When a particular asset class delivers outstand-
ing returns over an extended period, investors
become convinced that there are solid funda-
mental reasons for the trend. Theories are
developed to justify participation and disregard
valuation considerations. In the early ’70s, the
“Nifty Fifty” stocks like Polaroid and Xerox were
going to make money forever. At the beginning
of the decade, the Internet was going to render
traditional industries irrelevant. Today, growth
in China and India is expected to translate into
a permanent shortage of commodities.

Remember when people said tech stock could never lose money because the internet was never going away?

Also

During the technology mania, valuation consider-
ations were dismissed due to fear of missing out
and underperforming “hot” investment man-
agers committed to the new era

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“I was having cocktails at Opus Bar and I told my friends about this blog. We all had a good laugh”

Please leave me with a little more hope in the human race …..

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I agree it’s within the government’s mandate to tell CMHC how to spend money. I personally think what will happen is the crap will hit the fan and CMHC’s first reaction will be to sieze payments wherever possible to preserve their balance sheet — they are viewed as successful in their owners’ eyes if they don’t cost anything. The banks will fight tooth and nail, pull strings in the government and eventually CMHC could start flood the lenders with government money. But this will not happen overnight and could take many months before anything happens. The fear is, by the time lenders realise CMHC is relaxing its payments, lenders will have already clammed up.

Maybe we’re both cynical for different reasons. My view is CMHC is a business. My cynisism rises from the idea that the government’s bailout will be a window-dress at best, not actually spending much money in the process. I use the example of the recent US bailout package that few could actually access as what could happen in Canada.

I still think it’s silly to think lenders will continue to lend to those who are at a high risk of foreclosure in the face of falling prices unless CMHC also covers their foreclosure and administrative costs too.

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I don’t think you understand the political relationship banks have in high places. If that were to happen (not likely) the banks would lean on the government and the government would lean on the CMHC to loosen the purse strings.

I think your idealism is great but it’s just unrealistic, the CMHC has shown ever intent to help the banks out of the housing jam while screwing over common folk, why would they change?

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Having worked at a large company I can say that individual claims are rarely pooled. Each loan is different and there will always be enough exceptional cases to warrant more than just filling a checkbox on a computer screen. My point is that, if CMHC wants to, they can nickel and dime each payout and delay payment in the process, the sole purpose being to shore up their balance sheet.

“if the average person with a high risk loan pays only one year the bank has still made money on the deal, even if it’s not quite as much money as they’d like.”

This is true however the foreclosure process is not free. It costs many thousands of dollars, likely pretty close to and likely more than the spread that the bank gets on this loan for a 5 year term. Remember the bank does not pocket the full interest rate but the spread compared to an MBS or whatever other vehicle they are using for financing. To compensate for higher expected foreclosures the bank’s spread will increase, even with CMHC insurance. It is a vicious circle if MBSs require higher rates too.

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I disagree with point # 2

The CMHC has acted very poorly up until now, they likely will never prove any wrongdoing on the side of the banks in cases of mortgage fraud so they’ll get the money. Banks are large institutions with ways of twisting arms that your average home owner with an insurance claim cannot match, the CMHC will be prompt in their repayments. Your first few years of paying off a 40 year mortgage is almost all interest, which is money that goes straight to the bank, so if the average person with a high risk loan pays only one year the bank has still made money on the deal, even if it’s not quite as much money as they’d like.

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There are arguments for Canada’s situation being better AND worse than the US. IMO “subprime” is merely a symptom and we will see plenty of “prime” issues as well. The subprime stuff was just the first in line to hit the fan. Canada has subprime and lots more prime. There will be fallout but it may not be as explosive as the US.

It’s silly to think that CMHC MI is going to save the market. MI is merely a stop against outright default but BANKS LOSE MONEY WHEN THEY INVOKE CMHC POLICIES. I love the logic:
1) CMHC underwrites loans
2) Therefore I can issue loans to anyone without any risk
Wrong. Banks need to make money on loans. CMHC may prevent them from writing off billions but I would be surprised if, when under pressure to shore up balance sheets, they keep lending to those they are certain will default. Also I have said before that getting money out of an insurer is often more difficult than it looks, especially if there is any inkling of fraud. The CMHC executives need to show self-sufficiency and this is not done by making good on all claims.

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Doubleplusgood!

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IIRC something like 50% of “ALL” the mortgages that were granted in CALGARY in 2007 were 30-40 year amortizations and CMHC insured…..which IMHO, and I have to call it for what it really is…..were “SUBPRIME”.

Givng too much money (a 100% increae in 24 months), to someone with little or no vested interest (0-5-10% etc down), on weak terms (40 year ams) is suprime. Doesn’t matter how good or bad their credit is.

Vancouver has to be similar……..

An entire generation of 20-30 year olds is going to get slauighteredn their newly bought $400K shoebox condos are worth 20-20-40% less then their mortgages…….

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“The term BC & D is a rating of the loan. Similar to Moody’s Rating scale for Bonds as AAA, AA, A, etc. Generally, loans termed as A paper are for borrorwers with very good credit. BC & D lenders specialty in BC & D loans. For the most part, on our web site, we refer to BC& D as “problem or troubled” credit rather than using these letters. “

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They’re ALWAYS focusing on sub prime as the excuse. The fact is housing is collapsing in the states (and worldwide) because it peaked. It was way out of line with fundamentals in many places, now it’s returning. This business cycle has taken place thousands of times and the ending is always the same. Gambling against that is like gambling that the sun won’t come up tomorrow.

