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Old 11-29-2008, 12:00 AM
MortgageOpolis MortgageOpolis is offline
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Join Date: Nov 2008
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You're comparing apples and oranges when comparing the US real estate market, which is not government regulated, to the Canadian market, which is highly regulated. Lenders are continually being audited to make sure they are compliant within the industry. The reason for the melt down in the US, is due to the irresponsible lending practices of their sub prime mortgages and deregulation. These mortgages were granted to individuals with little qualification, basically on a promise to repay, which is significantly different from how Canadian lenders approve mortgages. The Canadian sub prime mortgage market made up only 5% of our entire mortgage industry... a far cry from the 30% the US had. The US sub prime mortgages were funded at or above the value of the home, by as much as 30%... individuals would receive $130K when purchasing $100K home. Many of these mortgages were designed with balloon payments, where the borrowers had low mortgage payments in the beginning years of their mortgage term, and larger payments in the later years of the mortgage, which adversely affected the borrower's capacity to pay. Canada NEVER had such a mortgage product!
Canadian lender's have mortgage insurance (CMHC/GE/AIG) in place to protect their money when lending above 80% of the value of a property and sometimes require it below 80% depending on the strengths of the borrower (credit, income, etc.) All 3 mortgage insurer's in Canada are positioned very well with capital, even AIG Canada (a division of AIG US, which received an $80B bailout)! The Canadian government has bought some of these mortgages from CMHC ($25B and $50B) to add additional strength to the Canadian mortgage industry... in no way is it a bailout! The proof that it is NOT a bailout: Genworth and AIG would be in a world of hurt if it was, which they are not... not at all!
We are in this economic mess exactly because of mortgages with 0% down. As long as the banks and lenders can obtain mortgage insurance the taps stay on. And as I pointed out, the mortgage insurers' are very strong.. they're not going anywhere. Remember it was the Canadian government who rescinded the 100% mortgage and 40yr amortization as a precautionary measure... if it was up to the insurer's and lender's.. we'd still have them because they worked great! That is why some lenders are offering cash back mortgages, which can be used for 100% financing. Most 100% LTV purchasers are not irresponsible, currently less than 0.25% are in default, which is the same as mortgages with larger down payments, this is the average of our current decade. The average through the mid 90's was 0.50%... source - Canadian Bankers Association.
You're correct regarding one thing though... I do have a vested interest in 100% mortgages and actually all mortgages regardless of loan to value as a mortgage broker. My intent is to provide factual information about Canadian mortgages, so individuals can make informed decisions about their financing. Whereas your opinions might suggest you are bitter because you can't obtain a mortgage. After all, one just needs to read some of your previous posts of gleeful anticipation waiting and wanting house prices to fall. No home owner wants to see their home value decline… that’s like owning a bunch of shares in company and wanting them to plummet!


Take care.
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