“Have any [of your readers] ever seen any articles regarding “foreigner mortgage”?
Here is the story -
One day I attended a lunch in a friend’s house; I did not realize there were her other friends coming over from China and visiting the same time. During the lunch, our topic was buying house in Vancouver – The friend who was from China was looking for to buy a 2M house and it did not surprise me at all since I have been hearing the story about those wealthy buyer. What surprised me was the mortgage. This friend of mine whom is on the visitor visa and that means not yet a Canadian citizen nor Residence. In the first place, I thought she bought her house in 100% cash since she has no any credit or nothing in Vancouver… Till, she mentioned to me that she feels that cost of living in Vancouver is very high and I started to asked her what made her think this way; she said the hydro bill, the tax and the mortgage fee…etc. I was kind of in shocked when I hear “mortgage”. She later told that she has a 65% loan with the local bank and she has only paid 35% down. She said she has a business in China and the bank required her to provide some documents from her business in China then she got the mortgage from the Canadian bank. I had my month wide open – - believe or not.
My question is – is the foreigner really buying the house with whole cash? or it’s sooner going to be Canadian bank’s debt?
I wish someone could provide some comments or stories if they do know anything….. I have been sitting on my cash and don’t want to put them in the bubble market.”
-’Sab’ via e-mail to VREAA 11 Mar 2011
Can any readers verify whether the described financing scenario is occurring in the Vancouver market?
Further: On an obliquely related note: We recently spoke to a couple with a modest annual income who had used a cash windfall as a 30% down-payment on a BC property. They were puzzled, given the size of their down-payment, that they’d had to undergo such prolonged scrutiny by the lending bank. The degree of scrutiny was likely because their deposit was too high for the mortgage to be CMHC insured. If they’d had only 10% down, it likely would have been quicker and easier for them to ‘qualify’. – vreaa.
To play devil’s advocate, so what? They have adequate collateral.
And it’s not necessarily the bank’s money. What do you think they do with those deposits of yours? The bank is like the boy your daughter brings over for dinner. Best not to ask what they do when you go to bed
To play devil’s advocate to your devil’s advocate, 35% plus house may not be “adequate collateral”.
That may be the case vreaa however one can garner some comfort that 35% down is a decent-sized buffer. Look at it this way: foreigners — and many locals — have gifted Canada huge sums of money, some at much lower cost bases.
One thing I can be reasonably sure is that if banks think the drops to which you are alluding are possible, they’ll clam up fast.
ehm… The mortgage was created out of thin air. Nobody’s deposit was used.
If you withdraw your money from the bank it can make fewer loans. True.
First, there is no reserve requirement in Canada, so no, banks do not need the deposits to make loans. They only need a tiny amount of tier 1 and tier 2 capital.
Second, in reality, where reserves are required, credit is created first and banks look for reserves after that.
The reserve requirement statement is misleading. There are capital requirements which amount to the same thing.
If there is a run on bank deposits, the banks will need to raise capital somehow, and that “somehow” is certainly neither free nor desirable.
Yes, if you read my comment again, I did mention the capital requirement. And no, it is NOT the same as reserve requirements.
Also read my second point.
Well, as it happens, there are a multitude ‘o financing ‘scenarios’…
“There are many ways to launder money, more than we can think of.” – Davis Fong, Associate Professor, University of Macau
[Economist] – A window on China – What an offshore gambling mecca reveals about business in China
http://tinyurl.com/7rbo28y
i will go you one better:
http://www.telegraph.co.uk/news/worldnews/asia/china/8954315/Inside-Wukan-the-Chinese-village-that-fought-back.html
“Can any readers verify whether the described financing scenario is occurring in the Vancouver market?”
For this question, we can go beyond anecdotes to hard data. Isn’t there a website where you can pay $15 to find out what the mortgage is on a given address?
Not sure if there is a web-site, but people have posted about applying and paying for such information through city hall.
