Canadian subprime seizes up

RP posted a link to this story in the Globe and Mail about the collapse of the Canadian subprime market.  Borrowers with bad credit or no income who were unable to obtain a CMHC insured mortgage over the last half decade had another option: lenders like Xceed Mortgage Corp used money from the securitization market to lend bubble-buyers money at very high interest rates with extra fees.  The problem now is that when the credit bubble burst it killed demand for these kind of risky investments.  Now even buyers who have paid all their mortgage bills on time are finding that their mortgages will not be renewed, and the terms of their agreement means they often now owe the lender more money than their house is worth and more than they originally borrowed:

Far away from the push and pull in Ottawa, Ms. Matthews has put her house up for sale. A handful of prospective buyers has wandered through, but she has received no offers. A few weeks ago, she received a letter from Xceed’s lawyers, explaining that she owes the company nearly $128,000. This means that, despite paying Xceed about $40,000 over the past three years, she now owes $1,000 more than she originally borrowed.

A ‘lobby group’ for these buyers is now petitioning the Canadian Government for a special $1 billion bail out fund for these buyers, but the lenders will not provide any specific information or statistics to the Finance Department.

“We’re not talking about a scoundrel that brought it upon himself. … These are people that didn’t do anything wrong,” said Joel Katz, a Windsor mortgage broker. Mr. Katz said he believes the issue isn’t on the government’s radar because this type of lending accounted for such a small segment of the market compared with the United States. “The problem wasn’t as big here, and there are people who are getting stepped on and overlooked.”

But exactly how many people are being “stepped on?” Public records in Canada are so scarce, it’s impossible – even for lawmakers – to know for sure. Ottawa relies on Canada Mortgage and Housing Corp. for data, but because none of these subprime players insured their mortgages through CMHC, the public agency knows very little about their state of their books. One source close to the Finance Department said officials at the Crown corporation figure that stranded borrowers account for only “a tiny sliver” of the country’s homeowners.

Paul McGill, president of mortgage provider N-Brook and spokesman for the mortgage lenders lobby, argues Ottawa is understating the problem. He said he has supplied federal officials with data showing that $1.7-billion of healthy mortgages could be stranded and that these borrowers lack high enough credit scores to qualify for loans from more conservative lenders.

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[…] The subprime mortgage market in Canada is drying up. | Vancouver … […]

observer
observer
10 years ago

@Drachen: Absolutely, they are interfering with the true market price of RE. They are evil because they have disingenuously made RE affordable on a debt basis but completely unaffordable on a risk and value basis. Unfortunately nothing will change until it all blows up.

domus
domus
10 years ago

From this morning's London Times. "'Sometimes I think, was it real?' The American bailout nightmare" http://tinyurl.com/yatgdtx In February 2008, Mr Kashkari was charged with drafting an emergency plan in case the credit crunch became a full-blown financial crisis. By October the crisis had arrived and his ten-page plan became the blueprint for the banks' bailout that Mr Paulson presented to Congress. Mr Kashkari admitted that he plucked “a number out of the air” when deciding with Mr Paulson how much funding to request from Congress for the Tarp. He told The Washington Post that he used his BlackBerry to calculate the bailout figures: “We have $11 trillion residential mortgages, $3 trillion commercial mortgages. Total $14 trillion. Five per cent of that is $700 billion. A nice round number.” Recalling a conversation with Mr Paulson, he said: “It was a political… Read more »

vreaa
10 years ago

Stories about Vancouver RE, and some around the 2010 Winter Olympics, at times get so bizarre that it can be challenging to differentiate fact from fiction.

$35K Olympic Rental – Hail Mary Pass? …or Excellent Prank?
http://tinyurl.com/yjthspb

observer
observer
10 years ago

@Anonymous: The CMHC should be increasing their premiums significantly at this point to reflect the risk in the market. They may feel invincible due to government backing, but taxpayers and bond holders bite back with a revenge if they have to bail them out while the rest of the world is recovering.

