Just how big a problem are subprime mortgages in Canada?
A story titled, “Canada’s dirty subprime secret,” appears in today’s Globe and Mail and claims that Canadian leaders are simply wrong about the extent to which the subprime mortgage mess will affect Canadians. According to the Globe’s report, it’s a bigger problem than we might have expected and its effects are already being felt in British Columbia and Alberta where “lenders are foreclosing on the homes of overextended borrowers at an alarming pace.”
Since the subprime mortgage meltdown in the United States, Canadian leaders have assured the public that a similar tidal wave of foreclosures can’t hit here. They have cited the prudence and market dominance of Canada’s five most prominent banks, the conservatism of Canadian consumers and the tiny, 7-per-cent market share of subprime lenders, which is much lower than their 22-per-cent market share in the United States. Just four days ago in a speech, Prime Minister Harper said: “We have avoided the extreme of the unregulated, or barely regulated, financial and mortgage industries that has caused such grief around the world.”
However, The Globe’s investigation shows that while Canada’s real estate sector hasn’t suffered as much as its counterpart in the United States, the Prime Minister and others have grossly underestimated the impact of that small portion of subprime lenders. Until recently, companies who touted their low standards with slogans such as “We Say Yes When The Banks Say No!” and “No Income Verification” proliferated here.
Read the Globe and Mail story here.
I’m always happy to answer your Saskatoon real estate questions. All of my contact info is here. Please feel free to call or email.
Norm Fisher
Royal LePage Saskatoon Real Estate
14 comments so far. We'd love to hear your thoughts.
April 13th, 2009 at 3:59 PM
I have read where a lot of these homes in Alb and BC were bought as 2nd or 3rd properties to sell at a later date. They never sold and the specs were drowning in debt and voila, foreclosure.
Subprime also means the people who have 2,3 or more properties financed by credit. They had no business getting these loans.
And now we all can be unwanted landlords.
This type of subprime had a shorter time period and a smaller market share here than in the States. But it should have never been allowed to happen.
April 13th, 2009 at 3:59 PM
The Globe and Mail first reported on Canadian high-risk mortgages on Dec 12, 2008.
Special investigation: How high-risk mortgages crept north (The untold story of how elements of the first Conservative budget in 2006 encouraged big U.S. players such as AIG to make a push into Canada, creating our version of subprime mortgages)
http://www.theglobeandmail.com/servlet/story/RTGAM.20081212.wmortgage13/BNStory/Front/home
In addition to the riskier 40-year mortgages (more than half of all new mortgages taken out in the past few years), approximately 10% were taken out with no money down. Now they’re reporting that at least 7% (best estimates) of all mortgages were of the totally reckless, bona-fide US sub-prime variety. The US market real estate market cratered with 22% sub-primes; these numbers would seem to indicate that we’re easily approaching 17% of similarly ‘high-risk’ mortgages.
While the same kind of predatory and sub-prime lending may not be as prevalent in Saskatchewan, we manage to trump this with The Limitations of Civil Rights Act (essentially legalized ‘jingle mail’). The banks will be insured with any CHMC-backed mortgages, but ultimately the Federal Government (and Canadian taxpayer) are going to be on the hook for any losses where funds for the foreclosure or sale are insufficient.
http://www.justice.gov.sk.ca/Limitation-of-Civil-Rights-Act
http://www.investopedia.com/terms/j/jingle-mail.asp
There are definitely parallels, and it has been suggested that the Canadian real estate market is tracking behind the US market by about 2 years. If this pans out, with Saskatchewan arriving late to the real estate bubble party it could mean that our market doesn’t feel the full effects until late 2009 or early 2010.
April 13th, 2009 at 4:00 PM
I’d like to ask a question to this seemingly well informed group on this issue. We bought our present home 3 years ago pre-hype. Because of a combination of too easy credit and poor personal management of these funds, we funded this home through Xceed Mortgage (sub-prime lender). I recently called them to discuss my concerns with renewing my mortgage(due July/09) and they told me that somone would get back to me the next day. That was 3 weeks ago. Where would you go from here?
April 13th, 2009 at 4:00 PM
Al,
Given your timing, and assuming that you bought in the Saskatoon area you should be in fine shape as far as equity is concerned. I would say that there is a very good chance that you have enough equity for a “conventional mortgage” that doesn’t even require mortgage insurance.
