The ‘good banks’ myth

Observer pointed out this blog article over at the Vancouver Sun, which does an excellent job of rounding up some of the issues we’ve gone over about the CMHC and the Canadian Banking system:

Not only has the Harper government felt it necessary to prop up Canadian banks it was this same government which created financial system risk in the first place. In 2007 the Harper government allowed US competition into Canada which prompted the CMHC to dramatically change its rules in order to compete: it dropped the down payment requirement to zero per cent and extended the amortization period to 40 years. In August 2008 Flaherty moderated those rules in response to the US mortgage meltdown. CMHC then “securitized” an increasing number of its loans into bond-like investments (if you have a typical Canadian mutual fund, you’ve got some.)

At the end of 2007 there were $138 billion in securitized pools outstanding and guaranteed by CMHC –17.8 per cent of all outstanding mortgages. By June 30, 2009, that figure was $290 billion and by the end of 2010 it was $500 billion.

Read the full article, it’s full of interesting facts and figures.

58 Comments
newest
oldest most voted
Inline Feedbacks
View all comments
patriotz
10 years ago

@rubberduckie:

If a laneway house costs 125k to 160k to build, and could be rented out for $1250 to $1600 a month, that does seem like a better investment than any single condo unit in town.

That's because the owner already owns the land, which otherwise would not be generating income. It's land costs which are primarily responsible for inflated RE costs. You also don't have the condo-industrial complex taking their piece of the action.

I say bring on the laneway houses. The more of a glut of rentals this city has the better it is for the bears.

rubberduckie
rubberduckie
10 years ago

Thanks for the cost quotes, pals!

If a laneway house costs 125k to 160k to build, and could be rented out for $1250 to $1600 a month, that does seem like a better investment than any single condo unit in town. I'll not be surprised if I see them popping up all over the hood like a wave of post-halloween-makeup acne.

The downside is you lose your yard, but the upside is you have somewhere to park your car, right?

I'd love to have one (along with my dream house), but for my own use as a home office or guest cottage.

spitfires
spitfires
10 years ago

@crashcow: Carnage is continuing in Europe! It's going to be a wild ride today!

spitfires
spitfires
10 years ago

@specuskeptic: Has Harper paid you $75,000 recently? 😉

crashcow
10 years ago

the carnage continues in asian markets…
http://finance.yahoo.com/intlindices?e=asia

US futures down as well…
http://www.bloomberg.com/markets/stocks/futures.h

domus
domus
10 years ago

Owning versus renting: some US graphs, as of today.

http://runningofthebulls.typepad.com/toros_runnin

Still Cheaper to Rent

At least in some cities.

Anonymous
Anonymous
10 years ago

@Happy Renting:

Insurance underwritten by the Canadian tax payer is wrong in my books.

There seems to be nothing 'free' about the CHMC.

Anonymous
Anonymous
10 years ago

@Chilled:

"Here I was asked for money as I paid my fare. Isn’t this illegal? "

So is smoking pot but since when did legality ever stop the self-centered Vancouverites from doing whatever they please?

domus
domus
10 years ago

@Devore: Intergenerational motgages in Europe? That's the first time I hear that. What do you mean? You have some references to show. Just curious.

Anonymous
Anonymous
10 years ago

@granite countertop:

"If it was up to just BC to make financial regulations, we’d probably be getting these mortgages. But the rest of the country can figure out this isn’t a good idea."

Yet you didn't give a reason WHY it would be a bad idea.

Devore
Devore
10 years ago

Re interest only mortgages for life.

Why not just rent? I don't think the equity built up over 20 or even 30 years would be sufficient to sell and buy a small house outright. People have been upgrading here for the last decade because they could afford progressively larger mortgages with low interest rates, loose lending standards and generational amortization, but I don't think that's sustainable if you can't take a bite out of the principle.

In Europe people do have inter-generational mortgages, but that's because property is so expensive, rates are high and cost of living is too. It doesn't mean it's a good idea, how much money have you and your children paid for your "equity" after 50 years?

granite countertop
granite countertop
10 years ago

@patriotz: That's seriously disturbing. Oz might be slightly cheaper than Vancouver, but it's sounding even crazier. Mr Koch wants to position the bank as a "mortgage partner for life"[so like a bad spouse you can't divorce?], with borrowers carrying the same interest-only loan from property to property for as long as they wish, accumulating equity from rising house prices as they go. Then, as they near retirement, they could sell their property for a big enough profit to pay off the original loan and buy a smaller place outright, leaving them mortgage-free. Or, they could keep the mortgage going and repay the original capital from their estate, after death. These loans has been popular for years in the UK and Europe, where repaying capital is seen by many as unnecessary and prohibitively expensive. Really? How's that going? Is that what… Read more »