A number of readers here are in financial services, and they may be able to answer the question about whether these loans are occurring in the Vancouver market.
a simple land title search will show any liens against the property, including mortgages – holder and original loan amount
This definitely happens. Before I moved to Vancouver, I had bought 2 properties on 25% down. Both HSBC. Originally they had wanted 35% but my mortgage broker got them down to 25% as that was all I could do. You can not get CMHC financing but the banks will definitely finance a foreign owned property.
Thanks.
Makes sense. As long as there isnt CMHC insurance I dont see why the banks couldnt lend money to whomever they want.
Yes, I concur. I also bought a property in VCR in 2004 whilst living overseas. Same deal as ZHR2YVR except I paid 35% down.
the part about extra scrutiny on mortgages that the banks must carry on their own sheets is expected and entirely consistent with what happened in the us. when defaults pick up causing cmhc’s capital base to evaporate and they get bailed out, govt-backed loans will become almost the entire mortgage market. and even then, they will tighten the underwriting standards to protect themselves. but notice how both the boc and chmc are publicly ‘sounding the alarm’ about debt levels. they’re the ones most responsible! this is first class CYA. i’m no genius – just recanting what already happened in the us. they will feign ignorance, deflect blame, accept zero culpability and ultimately, position for more power. the boc is a cornerstone of the crony system and supports the banking cartel by design. it will never do the right thing for citizens unless that somehow happens to align with the crony interests. it should be completely obvious by now that the biggest crooks and criminals are the ones who figured out how to do it all legally.
The government, CMHC, or the BoC never forced households to lend. Governments do not always act with citizens’ best interests in mind.
I’m torn who to blame but mostly leaning towards households
true. households must bear some responsibility. but cmhc, unless it does not get bailed out, is backing loans with citizens’ capital. the boc debases currency (theft) and backstops the banking system, also with citizens’ capital. and, citizens are captive because it is very difficult to opt out. without a boc, or at worst with more responsible boc policy, large scale systemic credit bubbles are impossible. in effect, their offense is to assume custodianship of another’s property and make it available to be lent out – at well below free market prices. it is done without the owner’s explicit consent, without proper compensation to the owner and without proper consideration to conditions of default. this arrangement benefits favored crony interests entirely at the expense of the public. it’s pretty much theft, always has been, but now super-sized to the point of blowing huge holes in the societal fabric. the conservative movement in the us (meaning mostly the libertarian-leaning and certainly not the wackos) has identified this as the root cause and the solution is to NOT (further) concentrate power where it will ultimately be abused. – “the ring must be destroyed”
eg. witness mf global. corzine was about as deeply connected as any publicly recognized crony could be. how soon is this happening after the 08 bailouts? is that contrition? even if one would like to consign some belief to rule by sometimes benevolent elites, it’s pretty clear now this crop of cronies just doesn’t give a damn about anyone else. the cowboy element has the pilot’s seat now.
I am more blaming the banks and the system simply because banks, and the governments, RE industry has all sorts of marketing programs designed to encourage people to get into huge debt. It really does not sound fair to blame the people.
What is one average person supposed to do against the barrage of ads, and marketing departments trying to get to behave a certain way. The marketing departments probably understand how the average person thinks better than the average person.
I blame the people making the loans not the people taking the loans!
If you want my unbridled opinion, I blame society.
Chubster, Well said re CMHC and regulatory interference in the market! And there are more than a few non-wacko libertarians here in Canada too.
I also know first hand of a friend who recently moved to Vancouver and got a mortgage from one of the big5 Canadian banks, no problem, downpayment of about 35%, no credit history at all.
Look for long completion dates. It takes these buyers 2 to 3 months or more to get their money out of China.
There are those who claim they can get a million out of China in a day laundering it through Macau . . . Of course, the fee on that might be steeper than the average home investor wants to pay.
65% of a $2 million mortgage, that’s $1.3 million. It’s a very big sum and I sure hope for her that her business will survive any economic downturn in China.
The fact that she’s worried about tax and hydro bills is mind boggling…
The bank made its due diligence ( and has a comfortable cushion of 35%) and the taxpayer (aka CMHC) is not on the hook for that one. I don’t see any problem here.
