“My brother went to renew his mortgage. The guy asked him, “Do you want to open a HELOC to borrow against your equity?” He said, “No.” Dude was seriously surprised. I’m guessing few turn down that offer.”

“My brother went to renew his mortgage. The guy asked him, “Do you want open a HELOC to borrow against your equity?” He said, “No.” Dude was seriously surprised. I’m guessing few turn down that offer.
My girlfriend works in a bank. When a customer comes in and she opens his account, a flag often comes up in the system stating he is entitled to a new HELOC, or entitled to expand his existing HELOC. And she is obligated to tell them this and ask them if they’d like to do it. More often than not, they bite. Imagine, you don’t even need to apply for credit anymore. It just falls into your lap.”
– theragingranter at VREAA 15 January 2012 at 5:02 pm

17 responses to ““My brother went to renew his mortgage. The guy asked him, “Do you want to open a HELOC to borrow against your equity?” He said, “No.” Dude was seriously surprised. I’m guessing few turn down that offer.”

  1. bank is sure of bailout – got all its crony pawns lined up. their risk is slap on the wrist. leadership has no spine.

    • Maybe a bailout would help alleviate the pain somewhat, but banks are being foolish here. If a house goes underwater on the first mortgage, the value of a HELOC on that house basically goes to zero for the lender.

      So even if the government is backing/guaranteeing first mortgages, banks are going to get killed on these HELOC’s. The losses on them will be huge.

    • I don’t believe a HELOC qualifies for CMHC insurance, though could be wrong.

      • apparently bank used to be able to buy insurance from CMHC on pools of HELOC. However that was stopped late last year?

    • not just cmhc. if the chartered banks get themselves into trouble, carney will bail them out. tarp, ltro, qe all examples of this. bailout would just transfer the pain from the cronies to the public. there is no alleviating it.

  2. The business model for banks is to lend money productively. For loan to be productive it has to create more value than the interest charged, which for the most part means that loans to growing business are good, so are loans on assets that produce income. A home loan to a family occupying the house is not creating more value in society than the interest charged, its a consumption loan not an investment loan.

    My intuition is that there are not very many businesses wanting enough loans so investment loans are out and consumption loans are in. Is there any way to find out what percentage of loans are investments loans and what are consumption loans in Canada?

    • Banks’ business model is to lend money PROFITABLY. It’s up to the borrower to decide whether to use it for investment, or just to pre-consume future earnings. Case in point: I got an offer for a credit card from a big-5 Canadian bank, interest of 0.99% for the first 9 months, including cash advances. I took the offer, maxed it out* and invested the money. Carney’s going to see this and have a conniption — how does HE know what I used the money for?

      If you get a HELOC, the bank doesn’t know whether you invested it in solid dividend stocks (making the interest tax deductible), or materials for a great kitchen reno you did yourself, or gave it to a contractor for a poor quality kitchen reno with unfashionable finishes (not tax deductible, but house capital gains are untaxed), or spent it on a hookers-and-blow weekend in Whistler (fully taxed). The BoC doesn’t know either.

      I always smile when I see realtors’ rankings of home renovations by value. Most don’t pay for themselves, so they’ve redefined the terms. “Bathroom renos average a 95% return on investment” means a -5% ROI.

      * Yes, I’m fully aware what this does to my credit rating

    • the model is to balance risk of default against payment stream and collateral. enter more into more good contracts than bad. but now the risk of default on formerly risky, nay, suicidal ventures is increasingly backstopped by central bank and cmhc – i.e. the public backstop to select private enterprise. why should they get that priviledge? it is the definition of cronyism. imagine you are daytrading and losses are absolved by govt – leads to higher risk trades. concerned persons are imploring c and f to vada bordo, cazzo. but they’re likely to have as much success as de falco. it’s going to take a sinking to get some changes around here.

  3. Now why does this sound familiar? 🙂

    That comment stemmed from conversations the family had around the table over the holidays. My mom told us how they had to almost beg for a $10,000 mortgage to build the little bungalow in which they eventually raised four kids. That was in 1972. Not exactly yesterday, but not the Great Depression either. Now, when us kids go to the bank, credit is offered to us like candy from a dish. How can any thinking person believe this is sustainable long term?

  4. Its all about the pump and dump. Mass collusion from the feds, banks, msm and re industry all out to milk the avg joe. The sad thing is these orgs are all puppets in a greater global game.

    • I don’t think they are puppets so much as blind, greedy participants. I never assume conspiracy when basic short-sightedness, incompetence and human nature offer a more plausible explanation.

      [Amen. – ed.]

  5. Now it’s getting serious. Vancouver will be a town of zombie owners within months. Living dead that cannot sell and cannot leave.

    • Actually why can’t you leave? Is there a law that says you can’t leave to other parts of Canada or countries if you have an underwater mortgage? Frankly, a lot of immigrants or those that holds Canadian citizenship as passports of conveniences are the most likely to leave when their mortgage goes underwater and they don’t see much hope/improvements in their lives. Actually the more unscrupulous ones will likely max out all credit cards, HELOCs, etc before they leave the country. Last time I checked, you can’t exactly extradite someone for not paying their debt or declaring bankruptcy.

      • There’s more of that going on than you think. A popular scam is to borrow $25,000, buy a car, ship it out of the country for maybe $8000 in total cash after expenses, then skip out on the $25,000 loan with $8000 in your pocket. Use fake ID and do that several times under several different aliases, then skip the country before the ID theft or the loan fraud is discovered. How tempting will that be for someone who maxxed out their HELOC?

        Just as a mental exercise, I’ve often considered how easy it would be to scam all those “pre-approved” credit cards that come in the mail. I could go on one hell of a trip, then just declare bankruptcy and they couldn’t touch me. No need to even leave the country. Or take cash advances out for years and hide it somewhere, then declare bankruptcy and slowly start laundering my cash. Think of it, the money just drops into your lap. (As the post above says.) Since when do con artists just leave money lying there? If it can be done, they’re doing it.

    • is this what the eagles sang about?

  6. My regional bank in the U.S. calls every so often and asks if we want money for anything. Trouble in the U.S. right now is banks don’t have enough economically sound people to lend to (their favorite profit center after fees). Either you are in the black and don’t want debt no matter the interest rate or you are a risky bet for yet another loan. There isn’t much in between.

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