“Recently I had an informal talk with a friend who works at one of the big Canadian banks. I asked him if he noticed any changes in the mortgage business. He said it’s still going strong.
Interestingly though he also mentioned that he noticed an interesting phenomenon. Based on his day to day readings of a range of clients mortgages it seems individuals with mortgages about as high as $300k were actually making progress towards paying the principal. However if the mortgage was $600k or higher (most of the time this resulted from clients rolling in other kind of debt into their mortgage payments) the principal appears to have remained at the same level for the last 2-3 years. He noted that these $600k+ clients appear to be paying the principal over the years but after a while they ask that some line of credit with $30k-60k on it be rolled in the mortgage which bumps the principal back to previous years’ values.
I also asked what would happen if the clients can’t pay… does the bank take the property into foreclosure? The way he answered caught me a little off guard. It felt like he never quiet thought the process through. He said that the bank will work quiet hard to “help” the client continue paying (I’m not sure if this meant they’ll lower the monthly payment). He seemed to think that the foreclosure procedure was the solution of last resort.”
- 0×13 at vancouvercondo.info 30 Dec 2011 12:43am
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To a point the banks *want to* use non-amortizing LOC as a way of boosting 30Y amortization back up to 35Y or more. Did you know that a borrower can choose to swap any portion of the amortizing mortgage for interest-only-LOC? (keeping the CMHC wrap of course)
Moreover this flexibility makes a mockery of a crucial piece of credit monitoring: the ability to maintain scheduled principal repayments.
The Banks DO NOT want your house. When they foreclose they are only entitled to the money they are owned on the mortgage. All the legal fees, which I imagine are sustantial, involved with a foreclosure are paid by the Bank and are a dead loss. Banks make the majority of their profit on clients continually paying interest on a large outstanding balance. The mentality of Banks with mortgages is the same as credit card companies, they don’t want it paid down, they just want to collect the interest and have a stable, permanent and income producing asset, not one that’s disappearing as it’s gradually paid off, Banks must pay Brokers, internal commisions and employee salaries for new mortgage origination, so it makes sense for them to keep the mortgages they have on the books rolling over and continually paying interest.
It lends credibility to the banker that he didn’t give a set of rules that drive a mortgage toward foreclosure. I’ve said about police that when they enforce the *letter* of the law instead of the *intent* of the law, they must be very low on the totem pole. The same goes for foreclosing on potential homes that may house families and contain memories. It shouldn’t be done without some care, even if speculators purchase homes flippantly.
“Recently I had an informal talk with a friend who works at one of the big Canadian banks. I asked him if he noticed any changes in the mortgage business. He said it’s still going strong.”
What is your buddy’s role at the bank? My buddy at one of the big 3 is probably a bit higher up the food chain and he was over last night and I asked him again how it was going mortgage wise and his response was “I told you, 3Q and 4Q 2011 were horrible, we’re barely making anything on mortgages, why would 1Q 2012 be any better?”. He followed up with “You don’t own any bank stocks right now do you?”. I kid you not, he said have your fun with US banks but I’d keep away from Canadian banks, they won’t cut dividends but expect so see some rough quarters ahead as fallout from the Canadian mortgage market drying up.
On the bright side, he did say keep an eye on yields as share price could get so low that we could see 5-8% yields again.
I asked whether people are paying off principle’s too and he had no idea, he doesn’t look at the mortgage unit with granularity and is just concerned about its over all contribution to the bottom line.