwhile? Could it be that there are hidden costs associated with foreign students (turnover, damage, elopinp).

bullsrproductive
bullsrproductive
13 years ago

Well, if it wasn't, why bother owning real estate? Just rent a place, then sublet it to foreigners for double the rent. 8/22/07 2:07 PM thats already in action since decade.

J
J
13 years ago

Yes, but it represents an average. I agree. The thing is that the deviation from the average can't possibly get too high or arbitrage as freako suggests becomes a very real possibility. If the difference is even 600$/month I would have a hard time believing it isn't being done already. Since arbitrage has the effect of increasing market effeciency we can expect that any ineffeciency (what low rents are still available) will disappear shortly and rents would trend toward the mean very quickly as all the low rent units are locked in by those intending to sublet.

freako
freako
13 years ago

" First isn't the market rent what you can get for the place? "Well, if it wasn't, why bother owning real estate? Just rent a place, then sublet it to foreigners for double the rent.

si fu
si fu
13 years ago

" First isn't the market rent what you can get for the place? "Yes, but it represents an average. The rents paid by wealthy foreigners are not (I hope) the norm.Luckily for those renting in the DT, there are enough idiots.

J
J
13 years ago

You can get a foreign student to pay double market rent First isn't the market rent what you can get for the place? Second we can all agree the math says $2500 a month justifies a 300k+ price correct? Basically we can't all sit here and say “hey look at those idiots buying property well above fundamentals” then in the next breath complain about the idiots paying above market rent to the first idiots. At some point you have to acknowledge that in a competitive economic system prices are set by the biggest idiots or to put it more politely those who value the item the most.

satv
satv
13 years ago

Family dog protects kids from hungry bear.well said jim!well said ultersman.

Jim
Jim
13 years ago

Its not a subprime like melt down that will cause housing prices to fall in Vancouver. Nor was it in the US initially. It was hi risk borrowers defaulting on their loans and being unable to sell their homes, which kicked off the sub prime mess. First the RE market slowed, then the subprime fiasco manifested itself.Vancouver will sputter upwards until "buyer exhaustion" kicks in. Then any one who has to sell will be under duress, then if we have shady lending it will become visible,then a downward spiral may ensue. I am banking on further modest appreciation for another 24 months with some minor downward correctin this fall. The sell list ratio is still too high, mortgage rates are heading down and inventory is still low.

si fu
si fu
13 years ago

" Wow! Can you imagine the market if 40% of the demand just hadn't been there in 2006? "If there is a meltdown in the Asian markets in 2008 you will see for yourself. Remember the last Asian recession? BTW, I read a study that said more than 50% of newcomers from HK and TW were unable to find employment here in jobs comparable to what they left behind. That's one reason why there are so many owners living and working overseas.

Robotman
Robotman
13 years ago

Another observation is that many of the problems in the American mortgage market didn't become apparent until prices had flatlined and gone down for a year or so. Any borrower in trouble with their mortgage payments was able to refinance or sell their house while prices were still going up. Until prices flatten or dip (probably for at least a year) in Canada, we probably won't see any conclusive evidence to support these anecdotes of 'mortgage qualification fudging.'

si fu
si fu
13 years ago

" 3.5ish is common if the place takes short term or is furnished. I agree however that 5 is very high. " Furnished. Sure its high, but like I said rents are all over the place. You can get a foreign student to pay double market rent, because they think the rents are the same as in major Asian cities, plus short-term renters will pay more for the convenience. There are sites on the 'net like citymax where you see rents for these places at $3800/month. Typical of these buildings are Conference Plaza where it is almost exclusively short-term ESL renters.No way a local will pay that kind of cabbage. They simply don't have the money.

markx
markx
13 years ago

I'll be officially out of this crazy market by Saturday. Going to Montreal for a two year stint. Gotta put some pressure on rent first.

Ulsterman
Ulsterman
13 years ago

from calculatedrisk.blogspot.com:As mortgage lenders tighten underwriting standards and home prices fall, Bank of America analysts estimated that 40% of home buyers who got a mortgage in 2006 probably wouldn't qualify for a home loan now. Wow! Can you imagine the market if 40% of the demand just hadn't been there in 2006?

Ulsterman
Ulsterman
13 years ago

Disingenuous Headline of the Week from the Scotia Bank website:The down payment hurdle isn’t so high any more when buying your first home.Because your mortgage payments may not be any higher than your rent payments, it may be an ideal opportunity to buy your home now. The Scotia® 100% Mortgage Program can help you with your home purchase.Anyone know ANYONE whose 100% mortgage, strata and taxes would be less than renting their current place?Maybe i hacked into Scotia Bank's Halifax page???

Ulsterman
Ulsterman
13 years ago

Michael said… I just talked to an old friend today who was renting an apartment, and it turns out he has five apartments he is renting out plus his home. WTF. How in the world can he possibly be getting loans for all these apartments. He's putting 5% down and financing the rest with the rent. He's not a wealthy guy, he's a retired school teacher who just got into the housing market five years ago. Michael, 5/6 years ago one bedrooms off Commercial & 3/4/5/6/7/8th were selling for $75-95k. With 5% down your friend could have covered mortgage, strata and taxes just with the rent, which at that time was $600-700/month and is probably even more now, making his apartments cashflow positive.You're just 5 years too late to the party i'm afraid.

wizardofozziejurock
wizardofozziejurock
13 years ago

I think this thread is doing some excellent work toward undoing what may turn out to be one of the great myths of the housing bubble – that Canada's mortgage industry is immune to US-style problems.Here are factors drawn from this thread that might lead us to think otherwise:- zero-down mortgages- 40-year mortgages- mortgage brokers fudging applications- more agressive lending practices by banks- significant amount of leveraging- a CMHC "put", taxpayers are the greatest fool of last resort.To this list I'll add: – Governments, politicians and bureaucrats who fail to provide proper oversight.- a mainstream media that has failed in its watchdog roleJust as we saw in the U.S., when the vested interests were lined up squarely behind the bubble, it was virtually impossible to expose the underlying lies, except on blogs like this. When it finally broke, the true… Read more »

satv
satv
13 years ago

We almost need some kind of short term event to set off the downtown in housing in Canada. Recession, liquidity crunch in Canada, Chinese recession, don't know what it will be but i want it to hurry up.Sink Vancouver housing, SINK! Michael,friends does not mean to tell you all the sec,and tech.lets say one of his property is free of mortgage,that qualify him for up to 90% of equal value of personal line of credit.you can divide that 90% into 4 part to pay 20% for each units,and he can pay rental income to pay mortgage for the 4 properties and his personal income+left over profit from rental income to pay personal line of credit,line of credit is very similar to other credit card when you pay back to bank,but different on interest rate right now that is 6.25% not… Read more »

casual observer
casual observer
13 years ago

"I don't want to put you into a tough spot here, but if you are anybody else could elaborate on what "fudging" entails, I'd appreciate it. Is this essentially fraud, and if so can it be proven?"We got a mortgage through a mortgage broker in '93, and at that time, he asked us if we could get my employer to write a salary letter for me, stating that my income was higher than it actually was.I'm not a smart man, but that sure seemed like "fudging" to me. Would it have been fraud? Of course it would have been. Would it have been caught? Probably not.I know that nobody in Vancouver would ever do that. Only honest employers operate in Vancouver. They don't pay their employees under the table to avoid taxes, or commit EI fraud. Nope. Nobody around here… Read more »