Bloomberg – “Canada’s Subprime Crisis Seen With U.S.-Styled Mortgages”

“Canadian lenders are loosening standards, offering mortgages similar to U.S. subprime loans that pose an “emerging risk” to financial institutions, according to the banking regulator.
Banks and other lenders are becoming “increasingly liberal” with mortgages and home-equity credit lines that don’t require individuals to prove their income, according to 152 pages of documents obtained by Bloomberg News under freedom of information law from the Office of the Superintendent of Financial Institutions. The mortgages, typically granted to the self-employed and recent immigrants, “have some similarities to non-prime loans in the U.S. retail lending market,” the documents show.
“It just speaks to the general easing in lending standards, which has contributed to a booming housing market,” said David Madani, an economist in Toronto with Capital Economics, which estimates that Canadian housing prices may fall 25% over the next few years. “The problem is sort of baked in now, so I’m not sure there’s a way to prevent a weakening of the housing market.”

OSFI head Julie Dickson said in a Sept. 26 speech the agency is “very focused” on mortgages and home-equity lines of credit, which allow individuals to borrow against the equity in their homes. …
Home-equity credit lines without income verification have become “an increasingly popular option,” OSFI says in the analysis, adding that they “pose greater risk” than mortgages because the credit lines are offered at floating interest rates. …
OSFI officials assessed Canadian banks’ potential losses from defaults on home-equity lines of credit last year, the documents show. The results were blacked out under legal provisions that allow the government to withhold commercially sensitive information.

– excerpt from Bloomberg, via FP, 30 Jan 2012
[hat-tip to Makaya and Zerodown]

So, Canadian lending has perhaps been looser than previously celebrated. “Baked in” is the way we’ve previously described the coming implosion.
There is no way of deflating the bubble in an orderly fashion.
Those who propose such a hopeful outcome need to explain who they expect to be buying this year, next year, and the next. Which buyers do they propose now step forward, take out oversized mortgages to buy still extremely overpriced properties, to bail out the many, as the ‘balloon’ deflates in an orderly fashion? It simply isn’t going to play out like that.
– vreaa

6 responses to “Bloomberg – “Canada’s Subprime Crisis Seen With U.S.-Styled Mortgages”

  1. Well – I’m a couple of time zones ahead today so I’m early. This may not be on point re: subprime (I do agree with this topic BTW) but in my travels through the Phoenix Airport yesterday, I had picked up the local newspaper. Not much has changed since I lived in the US – the news is terrible, poor coverage, no world news. Anyhow – my main point was that I was surprised at how much real estate was advertised in the Phoenix newspaper. Compared to our local Vancouver rags which I believe are now becoming more like infomercials for 100’s of real estate projects, the Phoenix newspaper had ZERO advertisements for real estate. I had to look for it. Found “Real Estate” as a possible topic in the classifieds but really could not find any. No full-page ads, no double-page spreads. No surprise I suppose. I suppose their market is north of the border so they advertise in Canada now.

    • Psst… try the classifieds under, “Legal Notices”… (occasionally offered as a separately ‘bundled’ stand-alone insert and often mistaken for a telephone directory)…

      In other news YVR today… [Nem’s leader would have been: ChiefPlanner Cannibalized Ahead of VisionVancouver HousingPotlatch]

      [G&M] – Vancouver planning chief Toderian given the axe

      “Former Vancouver councillor Gordon Price, who was surprised to hear the news, said this is a key turning point for the Vision council because it’s about to launch a push for affordable housing.”

    • The NYTimes has lots of world news — I recommend that paper to all and sundry. The US has so many big cities itself there’s actually a lot there to report on, though one does wish there were more world news in many city papers there.

  2. Renters Revenge

    But I thought the Canadian financial system was the world’s most prudent?

  3. Renters Revenge

    Speaking of the US, the Case-Shiller index declined again in November and Karl Denninger has some good comments on the topic:
    “Reality is this: Housing is not an investment.  It is a durable consumer good. This means that in general financing of it should be limited, not widespread, and refinancing and especially using it as a “cash out” means of tapping equity should simply not happen at all, unless you’re doing so “to extinction” (e.g. as a means of living in retirement intended to end in your leaving the house at death, ala “reverse mortgages”.) But this is directly contrary to what the “talking heads” in the media, in the realty industry, in the home building industry and among the banks want.  It is most-seriously impacting the banks, Fannie and Freddie, who (along with pension funds and insurance companies) “sold” to the American public an outright lie that housing was a “good investment” and “would appreciate” for the foreseeable future.”

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