Anonymous
Anonymous
10 years ago

"CMHC should get out of the mortgage insurance game entirely, leave it to private entities who have at least some eye on the future bottom line."

Why the same principle cannot be apply to ICBC. Go figure.

keyword: friends

pricedoutfornow
pricedoutfornow
10 years ago

@observer:

I have a relative who lives in the US, he was surprised to hear that we can only lock in for 5 years (ok maybe 10 if you want to pay a premium) I wonder why that is?

Meanwhile in Canada, I recently talked to a 30ish guy who's just plunked down 700k on two rental properties. I asked him if he's breaking even (yes, by $200/month) and if he's not worried about interest rate increases. He said, a bit, but my mortgage broker told me that interest rates will never go up.

Never??? His amortization period is 35 years. Somehow I find it hard to believe that interest rates will be so low for the next 35 years.

Yes, this will end badly, for many. I can't see how it couldn't.

Drachen
Drachen
10 years ago

@observer:

"I think if policies are not put in place soon to clamp down on the excesses (move to higher required downpayment, shorter amortization, higher CMHC premiums), it will inevitably end in tears."

Great idea! If they'd done that 20 years ago we might have avoided this whole mess.

IMHO though the CMHC should get out of the mortgage insurance game entirely, leave it to private entities who have at least some eye on the future bottom line. As I've said before Canada's real estate problem really dates back to 1986 when they started insuring mortgages, they're having a polar opposite effect from their mandate and they need to shut it down.

observer
observer
10 years ago

@pricedoutfornow: The people buying in the US now are in a much better position than those buying here in Canada because their prices fell quite a bit and they are able to lock in for 25 years. When rates rise, our 'prudent' system will be less able to handle the shock in comparison, simply because their market has already been partially purged of the excesses.

The remedy to prevent infection from the financial crisis last year has now had a side effect of creating a variation of subprime here in Canada. I think if policies are not put in place soon to clamp down on the excesses (move to higher required downpayment, shorter amortization, higher CMHC premiums), it will inevitably end in tears.

Anonymous
Anonymous
10 years ago

London Drug Kerrisdale – Computer Specialist
http://tinyurl.com/y9ln9y2

Eclipsys Corp, Richmond – Software Technical Support Specialist
http://tinyurl.com/yl3yyv8

Some of you mentioned that you lost your jobs recently. Are these jobs for real or window dressing at a time when we are losing thousands of good paying jobs. I know for a fact that many reputable local companies are hiring new PRs from China before they landed here. One case in point was an inhouse network administrator hired before she landed here from Shanghai @$60k/annum. Albeit she has MS certification so does 2 IT guys originally from Quebec and Toronto and their wages at that time were $32k & 35K respectively. She wasn't fluent in English at all as she majored in Chinese history in China.

logic
logic
10 years ago

Porn mansion, wOne

Crack Shack, Zerwo!

RennieWhereRU?
RennieWhereRU?
10 years ago

tiger woods porn mansion (media reports what was it $2.0m) in orlando or old shack in dunbar. its asolutely inevitable that all these fools that bought in the last 4 years or so are going to get hammered. i'm loosing patience though, just get it over with!

logic
logic
10 years ago

that 2.6 mil house story made my day.

Comedy gold.

You couldn't make this shit up.

pricedoutfornow
pricedoutfornow
10 years ago

@Drachen:

I heard that too. Huh? Bubble? Can it be true the MSM admits this?

I also heard that spot with the newlyweds in Toronto buying a condo. The guy said "Interest rates go up? Nahhhh….it might go to 5%, we can handle that, no problem." I find it strange that while you can easily find articles in the MSM about interest rates going up A LOT in the future, people are still being duped into buying at these "teaser" rates. Fools!

Just wait, 7 or 8% will bring those prices right down. That mortgage payment on the $500k shack looks a little sickening at that rate…

Anonymous
Anonymous
10 years ago

"This is the end folks! When the MSM picks it up it’s OVER. "

i don't think so. we're still here, aren't we? it aint over till the last bear goes…

patriotz
10 years ago

@Drachen:

They actually used the word bubble and said it as a fact, not some hypothetical.