The story doesn’t tell everything about her residency status. She might not yet be a Permanent Resident, but she might has already applied and is here under a work permit. It sometimes takes a lot of time for immigration Canada to process the applications (a friend of mine from India just got his PR, he’d applied 8 years ago!). Her business might also has some ties with Canada. I would trust the bank on that one…
A couple of quick notes:
-IIRC, if a buyer has a greater than 20% down payment, chartered banks can use whatever internal risk management they want– they aren’t regulated if they have a 20% buffer.
-For Canadians (or anybody whose mortgage is eligible for CMHC insurance), even if you have >20% down, the bank can still purchase CMHC insurance… It’s just not *required*. And it’s cheaper than if you have <20% down. Similarly, you don't have to apply for CMHC insurance– if you have a non-CMHC mortgage, and the bank decides that they want CMHC coverage, they can buy CMHC insurance for themselves.
-One of my friends was a risk manager at a local credit union. Where a client wanted to purchase investment properties, he would analyze the underlying fundamentals for the property, and he would only lend as much as could be covered by rental revenue. In one case, a wealthy customer purchased a number of investment condos, and he required her to put 75% down, because the fundamentals were so poor.
Banks are required to have some baseline risk management, they cannot really do “whatever they want”. Those managements are increasing in burden, with larger buffers now required.
Big decisions made in small Swiss towns start affecting us all.
i wasn’t aware banks can buy insurance from cmhc. would you know what are the conditions on these contracts? by the end of all this, i would not be surprised if cmhc needs to be bailed out for 50% of GDP.
50% of GDP is pushing it a bit chubster, especially since CMHC’s total amount of insurance on the books is just a little over 50% of GDP. But 5-10% of GDP or 50-100billion would hurt plenty enough.
CD Howe claims CMHC total liabilities are in the range of 30% of GDP (Canada has a $1.57trillion economy). http://financialinsights.files.wordpress.com/2011/02/commentary_318.pdf
Actual bailout requirements in Canada would obviously be some fraction of that total liability. Even so, as a % of GDP CMHC is a significant liability to Canadian taxpayers.
brain cramp – thx for correcting. bailout only a fraction of total exposure. last figure i saw was around $500B from an article dated early 2010 – meaning data from at least a quarter prior. it could be much higher now, i.e. 50% of GDP. about a third of the $500B figure would be 10% of gdp – that’s gotta be a minimum given they’re insuring the worst segment. wonder what the heloc exposure is for banks? cmhc won’t be the only one needing a bailout.
Yes that’s right, a bank can buy an MI policy and roll the premiums into the interest payments. CMHC will sell insurance even on low-ratio loans. And yes it’s a big giant Matzo ball.
I believe, though, that banks will use their own capital without MI for certain high-quality loans.
35% is the typical downpayment required from foreign buyer to get a mortgage from a Canadian bank.
What I’ve been hearing though is that these buyers from China (not new Canadian residents) are not even using their own money for the downpayment, they’re getting that from loan sharks in China at an interest rate of 20%-30%.
These buyers are the momentum chasing “late to the party” types who are counting on the fleeing corrupt officials to continue driving up prices in Vancouver and hope to do a quick flip for a profit of a few hundred thousand after paying off the loan sharks back home.
The plot keeps getting more interesting.
Each case is different.
Here is my friend’s story:
A new comer 8 years ago
Enough cash to pay for a house ( Just before someone here start to go crazy, the house is not in W. Van, not in Van West, not over a 1m )
Bank: why don’t you get a mortgage from us, it will build your credit history in Canada, bah, bah,
Friends: but I have no job in Canada
Bank: no job no problem, as long as I know you are loaded. just give me your cash to invest in my bank, we will arrange to mortgage, credit card, etc etc for you.
Friends: but I don’t want to pay interest
Bank: ok, ok, how about 10% on mortgage, it will still help your credit history. If you don’t have credit history, you can’t become citizen.
