Easy Money Fuelled The Vancouver RE Mania – “Suddenly in about 2006 or so, we were able to borrow as much money as we wanted and didn’t have to prove anything.”; “I work in the financial industry and I see people with huge loans their incomes can’t justify all the time.”

“A lot of first time buyers don’t realize how qualification for a mortgage has worked historically since the about 1950. We have had multiple mortgages since 1987. In order to qualify for a mortgage between 1987 and 2006 (approx.), we had to prove income as follows:
1. three most recent tax returns
2. they averaged our income over those three years
3. provision of pay stubs
If you were self employed:
1. three most recent sets of financial statements
2. they averaged the income from those three years
3. provision of pay stubs for any supplementary income
We were never able to borrow more money than proven income could justify. With our last mortgage before all the EASY credit, the bank didn’t even want to give us a 25 year amortization, since we were approaching 50 years of age.
Suddenly in about 2006 or so, we were able to borrow as much money as we wanted and didn’t have to prove anything. In addition, we were able to change our amortization in the middle of our mortgage term, without penalty (reduce our monthly payment). No income verification took place and we were offered a 30 year amortization automatically.
Now everyone wonders how we got here? Lending money to people who can’t afford to pay it back is a recipe for disaster. Welcome to disaster.
We don’t own a house anymore, we are sitting on a pile of cash and renting…happily.”

– Canayjun at VREAA 5 Jun 2012 10:24am

“I work in the financial industry and I see people with huge loans their incomes can’t justify all the time. It astounds me. I spoke with a mortgage broker who told me that in recent years, people would apply for a mortgage and show their notice of assessment from their tax returns. The income on the NOA would be about $10k, however they would state their income much higher, and the mortgage would be approved based on this higher amount. It was ridiculous. A mortgage broker from a bank also called me to verify that one of my clients was self-employed “Sure,” I said, “but he’s never actually made a dime from this business, in fact he’s always had losses.” The mortgage broker assured me that that was no problem, they just needed to know he was “self-employed.” And I know for a fact that this individual was not rolling in unreported income either, maybe a little ($10k at most) but not a lot. He and his wife are essentially living on credit. There is big trouble coming.”
– pricedoutfornow at VREAA 5 Jun 2012 10:59am

27 responses to “Easy Money Fuelled The Vancouver RE Mania – “Suddenly in about 2006 or so, we were able to borrow as much money as we wanted and didn’t have to prove anything.”; “I work in the financial industry and I see people with huge loans their incomes can’t justify all the time.”

  1. “1. three most recent tax returns
    2. they averaged our income over those three years
    3. provision of pay stubs”

    nothing changed in 2006. You still need to provide the above, and:
    4. GDS at 32%
    5. beacon credit score >600, ideally >750

    • Ben Rabidoux

      You don’t have a clue what you’re talking about. The emili system requires only a pay stub for income verification on prime borrowers.

      • “The emili system requires only a pay stub for income verification on prime borrowers”

        You’re proving you’ve never applied for a mortgage. If you had you’d know better. Each home you buy requires what I’ve outlined. If you know of a lender that doesn’t please provide the name of the institution and I’ll call them to verify

      • Ben Rabidoux

        Good lord you have to be kidding. Go talk to a mortgage broker. It’s what I do for a living. What you’re describing at best represents rules for BFS borrowers. You are completely delusional if you think this is the standard.

      • When I got a mortgage in 2004, I was self-employed. I had 25% down. RBC was satisfied with my 2003 tax return (which only represented half a year of employment) and a copy of the PO from the company that I was doing work for– it only guaranteed my income for another two months.

        My wife had been employed for several years at her workplace, but their rate of pay was very low compared to mine.

        I was surprised at how easy it was to get that mortgage.

      • 4SlicesofCheese

        About 2 years ago, a former coworker told me she was getting “hooked up” by a mortgage broker friend from church and was actively looking at 1br condo in DT so acquiring a mortgage was obviously not an issue.

        At the time she was fresh out of school and on a contract at the company, which from my experience lasts no longer than 1 year. Yet she was had no trouble getting financing.

