“I personally know of a friend who was offered the moon from the bank to buy a home in October. This month the same bank is reconsidering the mortgage. Nothing has changed for my friend’s finances.”

“Sadly, I’ve been hearing lots of stories of financing falling through. Banks have done a 360 degree turnaround. They are still lending, but on their terms. Not so attractive terms. I personally know of a friend who was offered the moon from the bank to buy a home in October. This month the same bank is reconsidering the mortgage. Nothing has changed for my friend’s finances.”
enlightened at VREAA 16 Dec 2013 3:36am

26 responses to ““I personally know of a friend who was offered the moon from the bank to buy a home in October. This month the same bank is reconsidering the mortgage. Nothing has changed for my friend’s finances.”

  1. Came across this comment in the Globe and Mail today:

    A house is an investment, not an expense. Like it or not, many people make enough on their house appreciation to easily offset their cost of borrowing. By the time they sell, they’ll basically have lived for free and gotten paid on top of that.

    The article was only indirectly about real estate. It was about how people need to cut back on their spending on the two biggest ticket items – housing and cars – in order to save. Yet this outdated boilerplate about home ownership manages to creep into the conversation. I find it astounding that six years after the US housing crash, people are still throwing off these nonsensical real estate platitudes as though they were universal truths.

    Link (sorry for not embedding it):

    http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/cant-save-forget-about-cutting-lattes-and-think-big-instead/article7341083/comments/

    The comment was made at 9:43 p.m. January 14.

  2. Interesting.. I was wondering how this would work in Canada with the huge CMHC limits, way beyond the typical $417k of FHA insurance in the US. Saw this change bank behavoir in the US, and it still exists. Just wait until the banks start unilaterally cancelling existing helocs and/or lowering the heloc limit to exactly what a person has borrowed – even people who are totally up to date on their payments and with a clean history with good amount of equity. My take is that the bank no longer assumes rising price as a given, and everything follows from that. My understanding here (Seattle) today and years into the reset, is that if a person has less than a 740 credit score (excellent) or doesn’t have totally supportable wage income, it is difficult to get a loan. Commission based, self employment, all that is seen as suspect and risk. Probably same thing coming.

    More forward looking, I’ve personally seen issues of sellers having issues selling, being underwater and attempting to negotiate something with a bank to no avail. Prolonged sales fall through, more market disconnect, which ultimately beats at prices further. Future in GVRD? Probably.

    CanAmerican

  3. Anonymous Guy (currently) working for the machine that keeps this insanity moving

    360 Degree Turnaround?
    I guess business as usual then.

  4. Interesting comment today on this topic. This is an older post, but new comment from today:

    http://theeconomicanalyst.com/content/credit-tightening-and-end-canadian-housing-bubble

    “Good Day All.

    I wanted to say thanks to the author of this article. Today (Jan 2013), i was stung by this exact thing.

    I was in the market for a house, got the pre-approve from the bank, financing was in place (i was putting 7%) down, home inspection was done, either moving along nicely. Mortgage Insurance request was sent to Genworth from the bank, who declined.

    To give a bit of backstory, this is my second house (moving to the ‘burbs), my first home (a condo in the city) was done under the HBP, was eval’ed by the bank at 333, has about 180 left owing and about 20K of equity available.

    My TSDR is below 30% and I make 130K or so. To me this should have been a no-brainer.. the new place is eval’ed at 80K more than im borrowing and my credit has no mars for the last 9 years (im 37 and was bad in my early 20s).

    Genworth indicated that i should sell my condo to clear up the debt in my equity and then purchase the home.. Strange that a insurance company would recommend getting rid of an asset,

    Any at rate, after a weekend of pulling my hair out trying to understand, I will end up taking from my RRSP to make the downpayment and get a conventional mortgage (which I was pre-approved for), but the bank is making me wait to see for tomorrow..

    Needless to say, forget just entry for first time buyers, this credit stop is affecting us mid 30s who are looking to expand and enter our earning years and the field that once was is no more, why im sitting in mortgage approval limbo tonight, this article provided some kind of rationale.

    Cheers and thanks,
    DS”

  5. Between now and the time this person was pre-approved the market has dropped, so it is a given that things would be subject to further review.