Friend: Ok, in that case, I will take some money from you
LOL or this one:
Bank: We will lend you $800,000
Friend: Um.. I earn $50K a year.
Bank: Yes but you have two basement suites, right?
Friend: Yes, but they would need renovation for separate entrances…
Bank: …and you have extra bedrooms in the main part of the house for students?
Friend: Um… yeah…?
Bank: So you could easily cover this mortgage.
Friend: Right… I’ll take $200K, but thanks for the offer. (Not)
the bank doesn’t profit if it does not lend.
A friend of mine was buying an investment property with his Chinese partner (who has PR status). The bank was quite willing to lend money when they thought he was also Chinese but required much more proof of earnings etc. when they found out he was wasn’t.
Separately I’ve heard from a realtor who works mainly for Chinese buyers on the West Side that the market has died a sudden death recently. She’s even thinking of liquidating some of her RE assets. I asked her ‘why do that when real estate only goes up’? She laughed. Nervously.
A family member (Chinese descent, born in Asia) claimed to me that he can get a better rate from the bank than those who are born in Canada. I’m suspicious of his claim, but if there’s enough control given to a maverick loan manager over rate discounts that might be the case.
this is consistent with my data points. people are going risk off and fast.
I work in the mortgage business,
Some of these products make me sick, it’s very often easier for foreigners to aquire financing than Canadians. That on top of their incomes (from abroad) and wealth being astronomically more than us poor working Vancouverites, and we’re in this mess in our own town.
http://www.scotiabank.com/cda/content/0,1608,CID12956_LIDen,00.html
This is all so interesting, about being able to get a mortgage from a Canadian bank under these circumstances. I’m surprised, because even US citizens who have lived outside the US are now unable to get mortgages to buy property in the US, if they don’t currently already have a residence in the US or work there. Is Canada being much more lax than the US this way, does anyone know?
Vesta,
The US banks have frozen up a bit, even for people living in the States who clearly have the $$$ to buy. It’s a bit better now then 2 years ago, but they are being very cautious about their lending. I know of some instances where retired folks, who had plenty of cash on-hand (more then enough to buy outright), couldn’t get mortgages.
American banks are having a difficult time listing between spending like drunken sailors on leave and being too over-cautious.
I would expect that it’s easier to get a mortgage with Canadian banks. The Canadian banks haven’t been scared by a housing crash.
@anonymous guy, just to make your day: It is NOT, again NOT, read after me N-O-T, easy for any new comer (as you call foreigner) to get a loan in Canada.
They have to show the banks that they have a pot of gold, before any Canadian Banks loan them any peanuts.
All the banks to do is to attract those new comer’s money with a bit teaser, to open an account with them, so they can be screw them later on, just like the banks screw everyone else, regardless how long you have been in Canada, or how many generations.
Again, read this line again: It is NOT easy for any new comer (as you call foreigner) to get a loan in Canada, at least NOT easier.
Find a better broker, he’ll make it happen
But yes, banks are snakes only in it for themselves. They like the foreigners because they are usually less informed than Canadians and will be easier to bully and extort down the line. They don’t usually want to raise a stink in fear it will make problems for their immigration process.
I have to agree with ETAHEM. Try to get a credit card in Canada right after landing as an immigrant… The bank will give you a credit card only if you put a security deposit that is more than the credit limit. At least that’s what happened to me and most of my friends when we immigrated here (from Europe, China, India and South America). It didn’t matter how much our bank account balances were back then.
And, as a recent immigrant, if you get approved for a loan, the interest rate offered is just ridiculous and prohibitive.
Today however, I’m still amazed at how easy it is to get a credit card with ridiculous credit limit. It’s not uncommon to get offers in skytrain stations or being chased within stores (Canadian Tyre recently) to sign on a new card.
This makes some sense, with higher chance there are no recoverable assets on Canadian soil it’s an unsecured loan with no recourse. I wouldn’t make that bet either!
