“I have a friend in Vancouver who bought 2 houses; no stable income. He borrowed money from his properties to pay his mortgage and his daily expenses.”

“I have a friend in Vancouver who bought 2 houses, and he doesn’t have a stable income. He borrowed money from his properties (HELOC) to pay his mortgage and his daily expenses. What if the housing market drops?”
‘A in Vancouver’ at greaterfool.ca 1 Jun 2012 3:12am

18 responses to ““I have a friend in Vancouver who bought 2 houses; no stable income. He borrowed money from his properties to pay his mortgage and his daily expenses.”

  1. “What if the housing market drops?”

    Hahaha. He could risk losing both homes. I don’t know why people over expose themselves to real estate. Too much of their net worth in real estate.

  2. And this is a perfect example of how Helocs cannibalize real wealth. Times are not even tough and this guy is already behaving like a poverty case by borrowing from Peter to pay….Peter! The US middle class went down the same road and hundreds of thousands were bankrupted or disenfranchised of their properties in just the same way. Many drained away all thier savings trying to make ends meet, pay for their mortgage and keep their heads above water. They just kept going until the well ran dry and they lost everything in the process. Those without work went from home-ownership pride to basement dwellers in short order. Many moved into their cars. That is a depression scenario and yet it is exactly the movie that has been playing out before our very eyes. And it still is not over…..

    It is always better to sell and take a small profit when the end is obvious.

  3. [WARNING: Very graphic content that may offend many readers; may be advisable to skip the link. -ed.]

    he could lose both? … well, a thousand apologies in advance for the following … please do not proceed if you do not share my sense of humor … http://tinyurl.com/86tk4bw

  4. NINJA 🙂

    Probably used a liar’s loan. (private lender)

  5. How about an unemployed chef with his unemployed wife and carrying 850k of debt over 2 un-sold properties. They are making payments with a line of credit. He sat down with my wife over coffee and she said he looked really depressed. He is wondering why the media still says the market is balanced when clearly it has collapsed.

    • That is a very depressing anecdote, Pat. Makes me wonder just how many others are close to the edge and making monthly ends meet by borrowing against an asset that we all know for certain is in decline. I think the days of incessant bragging over how much paper profit was earned on home purchases are soon coming to an end.

      Lets not get wrapped up in the drama of others though and let’s not start feeling sorry for those who are about to default. They created this unfortunate circumstance out of their own greed and desire and so have earned the consequence that is coming.

      I just don’t care how sad they look. Those people, through their pig headedness and arrogance (despite all the valid warnings) are going to still cost all of us through higher taxes, a slower economy and rising unemployment.

      They were the problem before. They are the problem now. Let them fail.

      • The other question is why are the banks’ valuation processes not broader view? Why does OSFI have to step in and put a real number on the HELOC limit (65%) to avoid banks losing money from THEIR own greed.

      • We have a coddled banking community AG. It is like a nanny state for private financial interests and sheltered public companies that are backstopped by the taxpayers of this country. Some see it as a good thing. We have strong banks, pride of ownership for those who are shareholders and a multitude of accolades internationally. That makes this country a media winner in the age of defaulting Greeks and in exchange our banks are in a good position to expand abroad and take a greater share of the markets in other nations. Course, we also get those nice coloured stars and high AAA ratings for being such good boys and girls. So there might be some balance if the growing strength of our homegrown financial institutions and the revenue streams they produce contribute some kind of dividend for the public in the end. You know, if some of those profits get booked as tax revenues to pay back the public for all the support the banks were given in times of need. That is why we have invested in a strong financial sector we presume.

    • Agree this is a depressing anecdote.
      We will headline it; it is unfortunately representative of a substantial minority of Vancouverites who have unwisely overextended themselves into more than one property.

      Also, excellent point, Farmer, about the bankers’ enjoying one way bets, and the desirability of the taxpayer getting something back (albeit indirectly) for consistently backing those bets.

      • Thanks boss, remark is appreciated. I have been onside with corporate tax reductions in the past but am reconsidering the wisdom of granting too many tax considerations to our large corporations at a time when they are posting stellar profits and sitting on a veritable mountain of wealth. We are headed into a more troubling time and while we want our best companies to stay strong we also need to balance that against the gathering needs and demands that will be placed on governments at all levels. Fortunately there is some room to work with if the need arises.

  6. “What if the housing market drops?”

    Then he walks away from the properties. If something can’t continue, it won’t. If someone can’t keep making payments, they won’t.

    Then these $1 million+ in bank “assets” (two mortgages plus HELOCs) are revalued drastically downward. That loss belongs to the bank or to CMHC. The HELOCs are a total write-off to the bank, worthless. The homes are real assets, but are probably already worth less than what the bank originally loaned, minus the cost of all the time, effort and legal process the bank must go through to repossess the home, evict tenants, and resell it. Plus, who knows if it will sell, so it might be on the bank’s books for a long time. Plus who knows if the bank will want to sell it, because they may prefer to not realize the loss, so they keep it on the books pretending that it is worth the old bubble valuation. And then this happens tens of thousands or hundreds of thousands of times across the country.

  7. question to anyone who knows; When a bank reposesses a property, are they responsible for the municipal taxes?

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