Devore
Devore
10 years ago

The thing with the new downtown eastside developments is that I think the idea was that the area would be "cleaned up" for the Olympics. I've looked at a couple of places to rent around there, and it just boggles me how anyone would buy there. I was reading about laneway houses recently, and it seems like they are far too expensive and bound in red tape right now. You're probably better off raising your house a couple of feet and building a basement suite, at least you don't need to get the city crews to build separate hookups for water, sewage and hydro like you have to for laneways. It just seems like a really bad plan to me. On insurance and free market… any free market-type designs I've seen lean very heavily on insurance. Like today we socialize… Read more »

observer
observer
10 years ago

@Keeping an Eye on The Pimps: Playing devils' advocate: what matters isn't so much how good canadian banks are, but how it is perceived that canadian banks are better than others. To cite an example, push come to shove, when a financial crisis hits, money runs to US treasuries for lack of a better place, even at negative yields. This might seem strange, but realize one cannot hide billions of dollars in under the mattress or even in a bank account (FDIC and CDIC only insure up to a fixed maximum per person). The crisis in Greece has had the effect of lowering our mortgages slightly in the past two weeks. I do believe the perception may get tarnished, even stained, once our RE market catches up with the rest of the world.

Happy Renting
Happy Renting
10 years ago

@Chilled: Good question, who would buy a place in the downtown eastside?

Now if you had taken in an afternoon flick at Cinematheque and then walked to the Yaletown station, your experience may have been a bit different.

Chilled
Chilled
10 years ago

I did the totally unusual this afternoon and took public transit downtown. Went and saw an afternoon movie at Pender and Carrol. Left around 5:30pm and got asked 7 times, 2 times very agressively, for a handout before getting to the Waterfront station. Here I was asked for money as I paid my fare. Isn't this illegal? The streets looked like something out of 'Night of the Living Dead." Unreal. Who in their right mind would buy a place down here, regardless of the price??

NO-LYMPICS
NO-LYMPICS
10 years ago

#37 rubberduckie:

The Sun published a recent story about one of Vancouvers 1st laneways homes..I recall it was about $160,000(?). The builder wants to get a niche in this type of option

Personally, I think the idea is stupid…..it will create havoc in SF neighbourhoods.

I think suites in existing homes is a better way to go.

Anonymous
Anonymous
10 years ago

If you google ‘Dana Curnock’ + “1.Tor’, you’ll pull out a story on a landed PR. She paid 30% down-payment for 1st house, and also a 2nd house (no mention of how much was the down-payment). She left Canada and the houses were rented out. The properties were busted as grow-ops and confiscated. The court held that her source of income was questionable. She had the habit of wiring cash down-payments through a 3rd party, and not through the bank to her own account.

To cut the story short, CHMC and the lending banks would not suffer any risk of losses in these 2 properties, because there are dumb crooks out there. In that sense, the ‘good banks’ myth exists.

Van-zee
Van-zee
10 years ago

@ rubberduckie

I think it would really depend on square footage and finishing but I believe that to qualify it had to cost more than $125,000 finished.

Boombust
Boombust
10 years ago

"Does the CHMC have anything to do with free enterprise?"

Why the concern? What's "free" about "Free Enterprise", anyway?

It's merely socialism for the rich.

Happy Renting
Happy Renting
10 years ago

@ReductiMat asks: Does the CHMC have anything to do with free enterprise?

Sorry to butt in, but at it's most basic level, yes. Free enterprise cannot exist without effective insurance. CMHC, at a basic level, is insurance.

(The securitization via the bond market is, however, is really pushing things. It allows banks to socialize the risk while keeping the benefits private. Note that this is private sector "innovation", it did not originate in the public sector.)

Do you disagree? Should all insurance be banned in a true Free Enterprise system?

rubberduckie
rubberduckie
10 years ago

Suppose I was a smug home-moaner, and I wanted to replace my nice backyard with a douche village.

Does anyone know what one of these Laneway Excitement Houses would cost to build?

http://www.smallworks.ca/index.html

ReductiMat
10 years ago

@chip:

Chip, a question for you: Does the CHMC have anything to do with free enterprise?

Devore
Devore
10 years ago

@patriotz: banks, dealers, same difference. Point is, major banks play a key role in government debt financing, and the back scratching and covering goes both ways.

Keeping an Eye on Th
Keeping an Eye on Th
10 years ago

The good bank myth is just that: another myth.

Canadian Banks had a survey done, and yes the survey the banks paid for concluded that indeed Canadian Banks are the "best in the world"

Noteworthy is the survey was never audited or reviewed by any accredited impartial group.

Furthermore, it's not that hard to be in the top ranks when compared to banks in Ethiopia, Nigeria,

Columbia, Nicaragua, Libya, Congo etc.

The best banks in the world is as hollow as the best place on earth. It is just a slogan.