When I moved to Canada I got a credit card without any trouble at all. In fact, the credit limit was WAY over what I wanted. I did have a job which might have helped but there wasn’t any discussion of a security deposit. Maybe it just depends on the bank/card/mood of the bank manager.
@Bally. That’s the difference, we were all Master students at UBC. Most of us had enough funds to sustain ourselves for the length of the study, but that didn’t seem to matter at that time.
@Jesse “This makes some sense, with higher chance there are no recoverable assets on Canadian soil it’s an unsecured loan with no recourse. I wouldn’t make that bet either!”
There is a different between prudent risk management, that any reasonable person can understand, and extortion, which is unacceptable.
@Yank — thanks for the info! So ironic, isn’t it, that some U.S. bank officers before the crash apparently even got bonuses to push subprime mortgages on unqualified or naive applicants, and now even qualified citizens can’t get a mortgage. I wonder if there’s a crash in Canada if a similar extreme tightening of lending habits will occur.
“Try to get a credit card in Canada right after landing as an immigrant… The bank will give you a credit card only if you put a security deposit that is more than the credit limit.”
Not my experience. I got a credit card with RBC by asking for a credit card. No proof of employment, no permanent residency, no security deposit required.
I had opened a small account with the bank but most of my cash and investments are in the States.
@Yank
That’s because you had a credit history in the US that RBC could access to. Banks didn’t consider my credit history from Europe for some reason.
@Makaya – ah, that makes sense. Perhaps they ran a check before sending me the card. We were sitting in the office opening another account when we asked for a card. I was surprised when she asked me what I wanted for the limit, esp. without confirming credit history or employment.
@Vesta — I also bet credit will tighten in Canada if it crashes. (Did you see how Washington Mutual collapsed in Seattle after the crash? bad news. Years ago they were known for being prudent!)
If you missed the biggest boom you’re likely to see in your life (Vancouver RE) today was a great day to load up on the shiny stuff (Gold).
Why? If this is 2008 all over again, all commodities including RE are about to be slammed – hard.
Today didn’t look good, oil down, gold down, dollar up… This is the worst case scenario for RE.
I don’t believe stocks would be holding up so well if we were heading into another 2008-scenario. This is just a shake down.
GPR is almost a certain double from here. Put in a few shekels and pay for next year’s holiday.
Not a believer in fundamental analysis, too many pieces and you never have enough info. It’s all about psychology.
@Yank — yes, poor old WAMU, what a scandal! An object lesson for banks here….
A couple of (older) personal experiences in this regard:
1. We are Canadians who had left Canada in 1994. (no longer tax residents either). When we moved back in 2003 and bought a condo, we were required to put 35% down to get a mortgage. (My husband had current Canadian credit history. I did not, but the bank had no problem accepting my then-current US credit history). We were both self-employed. We were told at the time that with 35% down, it was no problem to qualify – the credit checks were a mere formality. Had we been here a couple years to have a self-employment tax filing history, or if one/both of us took jobs, after 6 months(?) we could put down a lot less downpayment.
2. When we sold the condo in 2009 and later went to buy a house, with my husband self-employed and me a stay-at-home mom, we were still required to put 25% down on a $500k property (a preapproval). We didn’t think to ask if the rules would have been different had we only been putting down <20% ! (We subsequently started questioning why a half million dollars would only buy us a crappy suburban box in exchange for a lifetime of mortgage servitude, and thanks to VREAA, Garth, Ben Rabidoux and others, we are instead still happily renting).
3. In about 2005, Canadian friends who were then living in the UK bought a downtown Vancouver condo in preparation for their eventual return to Canada. They were required to put 35% down on the condo. It was bought to be a rental for a few years first before they moved back, so presumably their bank required a bit of a risk premium for this too. They now live in the unit.
