southseacompany pointed out this article in the Financial Post:
You can walk away from your mortgage (if you live in Alberta) but should you?
“Francis, a 34-year-old welder from the mining town of Grande Cache, Alberta, says he wishes he could get out of the townhouse he bought four years ago.”
“He bought the home for $175,000 with a five per cent downpayment but still owes $150,000 on his mortgage. He says the market for his home has collapsed in his town and a realtor just told him the best price he could expect is $75,000.”
“Since the loan is “under water,” his bank would be left with a shortfall that CMHC would have to cover. The Crown corporation would likely sue him for any losses it has to cover, so if he has any assets, CMHC will go after him.”
“Handing over the keys to the house and walking away from your mortgage, called “jingle mail,” was a defining act of the American housing crisis and helped send the market south of the border into a deeper tailspin.”
Interesting theory, but as we actually saw in the US states with recourse loans (i.e. Nevada, Florida) saw just as much of a collapse as non-recourse states.
An article over at the Financial Post by Garry Marr asks if recent hikes in mortgage insurance fees are targeting first time buyers.
The move by Genworth Canada, which matches an increase announced Thursday by Canada Mortgage and Housing Corp. will raise insurance costs by 15% for those Canadians with the highest debt-value mortgages allowed by Ottawa.
Of course lets keep things in perspective here – that 15% increase may result in an extra cost of about $5 dollars a month.
You’d have to be really stretched for that to be an issue.
Rob McLister, founder of ratespy.com, said insurers are padding their margins and doing it for loans that usually result in the least amount of money recovered during defaults.
Read the full article here.
Apparently it’s not just the Bank of Canada that thinks Canadian RE buyers are suckers. The IMF is issuing yet another warning of potential problems in the Canadian Real Estate Market.
The International Monetary Fund is raising red flags about Canada’s housing market, warning that moves by Ottawa in recent years to tighten mortgage lending standards and boost oversight of the country’s financial system haven’t gone far enough.
Household debt levels remain well above those in other Western countries, the organization said in a commentary posted to its website Monday. Home prices have jumped 60 per cent in the past 15 years and remain overvalued from 7 per cent to 20 per cent, in line for a “soft landing” over the next few years, the IMF said.
At the same time, it reiterated its call for Canada to collect more data on its housing market and to centralize oversight of the financial sector. As it stands, regulation remains fractured among the Department of Finance, the Office of the Superintendent of Financial Institutions, the Canada Mortgage and Housing Corporation and provincial governments all playing separate roles in regulating the housing the market.
Read the full article in the Globe and Mail.
It’s that time of the week again…
Friday free-for-all time!
This is our regular end of the week news roundup and open topic discussion thread for the weekend.
Here are a few recent links to kick off the chat:
–Sceptical of CMHC data?
–Langley Condos at 2006 prices
–Canadas random success story
–A bubble in renters?
–Oil prices on housing a ‘wild card’
So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!
It’s a been a while since CMHC mortgage lending rules have been ramped back to more historical levels.
After dabbling in American style 40 year zero down mortgages we decided that might not be the best idea. Unfortunately we never did get the American style locked in interest rate for the full duration of the loan.
So now we’re back to 25 year terms and it’s more difficult to get a loan if you’re self employed. A lot of loan applications that would have been approved a year or two ago are now being rejected.
So what affect has this had on the market so far?
Well apparently the sub-prime lending market in Canada has rocketed to a record level for one.
Capital Corp is a non-bank lender that has been operating since 1988. Their chief executive Eli Dadouch says there’s a lot of money out there for non-bank loans to higher risk borrowers.
He said there is no question it’s the top of the real estate cycle, so anybody lending out money has to be more careful today.
“People always want to deal with a bank, it’s the cheapest form of money,” he said. “When they come to us and people like us, it is because there is some type of story [behind why they can’t get credit]. It’s easy to lend money, the talent in this business is getting it back.”
Read the full article in the Financial Post.