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Stupid Mortgages in Canada

The CBC had an interesting article on how Canada is Tiptoeing Towards a Subprime debacle similar to the United States (but not exactly the same).

I was skeptical, but I was also unaware that there are so many “alternate lenders” for mortgages in Canada (and that these Mortgages are not CMHC insured).

The banks seem to have come to their senses and are now rejecting more than 20% of Mortgage applications these days, because they cannot be CMHC insured, according to the CBC and while I think this is a good idea, folks are simply trying to contravene the system and get a loan that is not insured by the CMHC, and thus are a lot more risky.

The weird thing is that the president of one of these “alternate loan providers” claims their industry takes up 20% of the mortgage market, which is one hell of a big whack of money.

To be clear (at least to my understanding) this is not a SubPrime type situation, the loans being given out are not at low rates (which then ratchet up quickly (at least I hope not)), but it is loans that are being given to folks that banks don’t want to loan money, and that was one of the faulty pillars of the subprime debacle (i.e. people who couldn’t rent a home, were buying them instead).


Are we That Dumb?

These kind of loans worry me, because people are doing stupid things like tying themselves up with debts that would make the Marquis de Sade proud. If you can’t afford a house, maybe the bank is right? Owning a home is not a RIGHT it is a PRIVILEGE, and folks need to figure that one out.

There is a difference between what you want in life and what you can afford. I guess this goes back to whether Canadians are Financially Stupid, but I am willing to discuss if folks think these alternate lenders are simply offering a service (much like pay-day loan companies and such).


Feel Free to Comment

  1. Come now. Now you are just being spiteful. Your information is innaccurate and therefore dangerous.
    I don’t dabble in sub prime. And it doesn’t hurt my business in any regard.
    I am not trying to discredit you. You are doing a fine job of it yourself.
    Sorry you don’t think fact based argument is acceptable. Hopefully you become more aware going forward.
    This will be my final entry. For no other reason than you have chosen to remain positioned in your tainted perception.

    1. Spiteful, again my most humblest of apologies if you felt that was the case, I enjoy this kind of discussion, however, I doubt either of us will convince the other of the folly of their points of view, hopefully you will return again later for more lively discussions.

      I would suggest you read other bloggers on my reading list, all of us enjoy discussing with our readers (or even folks who drop by only once).

  2. I just wanted to point out to you that the Financial Industry is heavily regulated and not as loose as you have portrayed it.
    Furthermore, you did ask me to provide you with information on my statement of the Strength of the Canadian Banking System:
    “but your arguement that Canada’s Financial system is the “best” in the world sounds interesting, where do those numbers come from (just “investigating” further).”
    The alternative lenders are simply a last resource. They are almost non-existent with first time home buyers.
    Rates will go up…and that’s why we have a “bench mark” interest rate to qualify applicants on for anything less than a 5 year Fixed interest rate. Alternative lenders are not backed by the Canadian Public or by the Government – think of them as retailers…if they default – they fold up shop and move on.
    Time should not be your pre-cursor to a silly statement…unless you are a prophet…then I completely understand. But I am willing to bet you are not a prophet.
    As for the housing bubble – our industry has been making enormous steps to keep it under control…and it has NOTHING to do with Alternative Lenders driving it up.
    Perhaps you were not an Economics Student and you really just don’t know about the “Supply and Demand” Curve. It’s simple really – Low Supply and High Demand forces prices up. High Supply and Low Demand forces pricing down.
    Our country is growing. There are 10’s of Thousands of new immigrants to our Country every year…they have to live somewhere.

    I didn’t mean to make my statement a personal attack, for that I apologize. As for my level of discourse – I am pretty sure I have demonstrated I can back up my statements with Facts. I don’t just utter nonsense to keep people happy – I like to use real statistics and real data. You have my direct email – I would be happy to continue correspondence with you.
    I don’t think you are a bad person trying to be Dooms Day preacher, rather I think you acted a bit prematurely on information that came your way.
    It happens to us all.