Have you paid this and any other debts as promised over the past few years?
I think you should make an appointment with a good mortgage broker right away. You’re probably going to have some better options available to you. Don’t sign anything with Xceed until you understand what your other options are.
April 13th, 2009 at 4:00 PM
Just what exactly constitutes a subprime mortgage in Canada?
April 13th, 2009 at 4:01 PM
Hi Alex,
The story suggests that it’s much like a U.S. subprime mortgage. Loans made to people who would normally qualify for traditional financing.
April 13th, 2009 at 4:01 PM
So is it based on the rate given or the lenience when calculating how much debt someone can handle?
I’d hate to wake up one day and suddenly Conservative Canada has cooked up another scheme: This time around, it being centered around creating the theory that we’re all overextended so let’s just hand huge contiguous chunks of residential Canada over to them…
And this is hardly paranoid considering it’s already happened in commercial real estate.
Obama has it right in the US if he can just find the right channels to get things going. People should be protected instead of endlessly displaced because they can’t compete with wealthier, greedier people choking the life out of North America.
No more blind eyes.
April 13th, 2009 at 4:01 PM
Alex,
“So is it based on the rate given or the lenience when calculating how much debt someone can handle?”
A combination of both. These people typically pay above market rates because they have no other options.
April 13th, 2009 at 4:01 PM
That’s interesting, I wonder if I’d classify as in a sub prime mortgage.
I would suspect then that there are a lot of Canadians technically drawing too hard on their incomes to have a home.
That said, most Canadians have no choice when it comes to getting paid properly. It’s put up or shut up with employers nowadays.
We make these problems for ourselves as a country by forcing each other to lower standards. I hope that eventually the government can loosen the log jam when it comes to incomes because people just can’t act in their best interest anymore.
There would be less doom and gloom then.
April 13th, 2009 at 4:02 PM
Garth Turner has called 40-year mortgages the “Canadian subprime” but these are only words Alex. Subprimes are usually associated with borrowers who are grossly under qualified borrowing more money than they can possibly ever repay. You are not a subprimer. If I recall correctly, you dealt with a mainstream lender and probably got the current rate that was being offered to most clients of that lender? You are highly employable guy and your financial picture is going to continue to get better with time (perhaps with the odd hiccup).
April 13th, 2009 at 4:02 PM
No hiccups allowed!
But I guess who doesn’t have them? Truthfully, I feel I have made some already within my own strict definition of the term.
So it’s good to hear this, for sure. And yes, I also didn’t overextend my expectations. Which is key to note. I’m paying an interest rate now that is higher than what people can get no? This means that I’m actually putting cash back into the bank’s pocket over new loans.
Here’s hoping they put that money back into the economy somehow instead of shave it off in bonuses.
Actually, to reinforce that I’m not all doom and gloom, I do find my mortgage lender to be straightforward and honest. In the battle of lesser evils, I’m fairly contented with the situation all around.
April 13th, 2009 at 4:03 PM
It’s truly amazing that we as a country can get into a mess like this. How do subprime mortgages even exist in a country that nearly banned Payday Loans? We’ve shown that our bnaking system is more stable than most of the western world and yet we want to tempt fate by utilizing these blatantly unstable financing options for a purchase as significant as a home. When will people learn to take responsibility and buy what they can afford?
April 13th, 2009 at 4:03 PM
From today’s “The Province.”
Subprime mess comes home to B.C.
http://tinyurl.com/c9q9zg
April 13th, 2009 at 4:03 PM
From the March 20 edition of the Vancouver Sun.
There’s no secret subprime mortgage problem in Canada.
A foreclosure on a family home is a heartwrenching human tragedy. As the recession takes its toll on household income, the number of foreclosures is increasing.
Fortunately, they remain relatively rare, and pose no systemic threat to Canada’s financial system, in stark contrast to the subprime mortgage meltdown that ravaged the U.S. economy.
Despite what you may have read elsewhere, Canada does not have a subprime mortgage crisis. An article in a Toronto newspaper this week carried the alarming headline, Canada’s dirty subprime secret, but it offered little evidence that loans to unqualified borrowers were a secret or dirty — or for that matter, subprime.
http://www.vancouversun.com/business/fp/1408613/story.html