I don't have personal knowledge of HAM purchasers, but you have to think, if corrupt wealthy Chinese bureaucrats are coming here to protect their ill-gotten gains, these are not stupid people. Why would they NOT take advantage of purchasing their real estate here with only a partial payment and carry the rest on a mortgage? If you have many millions to get out of China, why sink it into illiquid Vancouver real estate, where it is taxed every year, has a risk of dropping, and could perhaps be seized by Canadian authorities if a good enough case could be made for your wrong-doing in China? Instead, you can borrow the bulk of the multi-million dollar purchase price from your friendly Canadian bank with whatever forged documents you need, at nearly no cost, and then you are not risking the bulk of your wealth if things go wrong in Canada. Instead, the stolen millions would best be handled by transferring them urgently out of China into some international tax haven (of which Canada is NOT!), where your money will be well-loved, easily moved, and readily available when needed.
It makes no sense at all to me that HAM buyers would pay cash up front for Canadian real estate when it is so easily bought with leverage instead. I think this is likely a big problem that will rear its' ugly head when the market drops significantly here – many foreign buyers will simply walk away from their properties, leaving the banks to take the losses. This probably will not even harm their Canadian residency or citizenship situation.
I understand the apparent Chinese cultural regard for real estate, but still, why pay all cash for it? Probably your friends will never even know you have a mortgage, if you're worried about appearances.
For non-investor class immigrants, it makes even less sense to pay all cash for a place, given such low interest rates and the fact that the majority of immigrants to Canada are not wealthy but are just average working people looking for a better life here. So, overall, I think the idea that planeloads of immigrants are parking their cash in paid-for Vancouver real estate is complete nonsense and that Canadian banks (and CMHC!) will have some significant liabilities in overpriced high-end Vancouver RE, bought by both HAM and local specu-buyers alike.
@JCH
Good Post
I’ve noticed that lots of the HAM purchasers will purchase with Cash and no mortgage, but then Refinance large amounts a short time later. The larger the equity you leave in the house the less questions the lenders ask. You can call yourself an “invester” and turn around and take 65% of the value of your house out with no questions asked. Just send in your NOA to show you don’t owe the CRA taxes, which I find is funny because your NOA shows no taxes owing, but it will also show no income. It’s see no evil hear no evil with some of these lenders
@jch.
Read after me — They pay the full amount, because they CAN, C-A-N, CAN.
And one more time please.
Just ask yourself, would you take Futureshop Financing if you are buying a $500 TV there? Probably not. Would you take the financing option buying an $40,000 car? Probably Yes.
Get the picture?
For sure, just look at the booming business the banks are doing loaning investor immigrants 75% of the required 4 year tax free loan to the federal government. Your are fooling yourself if you don’t think all that HAM isn’t leveraged! China is so obviously a credit bubble!
you’re a racist!
. . .and your blog is juvenille!
This sort of financing is definitely available. I’ve talked to lenders that specialize in this, what they call immigrant lending. A few interesting points:
1) The lenders we talked to say that the big banks are not really involved
2) Credit work that they do on these mortgages are much more intense than on high ratio CMHC stuff, which of course makes sense. Amazing what having real skin in the game does for risk control
3) As part of credit work risk control they have differential max LTV’s for regions, down to post code focus. All monitored closely, in some regions where they are uncomfortable with credit / economic / market trends they simply will not lend at all. Interior BC (Okanagan) mentioned by name
3) ROE’s even accounting for bigger capital use are much more attractive than CMHC wrapped high ratio.
All in all I have no problem with this kind of lending. Fits more of what you think of when you think of traditional asset based lending. If all mortgages were subject to the kind of scrutiny / credit limits that non-CMHC qualifying mortgages like these are I would argue we would have much less of a housing bubble crisis than we do right now.
P.S. Also shows that the legendary “all cash buyer” that just “needs a bolthole for their cash” or “wants to live in the best city in the world” might be less common than locals paying 11x their income to buy a house might think. Personally I think the likelihood of a HAM buyer being a levered (either through a traditional mortgage here or borrowning in the home country) momentum player is just a probable as a HAM buyer being an infinitely wealthy non-discriminatory refugee.
Good stuff, an indication micro-prudential measures are in force. Are you stating that these loans are CMHC-wrapped?
Just trying to get a handle on how much of the banks’ optionally-insurable portfolios are insured through MIs.