Sorry but they said "so-called bubble". I remember it very clearly.

#54:

I think it’s BS: in the USA if you get a 25-year mortgage it’s for 25 years. In Canada you have to renegotiate every X years. It’s moronic (unsurprisingly).

That's not true, the term in the US can range from 0 (i.e. floating rate) to 25 years (perhaps more).

The difference is that in Canada you cannot get a term longer than 10 years as far as I know.

Term and amortization are completely different things and people shouldn't confuse them.

bums up2
bums up2
10 years ago

I think it's BS: in the USA if you get a 25-year mortgage it's for 25 years. In Canada you have to renegotiate every X years. It's moronic (unsurprisingly).

Everyone blaming this person for not being able to refinance, I hope the same thing happens to you when the S hits the F. Which it will, as we all know..

D. Bone
D. Bone
10 years ago

For only $2.6M, you can buy a house which rents for $1,800/mo! Assuming no maintenance or repairs will ever be required, property taxes of $0, and no vacancies, you could generate more than 0.8% return (if you pay cash). …

If you had the cash, why wouldn’t you rent the house, and assuming you could get 3% on your $2.6M, you'd pay the rent and have $4700 a month to play with, and no taxes and no upkeep. Hmmmm, rich foreigners won’t stay rich long buying dumps like this one!

Drachen
Drachen
10 years ago

WOW!

I was just listening to CBC news (radio) and they finally said it!

Talking about the BOC overnight rate they said that a hike of 2.5% would force many people to sell which in turn would burst the real estate bubble.

They actually used the word bubble and said it as a fact, not some hypothetical.

This is the end folks! When the MSM picks it up it's OVER.

Interesting Article
Interesting Article
10 years ago

Canadian Consumer Debt Struggle is Easing (The Globe and Mail) http://www.theglobeandmail.com/report-on-business

Drachen
Drachen
10 years ago

I think the year built was just not entered so the software probably just put it in there. Looking at the place I can't see how it's POSSIBLY 3,500 square feet. From Google streetview and maps I guesstimate the footprint of the house at about 500 sq feet maximum and that's generous, so it would need to have another 4 stories underground (and I'm talking below the "basement"). IMO the whole house is only about 1,200 square feet. It's possible the realtor is just out to lunch and mistyped a bunch of numbers or possibly mixed up two listings. I just have to say this, streetview is very cool for this sort of thing, you can see what the house looked like before they dressed it up, overgrown lawn, dying shrubs (it looks like they did a lot of gardening… Read more »

Not much of a name
Not much of a name
10 years ago

@crabman:

The year built shows 2010, which leads me to believe that the house is a teardown.

pricedoutfornow
pricedoutfornow
10 years ago

Re: $2.6 million

That's the most ridiculous thing I've ever seen…$2.6 million and it's only got one bathroom???

Jeepers…at 3.5%, amortized over 35 years, with $500k down, the mortgage is still over $8000/month..yikes. And it rents for only $1800/month??

Unbelievable. That's all I have to say.

crabman
10 years ago

Investor Alert!

For only $2.6M, you can buy a house which rents for $1,800/mo! Assuming no maintenance or repairs will ever be required, property taxes of $0, and no vacancies, you could generate more than 0.8% return (if you pay cash).

Anonymous
Anonymous
10 years ago

It's funny… I was digging through some old paperwork the other day and I found the original bill of sale from the dealer where I got my first car after coming to Canada 20 years ago.

I cannot believe how much I overpaid for it… thousands in all the extra fees and charges… all bogus.

It's easy to be taken if you don't know better.

Vultures like these pray for gullible and uneducated customers – new emigrants, first time buyers, people rushing through deals happy they even got approved – how much luckier can you get???

So yeah, these guys with their sub-prime deals didn't know better and I can assure you nobody would try to help them understand what they're getting themselves into.