It is an event that has been recorded thousands of times.

The outcome is ALWAYS the same.

There is no evidence to support the notion that we are significantly different this time to alter the outcome.

One definition of insanity is, “Doing the same thing over and over and expecting a different outcome.”

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“something similar like lender B and C. I’m not sure what he meant by that. Maybe someone here could elaborate?”

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Enough said.

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I happened to be watching a show re-run of BNN with Patricia Levitt Reed interviewing a person from the real estate industry. He was talking about how different the Canadian market is compared to the US and that we won’t suffered a similar downturn like they do. Then Patricia asked him if we have subprime mortgages in Canada. He said no, but in Canada we got something similar like lender B and C. I’m not sure what he meant by that. Maybe someone here could elaborate? But what got me interested was when he brushed it off as being not a big deal. He said, it’s only 5% of the total mortgage and that, it’s really not as bad as the Americans with their subprime..

If Patricia and that gentleman would have done some due diligence with the Mortgage Bankers Association of the United States of America, they have information which would reveal that ONLY 8.64% of total mortgage is subprime. That’s 8.64%. So statistically, a difference of 3.64% makes US case more serious than Canada?
But if you factor in the total population of the US compared to Canada, our 5% is a much bigger deal than US’ 8.64%. And besides, you can’t walk away from a Canadian mortgage than you could with some American mortgages, which could compound the situation even worse.

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This Modern World

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i took boilerplate from Bob Rennis site and ran it through babelizer:

Conduit Bob Rennie, specializes Rennie Marketingsysteme, to formulate the plans of risk management single and effective concerning Wohnkondominiummarketing. Narrowly working as “a representative of the promoters”, Rennie defines Marketingsysteme Kondominiumtoleranz, mark of the tendencies of consumer and offers solutions, to carry out market demands. Rennie Marketingsysteme has the admirable relations of Canada with respect to the larger promoters and most progressive and now forms the same relations in the United States.

needs another couple of go arounds….

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I see you’re doing not bad at all writing in Krrishes lingo. Mind if I ask you where you bought that English to Krrishean dictionary? It might sell for $$$ on eBay

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I was going to sit this one out since there’s no point trying to tell a dumb shit like him anything but don’t worry he’ll remember what a goof he is when he grows up a bit and realizes he thought past performance indicated future return. There were idiot valets who bought tech stock right before it crashed too and they certainly aren’t laughing about it now.

He probably just got into the market and lives at Spectrum. It hasn’t occurred to him that if “everyone” wants to live downtown they could have bought in the last 120 years but since he was still in Abbotsford ,living with Mummy, he didn’t know the first thing about Vancouver.
In his mind the sun doesn’t rise until he wakes up and since he’d never been downtown before he thinks it’s imperative to own in order to live.
Another reason he thinks you have to own is because property managers tend to pick other applicants when the choice is:

1.some dumb shit with a $7/hr+tip valet job and no references.

2.Anyone else.

Laugh away Rob. A, you should go meet Krissh at the Cobalt hotel and see if you can convince some homeless wacko’s to buy real estate since no sane person with an IQ over 80 is buying right now.

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When I was blogging on his site and that, I was championing people buying RE and not Nortel (when it was on free fall after the last dead cat bounce), he conveniently cut me off or err banned me. Guess what happened now?!?

Having said that, there is no value in our RE — it’s overvalued. At least this time, Mr. Turner is in agreement with me, or at least re-branded one of his older books perhaps, made a few statistical changes and re-launched it as “The Greater Fool”.

When people bought home in the early 80s, I am sure some of them bought them out of necessity. Raising a family in a small rental apartment just isn’t ideal. You need a yard, and a this and a that. When you need a 2008 iPod Touch, you may well just have to “overpay” a bit.
Sure, waiting a couple years later, the Touch would be worth less with scratches and smudges but you wouldn’t enjoy the same privileges of owing it when it was new. The wow factor is gone.

Much the same with RE. It’s hot now. Some of us buy them out of necessity. A lot of us talk about it. We were just at Costco a couple of days ago and we couldn’t stop hearing people talking about condos, mortgages, houses and construction jobs just strolling down the aisle for groceries!!! The last time we went down the same aisle during the late 90s, it was Nortel, the dot.bomb and stuff.
Sure, our RE is due for a correction and when it does, WOULD YOU put yourself in a position to buy with all the bad news flying?!? How many of you actually put money back into technology stocks after the dot.com crash?
Very few. Apple and RIM did well afterwards. Did most of you jumped in and bought when Apple went down to $20? Did most of you jumped in and bought when Transcanada Pipeline was down to $9 or Yogen Fruz was down to $0.50 during the midst of the Eskimo Pie take over, rebranded to Coolbrands and went up to about $30 and then crashed.
I would wager to say that, it’s a simple no, because if some of you did, you could buy your own place today even with the inflated prices with cash, yes cash! Maybe, just maybe some of them did with money earned from these profitable sales? Have you guys thought about that?

Come the next RE crash, I would also wager to say that probably most of you won’t jump right in even if the buying opportunity reveals itself. Just with the internet crash, our Vancouver RE news will only get worse and worse and even worse before it gets better. And when it does, it will already be in the midst of the next bubble, probably and hopefully not longer than 10-12 years.

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