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.