Phony Appraisals and Mortgage Investments

Canso Investment Counsel has released a study about mortgage securitization in Canada:

The “securitization” of mortgages that many economists blame for the housing collapse and subsequent financial crisis in the U.S. is now a runaway problem in Canada, says a new study that also casts doubt on whether Canadians can trust the house price information they are seeing.

The study from Canso Investment Counsel, a corporate bond management firm, says mortgage securitization — bundling mortgages together and selling them to investors — has spiralled out of control in Canada in recent years.

On a side note, how many renters out there are buying MICs as a hedge against high property prices?

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ChinaOne
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ChinaOne

Inflation is here. More to come. Money in bank will be worth less and less. Rates can’t rise….see USA debt servicing costs and annual revenue.

That why my cousin will buy 3.

Land will be land. Money can be diluted.

My 1,500,000,000 cousin all thinking this way.

Debtbubble
Guest
Debtbubble

One day this whole economy will burn quicker than the paper it runs on. Land and physical assets is how the next generation will prosper. People like Garth Turner will get burned the most for their paper pushing ETF investments and gold bashing.

CanuckDownUnder
Member
CanuckDownUnder

It doesn’t seem to get much press but the property market in the Netherlands is really going bust. Prices are down 10 per cent in the last year and 20 per cent from the peak, nominal prices are now back to mid-2004 levels. If you liked bad puns you could say a lot of property owners there are underwater!

http://www.macrobusiness.com.au/2013/07/dutch-housing-bust-intensifies

jesse
Member

Did someone just suggest making a bad investment to hedge against a bad investment becoming a worse investment?

Pdub
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Pdub

In the investment world it has long been understood that two wrongs make a right.

i don't think so
Guest
i don't think so

Now repeat after me, “It’s different in Canada”. “We don’t have subprime”. “Our housing market is nothing like the US market ca. 2006”.

registered
Member
registered

@ i don’t think so: It is different in Canada. In the US subprime was a secondary consequence of a deregulatory mania that allowed lenders to conceal the risk embedded in their loans and sell it off as debt obligations to unsuspecting investors after the fact. Here the government instituted a pro-active policy to buy the same crappy debts from banks on behalf of the taxpayer in real time instead of bailing them out later. Failure was built into our federal plan from day one.

Son of Ponzi
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Son of Ponzi

Jesse,
RE fools believe that, like in math, minus + minus = positive.

oneangryslav2
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oneangryslav2

Quoting Son of Ponzi:

RE fools believe that, like in math, minus + minus = positive

I guess you haven’t had your morning coffee yet!

In math, minus+minus != positive. 😉

minus * minus = positive.

VultureBoy
Guest
VultureBoy

It wouldn’t surprise me if the “RE fools” actually believe that in mathematics minus + minus = positive.

jesse
Member

While we’re on the subject of hedging, one place where this is relevant today, perhaps, is on the “average loan rate” stat. Canadian bond yields rose significantly from April to July but banks will secure mortgage lending at lower rates in part by hedging their short term interest rate exposure. That means that the average lending rate will tend to lag the spot yield. This will become important starting soonish.

shock_minus_control
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shock_minus_control

I’ve only recently found this forum. Was it always a haven for derp, internet trained economists and Austrian/Mises/Hyperinflation/Goldbug types? Or is that simply the natural end-point for all financial/economics discussion forums?

Anonymous1
Guest
Anonymous1

GT on his Blog is facing a major backlash from his followers.

Garth is denying the existent of “foreign” buyers. He thinks everyone that sets foot for a single day (or their spouse/child) in Canada is a resident regardless of whether they are here for sightseeing, dumping a suitcase full of cash, etc. He is a big bank shill.

To a commentator who suggested that recent immigrants are buying, he responded;

“Canada ended the investor/entrepreneur/self-employed immigrant program. Your statement that it is ‘ridiculously easy’ to become a permanent resident is false. Try a little research. — Garth”

Laughable. He conveniently forgets that there are 7 year backlogs in those programs so the gov put a moratorium on them.

YVR
Guest
YVR

I like this part of the article:

“the whole process may just be a scam designed to hold up the housing market artificially.”