        A couple months after she abandoned looking, because she discovered she could not afford what she wanted, her contracted ended and was not renewed.

      • formula1, this is for “low ratio” mortgages. Sorry.

  2. “the bank didn’t even want to give us a 25 year amortization, since we were approaching 50 years of age”.

    poppycock!
    This is discrimination by age. Banks are not permitted to deny you this loan.

    I’m sure that they are allowed to have you provide financial details on each renewal to ensure you still can meet your mortgage obligation.

    You guys are a riot

  3. lotza rioting and general mayhem 1966-1969 period. You born during this time F1?

  4. Are all of your mortgages with the same lender? If so, it’s obvious why proof of income wasn’t required 2nd time around.

  5. ah! a paper cut … let’s print money … http://tinyurl.com/7bpxh99 … otoh, with triple, quadruple, quintuple witching events brewing through eoy … if that is the plan, better not to be bashful … or it could be game over before n-xerox is even halfway through the warm-up sequence … hey, remember these guys actually did it for y2k

  6. While there may likely be far less easy money available to those you don’t deserve it, there is still plenty of HAM on the sidelines ready to pour into hard assets like RE the very moment Bernanke and co press Ctrl-P. It is rather nauseating to think that Carney and Flaherty are endorsing (perhaps even recommending) actions like this behind closed doors while delivering a completely different message via MSM. IMHO, those that can’t really afford their homes should take advantage of the upcoming surge in buying to reduce the size of their RE (not to mention equity) portfolios. Consider this a get out of jail free card from the heavens. Use it wisely.

    • without ctrl-p, ww credit markets would just seize up … with, at least they continue to fcn, though increasingly diminished capacity … i imagine coordinated ctrl-p across multiple CBs will slow the decline … hard to see local RE going back up, again though … westside looks like it’s in the middle of going off a cliff … bid at current prices for all the new constr seems to have completely disappeared … it would have to come down quite a bit to meet local income … it’s down a bunch even if prices just flatlined, due to all the constr $s spent (anyone know does teranet somehow treat this in their index?)

      • Yeah, I agree with what you’re saying. Once the markets get their next sugar fix, I am only anticipating a modest short term bounce in RE values in selected markets. I believe it will throw many for a loop. Some may even get a final opportunity to get their financial house in order. What they do with it is anyone’s guess. For whatever reason, Vancouver is one of those markets where people like to swing for the fences. I am also expecting the MSM whores to jump up and down screaming like they’ve never screamed before that, THE bottom is in (simply because there was a single bidding war for a one of kind view property in Kits), don’t miss out this time around (like you did in ’09), buy anything and everything in sight, the train’s leaving the station for good etc…!!!!! Too many have a vested interest for this not to be the case. As you all know, the OFSI appears to have backed right off already. It’s really too bad IMHO. I see some sort of a blow off top coming down the road for RE and the markets in general. Many that have been sitting on the sidelines all this time and have been fed a lot of bad info will finally step up to the plate in anticipation of a replay of the epic rally that commenced in spring 2009. Unfortunately for them, the result will be different the second time around. For lack of a better word, the masses will be “Facebooked” one last time. We only managed to delay the inevitable over the last few years. Those in the know will not fall for the smoke and mirrors routine again. We know how that trick works now. The recovery we all think happened never did. Nothing was really ever fixed. The patient has simply been kept on a feeding tube all this time and now it is going to be cut off as there is nothing but a rotting corpse remaining. All the lipstick and plastic surgery in the world can’t fix this.

  7. My friend’s wife is a mortgage broker and it is true that after 2006 the lending regulations went out the window and coupled with low interest rates we ended up with this crazy market. Many have become frustrated that expectations of a market correction in 2008, 2009, 2010, 2011 did not manifest. As a result many of these bears have bought it. I know of 3 myself who got tired of waiting and decided to buy. If and when this market corrects there will be a very few who will have the cash to take advantage. I sold in 2010 and will stay on the sidelines because of one statement from a successful RE investor who said the Vancouver market will surprise many with how long it has run upwards in price but it will shock everyone as to how fast and how deep the prices will run down.