    My participation in this back and forth diatribe is not for me to say, “In your face”. I just wanted to intercept potentially dangerous statements. There is already enough of that out there.

    1. Dangerous? That’s an interesting turn of phrase, who is this dangerous too? People who loan money, or the people being loaned to? I know which side you are on (i.e. you help folks get loans), so are you saying it is dangerous to you, or to the economy? Dangerous to the folks who can’t get loans?

      No, I am a Doomsday Preacher (read more of my posts, you’ll see) if that is someone who says get the hell out of debt, debt is bad, and the people who want to loan it to you are not your friends I plead guilty as charged.

      I was reading “in your face” and a level of “you are screwing up my business, so shut your face” in your comments, my apologies if that was not your intent.

  3. For the sake of providing some information…take a look at this website:
    This is from recent information that is free to access.

    Among the headlines you will see:
    “Mortgage lending in Canada is stable and prudent”
    Fast facts
    85% of Canadians express confidence in the Canadian banking system.
    1 92% agree that the strength of large Canadian banks is critical to the health of the overall economy.
    2 The World Economic Forum has ranked Canada’s banking system as the most sound in the world, four years in a row.
    3 91% of Canadians are confident that their deposits are secure.4
    The bottom line
    Canada’s banks are well managed, well regulated and well capitalized. Our strong and resilient banking system is at the heart of Canada’s economic recovery.

    Perhaps I was a bit strong in my earlier position…but I am old fashioned and I believe in such old fashion things as hard work and luck. In the same breath, I believe that people who speak should know what they are saying…not just “their side”.
    All I did to find this information was look up Canada and the World Economic Forum. Didn’t take much research at all. Including the time it takes me to compose this…I will be nice and say 8 minutes.

    Please stop making silly statements that are grounded in pseudo facts.

    You keep uttering that mortgages are privileges and not rights…and you are very correct – in fact you will find the same statement made from our website. What you fail to also grasp is that with all privileges there has to be a learning curve. Some people need a hand up. Like a driver’s license…it’s a privilege…I failed the first time…but does that mean I am an unfit driver?

    I would be happy to hold meaningful discussion about future topics when it addresses the Canadian Mortgage market. I am easily found!

    1. OK, so much as I’d love to keep this discussion going, let me be very clear on your arguments:

      • I don’t think I argued that the banks were in trouble, but the alternate lenders might be if rates go up and their loans start defaulting. Will those companies come hat in hand to the government, or will they resolve the issue by having much higher rates?
      • As for your statement I am making “silly statements that are grounded in pseudo facts”, I guess time will tell on that statement. If the alternate lenders flourish, and there is no housing bubble and such, I guess you might be right, however, I was simply voicing an opinion, and if you believe only your opinion must be heard, then you are living in the wrong country (but only in my opinion).

      As for the personal attacks on my skills and research, I won’t lower myself to your level of discourse, but feel free to reply back if you wish.

  4. Jason Dornstauder

    Not to dwell on this…but it is very important that people understand what the Sub Prime Market is in this country.
    It’s not “lie about your income” or “no credit/bad credit/no problem”…our Sub Prime market is as Bob has indicated – it’s people who typically would qualify if it were not for recent Market adjustments that the Federal Government issued for the sake of providing a scape goat.
    The Sub Prime mortgage market in Canada is primarily used for people who are refinancing their home…we do have a really seedy underbelly out there that is self insured…these are the guys should be “run out of Dodge” in my opinion…unfortunately there are too many stupid people out there that don’t realize the mess they are making for themselves…the good news is – these guys normally take a strong equity position and normally never experience loss. Usually their criteria for approval is based firmly on the value of the home – so if the person should default…they just take their house – it doesn’t have an impact on the rest of us as Canadian consumers.
    So fear not – the 20% market share you heard about is a very skewed number…I would say it’s probably half of that…maybe.
    As for our Brokerage firm – we don’t do much by way of Sub Prime. We are different – take a look at our website to see why. We take the position of educating our clients and holding their hands for a while until they can qualify for a regular mortgage. The truth is – many Canadians just don’t know what to do or to do it. We do and we take the time to help our clients understand and execute the solutions.
    Not to toot our horn much more…but we don’t charge for our services either!
    On a really good note – Canada’s Financial System is the BEST in the world, and we have the strongest Mortgage Market in the world with less than 1/2 of 1% of insured mortgages in a position of default (90 days or more).
    Don’t subscribe to the Dooms Day rants that exist – do yourself a favour and speak with an actual professional. Not to take away from the author of this blog…but maybe you should take a bit more time to “investigate” or “research” your material before you put any statements out there that may be construed as simply “perpetuating fear mongering over the stupid.”
    Take Care Canada! And keep on being awesome!