    Some food for thought…
    I have a close family member that is a senior underwriter for one of the big 5. Aside from the new reg’s that kicked in last summer, it is still business as usual at her office with one notable exception. They are in the process of hiring several dozen new underwriters and roughly doubling staff for reasons not immediately obvious to those that work there. Either this is wishful thinking (and perhaps a classic contrarian indicator) or the bank has a legit reason to believe things are about to heat up again? FWIW, I was also told that the banks are force feeding all-in-one mortgage + LOC products to basically anyone that has a pulse too.

    • Real Estate Tsunami

      Are you saying that a pre-approved is not legally binding?

      • With the pre-approval you are really only locking in the rate for a specific period of time. If the property doesn’t end up passing the sniff test for whatever reason, the lender will not approve mortgage.

      • Real Estate Tsunami

        Whip,
        “sniff test”. I guess that’s why RE is going to the dogs.

    • Other thought – they’re expecting to dedicate much more time to underwriting on a per deal basis to ensure it’s legit, or re-examine existing callable deals. Staffing up in order to allocate more resource time to scrutinize each deal more than before.

  6. the poster formerly known as anonymous

    Off topic warning:

    This is of only tangential relevance to real estate if considered superficially… but if the implications are accurate, the impacts will be profound.

    http://www.zerohedge.com/news/2013-01-16/guest-post-really-really-big-picture

    This will be bearish for Van RE because it will accelerate credit contraction, raise non-housing costs of life significantly, and result in loss of jobs in the near term. It may well be bullish for Edmonton and Fort Mac real estate.

  7. UBC-FACA Faculty Association
    Financial Planning Lecture Series 2013

    13 February: 2013
    Time: 12:05 – 12:55pm
    Lecture Hall 4, Woodward IRC 2194 Health Sciences Mall

    BC Economic and Housing Update
    Helmut Pastrick, Chief Economist, Central 1 Credit Union
    As well as an overview of the current housing market’s position, Helmut Pastrick will present an analysis of where the housing market is going and how it may arrive there based on trends and developments in interest rates, the economy, population growth, government factors and housing sales. Local information on the Vancouver market and all of BC will be included.

    • Real Estate Tsunami

      Perfect timing! By that time, the correction should be gaining steam.
      The last stand of the Bubble Deniers.

    • Thanks for the notice, Anonymous. Perhaps some of the posters here will take the time to attend and listen in on what Helmut has to say. He has been offbase too many times in the past year though so it is probably a waste of time if you are anticipating real insights. How do you register to attend?

  8. OT:
    “… who needs a retirement plan if you have a house that has doubled in value over the last decade?”

    From: http://business.financialpost.com/2013/01/16/have-we-given-up-on-retirement-saving/

    • My house quadrupled in a decade and I sold it to some Koreans at the height. That’s my retirement plan. They can enjoy the ride down now.

  9. Off-topic but even this unrelated article in vancouver sun somehow draws parallel to “housing bubble”
    (See last paragraph)
    http://www.vancouversun.com/touch/story.html?id=7828789

  10. “I wonder what would happen if we all stopped pushing our kids to succeed and just let natural selection run its course? Sort of like the housing bubble: let the whole thing burst instead of running around to tutors, afterschool programs, language lessons, and lining up to register for sports programs,” said Helen, who asked that her last name not be used.

    “Of course, that’s never going to happen.”

    Similar to the reference in the Luongo posting yesterday.

  11. This should explain how lenders consider loans.

    http://articles.marketwatch.com/2012-12-07/finance/35659852_1_condo-loan-condo-buyers-lenders

    “Some lenders can make condo buyers with pristine credit feel like rejects. Blame it on the building.

    Before making a loan to a would-be buyer, lenders comb through the building’s financial statements to see if too many condos remain unsold, or if units are mostly rentals instead of owner-occupied. Lenders also look to see if the building’s cash reserves, which help cover maintenance costs, are too low.”

    Same applies here in Canada. If anyone hadn’t noticed from CMHC’s last press release: they clearly stated that loans are more based on risk, default and liquidity calculations rather then incomes, which they also admitted they don’t verify.

    B20 guidelines was a sham used as a control vehicle to deny loans in Toronto and Vancouver, yet they’re lending like crazy in peripheral cities across Canada to offset their books. What? B20 guidelines come into effect and all of a sudden Calgary, Saskatoon, Regina, Winnipeg and St. John’s sales start soaring? Did incomes too? Please…

    We have corrupt banks and incestuous regulators. Same as every bubble. Get it straight. It’s plain fraud and nothing but fraud. They’ll just keep looking the other way until it all implodes.

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