    • Actually, there is lots of cash on the sidelines not to mention plenty of people with a vested interest in keeping the party going for as long as it can (using any and all measures available to them). BTW, don’t believe for a moment that you were the only one clever and savvy enough to supposedly sell at the top…uhmm, two years ago.

      This all being said, signs of genuine bears capitulating is the ultimate bearish indicator. Many of the people that missed the boat and still want to buy deep down inside (hopefully at lower prices) are not real bears IMHO.

      • “Many of the people that missed the boat and still want to buy deep down inside (hopefully at lower prices) are not real bears”

        Nope. You’re cute though.

      • *growls* 🙂

      • @ jesse
        Really? How many of you know someone that appeared all bitter and negative about the RE market while they were renting only to transform into drunk, happy permabulls (yes, I bought at the bottom!!) the moment they signed on the dotted line? I see this all the time and it’s laughable. As I said, this type of person is not a genuine bear.

      • OK by my definition a bear is someone who is forecasting lower prices. A bull is someone who is forecasting higher prices. I see their motives as relevant for my binning technique.

        But I get you. One must question one’s motives to validate impartiality!

      • Oops “I see their motives as irrelevant…”

  8. cash on the sideline? to take advantage of the lower prices? You mean like in the U.S? Oh wait… but prices are at an all time low right now… and have been falling steadily for more than 3 years already. Where are all those sideline buyers? Where did they go? Why didn’t they rescue the market back in 08, 09? I mean, that country has more than 400 million people living there! There had to be bunch of sideline buyers just patiently waiting… right ? !? I mean, 80K for beachfront properties! 150K for California mansions! How could those sideline buyers resist to such good deals?

    That’s right, cause when shit hits the fan, the dumb masses will finally, FINALLY, realize how screwed everything was… and the last thing they will want to do is go to a bank and ask for a loan. The sea of underwater homeowners will be more than enough of a deterrent for those “on the sidelines”

    So much wishful thinking man… drives me crazy. Reminds me of the “soft landing” scenario that homeowners are using right now to calm themselves. Somehow, an exponentially increasing, out-of-control price trend will smoothly wind down to the norm. As if it had ever happened.

    Borrow on people, borrow on. The end is near. Wooo hooo !!

    • In toxic waste dumps like Vegas, Phoenix, Florida etc millions of people just walked away from their homes. This is not the case in Canada and by no means am I suggesting that prices can’t drop as this seems very likely over the next several years. The foreclosure/robo signing scandals have further muddied the waters in the US and have not been resolved yet. Again, this isn’t an issue here. In the US markets that matter there has been a significant amount of buying (with cash) over the last 3-4 yrs despite all the dark clouds over hanging the markets. BTW, I was never referring to the “dumb masses” as you put it. Yes, they’re going to get left behind with nothing to show for their time here on this lovely planet. If you have read any of my past comments you would understand that I am not the uber market bull you are suggesting I am.

  9. Nice smackdown, Ben. Just wanted to let you know…. 😉

  10. I am assuming all you guys read this horsesh#t from earlier today…

    http://www.theglobeandmail.com/report-on-business/regulator-dials-down-proposed-mortgage-rule-changes/article4236287

    So, at the end of the day, it is simply easier to turn and look the other way rather than rock the boat and spoil the fun for everyone else.

  11. interesting headline today … here’s the lead bloomberg link … “Is Global Finance a Ponzi Scheme? Ask a Russian Expert” … http://tinyurl.com/75cr36z
    and then a more detailed RT article … “Fool me twice, shame on me: Russians fall once again for notorious Ponzi scheme” … http://tinyurl.com/7yrc25o
    even when risks are fully represented up front and everyone is told it is a ponzi scheme, so many are still willing to participate … what does mavrodi understand about people? … that they’re desperate with few alternatives? that some just want to gamble? … take a shot at beating the house against tough odds? … i tend to believe the local RE bubble isn’t all that much about misrepresenting risk, value, etc. … with all that has transpired in other RE bubbles, in plain view, it is not difficult to see through a bit of misrepresentation if one really wanted to

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