Hey what do these bond guys know. I will take my realtor word that all is good and prices will only go up from here.

YVR
Guest
YVR

Anon1: “Laughable. He conveniently forgets that there are 7 year backlogs in those programs so the gov put a moratorium on them”

Still these investor immigrants account for a very small percentage of home buying. The bubble is driven by locals with credit. How many investor immigrants end up in Edmonton or Winnipeg? Pretty much the whole of Canada is in a bubble and there is only one thing all these places have in common. CMHC and locals with credit.

Son of Ponzi
Guest
Son of Ponzi

Jesse,
I remember VanCity was the first CU to securitize mortgages starting in the early 90s.
This was done to circumvent capital to loan ratios requirements.
Do you have any insights into how their securitization program is stacking up now.

Many Franks
Member
Active Member
There’s a tremendous display of cognitive dissonance over at HuffPo: The number of Canadians carrying debt jumped nine percentage points in the past year, but the size of debt payments has shrunk, says a new survey from the Bank of Montreal. BMO’s Household Debt report finds 83 per cent of Canadians are carrying some sort of debt this year, up from 74 per cent in 2012. At the same time, the size of debt repayments has fallen by 13 per cent, to an average monthly payment of $986 this year, from $1,138 in 2012. And the obvious conclusions drawn by the bank economists: BMO Vice-President Janet Peddigrew suggested the lower payments were a sign Canadians are paying down their debt. “Many appear to be getting a head start on reducing their debt levels while interest rates remain at all-time lows,… Read more »
bears
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bears

“minus + minus = positive.”

no wonder, all bears are “super intelligent”. you have lived too long in your mama’s wet smelly basement.

FleetwoodBoy
Guest
FleetwoodBoy

If it was all HAM driving the market, then all my friends wouldn’t have such outstanding debt levels. Like me, I’m sure you know many people who are maxed out on mortgages, car loans and credit cards.

Interesting data on car sales yesterday, showing the proportion of people who now have financing of +6yrs in place. Most dealerships near me are now promoting 84 month deals. It’s the only way that people can make the monthly payment.

There was also a great line in the REW housing supplement yesterday, discussing the stricter guidelines for calculating debt rations for mortgage apps – “For buyers who are close to the edge, it may be wise to purchase before the new guidelines come fully into effect.” (mortgage broker) – no, it would be wise not to purchase at all!!!

someguy
Guest
someguy

I think many of us must have a background in 3D programming, where everything seems to work out fine if you make an equal number of sign errors.

But don’t worry, 3D programming isn’t rocket science 😉

jesse
Member

“Do you have any insights into how their securitization program is stacking up”

No but they do have standard tiered capital that is roughly in-line with what banks are doing. Also CUs aren’t heavily scrutinized because they are not publicly traded, but from my cursory analysis their loan book didn’t look significantly divergent from other lenders.

The scary thing for CUs is their regional exposure not the underlying creditworthiness of their assets. And it’s not like CU/trusts haven’t failed before.

Vancity’s reports are available online for review. Sorry I can’t be much help on the securitization side though

Nom Nom Nom
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Nom Nom Nom
gokou3
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gokou3

#22,

So there’s one less get-rich(er)-quick scheme for Chinese officials… 99 more to go.

Son of Ponzi
Guest
Son of Ponzi

Just heard Bruce Allen lashing out against foreign RE investors on CKNW.

Best place on meth
Member
Best place on meth

@Nom Nom Nom

That’s all very nice but what they really ought to do is line up all of these local officials in front of a firing squad and start over.

Son In Law
Guest
Son In Law
Just thought I would share a nice “bear” story regarding mother-in-laws and the pressure to buy…. Before I got married, I read with interest all these stories of mother-in-laws placing pressure on their children to buy places. I thought, ‘really, do they do that, and interfere in the major life decisions of their children?’ Well, I learned today the answer is, ‘yes.’ Despite being great, my mother-in-law actually raised the issue of buying a house since we now have a newborn. She mentioned that my wife, to her credit, said we may never buy one on the future, unless it makes sense financially, and she was probing me to see if that was the case. I said that was not necessarily the case, as certain factors might prompt us to buy down the road. She brought up several arguments and… Read more »
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