“Fast forward 5 years later, HE STILL HAS INTEREST ONLY mortgage at variable 2.00% rate, he can barely keep up with payments, he has 5 credit cards all maxed out, and 6 month ago he asked me to lend him some money.”

“A friend of mine, a small business owner who reports annual income of about $20K (not true income) from his business received a $550K INTEREST ONLY MORTGAGE in 2007 and bought a house in Westwood Plateau Coquitlam. Fast forward 5 years later, HE STILL HAS INTEREST ONLY mortgage at variable 2.00% rate, he can barely keep up with payments, he has 5 credit cards all maxed out, and 6 month ago he asked me to lend him some money.
Next time someone tells you there is no SUBPRIME in Canada, PLZ punch them in the teeth for being ignorant or lying straight to you face.”

SunBlaster at VCI, 21 Apr 2012 9:29pm

44 responses to ““Fast forward 5 years later, HE STILL HAS INTEREST ONLY mortgage at variable 2.00% rate, he can barely keep up with payments, he has 5 credit cards all maxed out, and 6 month ago he asked me to lend him some money.”

  1. Ah yes stated income. OSFI no likey.

  2. What’s this? You say he’s not BUILDING EQUITY?

    Well, hmph. I plumb don’t believe it.

  3. Well… It could be worse. For example… What if SunBlaster’s pal was the Governor of The Bank of Kenya?

    “I was told that the governor of the Bank of Kenya isn’t paid enough to get a mortgage in Africa.” [Note To Ed: I am reliably informed that the Governor of Kenya’s central bank has some ‘off balance sheet’ perks which more than ameliorate his paltry recompense of record]

    But here’s your real Quote ‘O The Day…

    “When people can live fairly well, in large numbers, close to their places of work, the economy functions far better. When a few of us are making useless paper profits from our homes and the rest are stuck outside the market, it hurts everyone.” – Doug Saunders, G&M Columnist

    [G&M] – A housing crisis of global proportions

    http://tinyurl.com/6rnyll3

    • UsefulBackgrounders (some previously headlined/quoted in these august ‘pages’ – but re-linked here for your convenience, DearReaders)…

      [VancouverCourier] – Vancouver realtors cater to wealthy offshore Chinese as middle class gets squeezed: Premier Christy Clark, Mayor Gregor Robertson watch from the sidelines

      http://tinyurl.com/7ltxoz3

      • [VancouverCourier] – Reader Soapbox: Concern about foreign Chinese buyers in Vancouver based on facts: Debate about housing prices comes from full spectrum of community

        http://tinyurl.com/83mhmjb

      • [VancouverCourier] – Chinese investors shutter Vancouver neighbourhood while apologists cry ‘racism’: Real estate elite profit, politicians ignore middle class

        http://tinyurl.com/76c9sua

      • Thanks, Nem.
        As you know we haven’t tried to cover every exchange of this important discussion (which could merit a useful history/archive in its own right).
        Will perhaps headline a list of the urls you’ve been posting, as a ‘portal’ to the debate.

    • Renters Revenge

      I tell you…Land Value Tax…
      “Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. More or less can be got for it according as the competitors happen to be richer or poorer, or can afford to gratify their fancy for a particular spot of ground at a greater or smaller expense. In every country the greatest number of rich competitors is in the capital, and it is there accordingly that the highest ground-rents are always to be found. As the wealth of those competitors would in no respect be increased by a tax upon ground-rents, they would not probably be disposed to pay more for the use of the ground. Whether the tax was to be advanced by the inhabitant, or by the owner of the ground, would be of little importance. The more the inhabitant was obliged to pay for the tax, the less he would incline to pay for the ground; so that the final payment of the tax would fall altogether upon the owner of the ground-rent.” – Adam Smith, Wealth of Nations

      • respectfully disagree. the root cause is credit unbacked by real savings. raising taxes to address the issue of excess easy credit risks many unintended, undesired consequences

      • cor. not the least of which is to further empower those who deserve it least

      • An exorbitant stamp duty (property transfer tax) would do it too. And just to be fair about it we can recycle all PTT proceeds into the affordable housing initiatives that governments are so keen on funding.

      • on taxes, agree to disagree, dr. j. 1st, it does not address the root issue, which continues to infect other areas – such as higher ed in maple south. 2nd, it requires that the new custodians of policy remain uncorruptible, unlike the previous. even where well-intentioned, the folly of central planning is in believing the a priori assessment and solution(s) are not too far from an optimum … then supposing not, that the custodians, forever virtuous, can successfully adapt to change. to give to one, you must take from another. from whom, to whom, how much and in which form? very difficult questions. the excellent mr. hazlitt has provided one superior lesson on these.

  4. OT sunday interest piece – i find the premise highly distrustful but know little of the details …

    The Trust Molecule
    Why are some of us caring and some of us cruel, some generous and some greedy? Paul J. Zakon the new science of morality— and how it could be used to create a more virtuous society.

    http://tinyurl.com/7ux65e8

  5. there are people in Canada who are not good with money. There are few subprime mortgages. Or perhaps you can tell me which lender is granting mortgages to buyers with these low credit scores, and at higher interest.

    “Borrowers with credit ratings below 600 often will be stuck with subprime mortgages and the higher interest rates that go with those mortgages”.

    This is the exception, not the rule.

    • how do you know? show me the money

    • f1 -> “There are people in Canada who are not good with money.”
      – What percentage, in the lower mainland?

      f1 -> “There are few subprime mortgages.”
      – How few?
      – What exactly is a ‘subprime’ borrower? One who cannot tolerate ‘y’ increase in interest rates?

      How many distressed ‘owners’ does it take for a market to crash ‘x’ percent?
      Once a market has crashed ‘x’ percent, how many more owners, fearing evaporating equity, would decide to sell?