From my understanding they are non-wrapped since they are less than 80% LTV and there was no mention of the lender in question going and getting low LTV portfolio insurance. True old fashioned on-balance sheet lending depending on interest margin and security. Almost admirable, aside from the fact this accounts for still less than 1/2 of assets on the books, the rest being CMHC wrapped high LTV, and the fact that they depend on CDIC insured brokered deposits for a lot of funding. Still can’t really blame them for lapping at the trough of taxpayer subsidized risk, they wouldn’t have a business otherwise.
Though with CMHC loans the vintage distribution means average LTV is lower. Not that means anything when defaults start ringing up — I’m guessing defaults are loaded onto those with less equity.
I was surprised that such a high % of loans are cited as “CMHC wrapped”. I know very few homeowners who explicitly purchased MI. Makes me wonder how much of the near-high-ratio portfolio is being insured. If significant, that produces a much different liability for the government — future default risk is now “locked in” and they cannot ameliorate these loans through higher future premiums.
I’m surprised that you know so few people who explicitly bought CMHC insurance, especially since any loan over 80% LTV has to be wrapped by either CMHC or Genworth. I’ve been trying to get my hands on data about what % of new loan originations are insured high LTV but getting no where. You’d think that a taxpayer funded organization would be a little more forthcoming with data, but you’d be wrong.
@elam101, this is only me, most of my friends and family have at least 20% down — in many cases they avoided high ratio because of the risks (their other assets are listed as recourse). In other words they are prudent risk managers. It seems surprising, to me, the incidence of MI is so high, based on the vintage of loans as well as what I assume is some incidence of refinancing when moving (i.e. high ratio mortgage on already-purchased condo becomes low ratio when buying detached house due to above-inflation price appreciation), which makes me think there are more policies being taken out than borrowers are aware or the data on incidence of MI on mortgages are not complete.
Jesse, just because your friends and family are putting min 20% down does not make them prudent. If they are buying an over inflated asset that is set to plunge in value it doesn’t matter how much they put down, it’s still an imprudent decision. Show me a property in the lower mainland that can cash flow positively and I’ll be prudent and buy it; that’s prudent risk management!
a1 righteous postage today. if vanRE survives 2012, i’ll need to buy beside fred and f1, then throw a block party.
@burt, re:blammo’s post. look at the long-term chart, note what happened after the 08 liquidations, and especially note the slope before/after – the unmistakable signature of increased rate of confetti printage. i seem to hear an echo somewhere.
why would any one wanna live beside a person who whines and complain all day long with nothing else to do!
bears block party? na, people would just send the bears back to the wild.
Foreigners can’t get CMHC insurance, so you have to pay a larger downpayment. Surely such loans are *safer* than those insured by CMHC? The bank takes on all the risk themselves so there’s an incentive to do more checking.
I honestly don’t see what the problem is here.
The problem is that nobody has the incentive to do the checking for the CMHC backed loan.
CMHC has caused risk to be mispriced in the market place; lending has been too loose; prices have bubbled that much more as a result.
Your original analysis said: “The degree of scrutiny was likely because their deposit was too high for the mortgage to be CMHC insured. ”
That’s back to front. As foreigners they couldn’t get CMHC insurance, so had to put down 35% in order to avoid requiring it. It’s also possible, but unlikely, that they were buying into a property that the CMHC wouldn’t insure.
And CMHC is insuring mortgages and managing credit risk based on ever appreciating property values – exactly what Fannie and Freddie did in the USA. It all works until it doesn’t.
And the banks that are not using MI are doing the same thing. They are not evaluating default risk based on fundamentals but on current rates of appreciation. Try to borrow even a 5:1 LTV for anything but residential real estate and you will see that NOBODY is being prudent with mortgages. Not the banks and certainly not CMHC.
Well, I´ve heard that something similar happens in the US. The Senate decided to support a struggling American housing market by giving residence visas to foreign financiers who buy American residential property worth at least $500000. However, in this case there is no mortgage allowed for those investors.