    By the way – Great response Mr. Ross!

    1. Interesting response “investigate”? Dooms day? Didn’t mention that, just voiced my concern that people who should not have mortgages are getting them from shady scuzz-balls (sp?) that seem to prey on the folks who believe that owning a home is a right not a privilege (I believe that is a direct quote). The view that if it weren’t for these alternate lenders housing prices might drop is an interesting one, maybe housing prices should be dropping? Are houses really that valuable an asset? Having shady lenders inflate the housing market is a good thing (and yes I am making a reference to the absolute debacle of the Mortgage business in the U.S.).

      I have no problem with commentaries that disagrees with me, but if you want to poke about “research” remember that I never claimed to be an expert in finances, nor am I in the industry, I simply make observations on what I see, if you are in the industry then yes you should know more than me, but your arguement that Canada’s Financial system is the “best” in the world sounds interesting, where do those numbers come from (just “investigating” further).

  5. When I read the article yesterday, I was shocked. I thought that Canada was supposed to have this “stable” and “secure” mortgage industry. Then, after thinking about it, I realized all that has been done by tightening the rules is to protect the CMHC mortgages.

    If someone wants a property and is rejected by the big banks, are they going to say “hey, I can’t afford this?”, or will they seek out alternate funding? With the high house prices we now see, we’ve created this “void” in lending that some businesses are filling. I admit I equate them to the pay-day loan industry…..but someone is seeing an opportunity. My question is, who is financing these businesses? Not knowing how the financial sector in Canada is regulated, I wonder how many firms from South of the border are seeing an opportunity here….and using the perceived “Canada’s housing is stable and guaranteed” image against us?

    I’m curious how this will all fall out….many people making the comparison to the US in 2008…Canada’s debt level at 154(?)% compared to their debt level of 160%….us having these subprime mortgages, they had them — although our big banks aren’t lending as free as all the american banks were — but now we have these new entities doing it.

    We live in interesting times.

    1. I’ll take that comment as a smile.

      I do actually think that there are folks who are getting mortgages, that simply should not be getting them, I hope these “alternate lenders” are not preying on them.

  6. Fear not big guy – you want these alternate lenders in the market – they serve a valuable role. Maybe I see more than my share of “B” deals because I am also a credit specialist, but I can tell you they are nothing to worry about – the end is not nigh. Here are two recent examples.

    Self employed owner of a restaurant, who declared bankruptcy in 2008,but held onto her house and turned around her business. Sold her house this month and from the proceeds is buying a smaller home with a $138,000 DP. The LTV ratio is only 60% and her credit score is a healthy 680.

    Bartender who makes more than double his income in tips but cannot verify that. Buying a $291,000 home with a $65,000 DP. His credit score is 765.

    Actually both these clients had mortgages with A lenders before, but with tougher lending guidelines these days, they no longer qualify for best mortgage rates and terms.

    We need the alternative lenders to provide people like this with a mortgage solution. If not, then the number of potential buyers would drop dramatically, having a significant adverse effect on the real estate market and our nation’s economy.

    The fact is we are far, far removed from anything resembling a sub-prime crisis the likes of which hit the states in 2008-2009.

    That said, we were very lucky. Canada had been a late entrant into the sub prime lending business, and there were an additional 20 or so lenders out there in 2008-2009 looking for the exact kind of business you are afraid of. But they have all gone – either exited the business, or reinvented themselves.

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