      See how many of these variables are difficult to quantify?

      • I see the burden of proof changes when somebody is arguing from the opposite side…

      • anonymouse, how can you accept any argument as self-evident? the burden of proof remains a constant (on either and any view) … show us where an argument is unsupported and on that there can be a discussion

      • burden of proof on the original contention.
        Show me with data.
        hint…it’s all on mortgagetrends.com

    • During the time 35 and 40 year amortizations were available they represented more than 33% of newly minted mortgages. (See CAAMP surveys from that era). Lots of Canadians have little interest in paying down principal.

      • funny you should site CAAMP without actually posting the data. And you are way off on your assertion that 33% of all “newly minted” mortgages are 35 year+

        Here it is:
        2011 data
        -22% of all mortgages have mortgage length greater than 25 years
        -for year 2011 86% of all mortgages are 30 years or less.
        -fixed rate mortgages – 60% with an additional 8% having mixed (fixed and variable) mortgages
        -the vast majority of homeowners (88%) have $750.00/per month room for mortgage rates rise before owners become concerned
        -the amount of equity Canadians have in their housing = 68% of the total value.
        -78% have more than 25% equity in their home
        -2% have negative equity
        -4% have less than 10% equity

        there is a wealth of information here. I stuck with the hard data to avoid a future debate.
        Pretty clear from the data that posters here are crying wolf.

        “Annual State of the Residential Mortgage Market in Canada – Nov 2011”
        http://www.caamp.org/index2.php

      • 4SlicesofCheese

        “During the time 35 and 40 year amortizations were available they represented more than 33% of newly minted mortgages”

        They had 40 year mortgages in 2011?

  6. He should sell his home. He will make money on the home since he bought at a good time. And he should cut up a few credit cards. I dont get how people get into so much debt. my wife and I are 30 and we make combined 90k and have a net worth of 250k. No debt and 2 cars paid off worth 30k. We have 1 child and expecting. Rent lower suite of parents home. If you rent, and have the option of renting from family, why not? I don’t get why people choose to buy or rent and then pick up massive debt. Live within your means and living with patents ain’t so bad. Buying now just to look cool, will screw your life up. Unless of course, you get rich somehow. Anyone can dis me for my decision, but u have a nice buffer in the bank.

  7. Carioca Canuck

    If you require CMHC or private market loan insurance to get a mortgage approved you are a SUB-PRIME borrower………I don’t care what any property pimp driving a LEXUS SUV and wearing cufflinks says.

    SUB-PRIME money is what drove the market to the heights we are seeing, that ,and the “passport property” phenomenon.

    • We tend to lean heavily towards agreeing with you.
      Not quite all would be genuine subprime — a buyer putting 20% down, with assets in other investments, could be argued to have an adequate buffer…
      But all the years of 5%, 10% down buyers, with their net-worth one tenth or one twentieth of the value of RE they’re carrying, and with the inability to tolerate interest rate increase of 1% or 2%, absolutely.

    • ‘Subprime’ already has a definition. You don’t get to make a new one.

      • Sure.

        Why, do you figure, would we need a government agency to insure borrowers if they were of the prime kind?

        Or is it maybe, possibly, because banks would rather not have 5% down borrowers, amortized over 35 sometimes 40 years on their sheets? How can you logically call someone who needs to amortize a house over 35 years or more a prime borrower.

        Its simple, can’t afford 20% down over 25 years, you’re not prime.

      • @anon. what is this ‘subprime’? and what is the term intended to describe? enlighten us

      • Subprime already has a definition?
        “A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.”
        Well put me in a dress and call me Suzy.

    • this is your own opinion on subprime. Not widely shared

      • Actually, it does seem to be widely shared. The rest of the world doesn’t seem to agree with formula1.
        http://tinyurl.com/cddnzj4
        But I suppose a reliance on ones own belief system with a fanatic avoidance of any contrasting data is par for the course here.

    • What’s in a name?
      In the end, the crucial thing will be how holders of property behave when prices fall and/or when carrying costs rise, regardless of what we care to call any of them.

      • It did take me a while to understand what “We’re all subprime now” means.

      • “Well put me in a dress and call me Suzy.”

        You sure, Jesse?

        Well… ok then…

        http://tinyurl.com/cadnolv

        [NoteToEd: She is the original SubPrimeSuzie aka Mei Sze Chan. Married ‘well’, evidently]

      • CommentzDerStuken!

      • Backgrounder: Mei Sze Chan Courtesy of Jezebel.com

        http://tinyurl.com/yaa685b

        [relates to prior comment currently in BlogWerksHell]

      • very hot. sir_nem, i must confide that if dr. j were anything less than a woman, my persona shall be gravely disappointed. how is that? simple-minded discourse to demonstrate an elementary economic principle. the supply of praise is finite; hence, to elevate one, i must denigrate another.

      • I’m a size 3. Blame domestic austerity. And heroin.

      • Ya know, J/Chub – from a writers POV… I still can’t make up my mind whether DEVAN SIPHER and MIREYA NAVARRO (writing for the NYT in the linked piece)… were in FullOn [AmericaF**kYeah!] hagiography mode or had quietly [while chortling, ChugaLuggin’ CompedCristal and KnoshingDownRighteous on WhiteTruffles&Beluga] slipped one past their SocietyPages Editor… Only my IlustriousEd and our EsteemedHost VREAA would know for sure…

        PS – Calvet’s MostExcellent&Cheap Bordeaux is on sale this week @ ChristyClark’s CornerStore [aka BC’s most ‘popular’ WineMerchant]. Sir Nem. I like that, Chub… I’m thinking the OrderOfTheGarter [thematically, it would ‘Suit you, Sir!’]

        http://en.wikipedia.org/wiki/Order_of_the_Garter

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