Over the last 5 years there have literally been thousands of new mortgage brokers entering the market in Canada and the US. A great many anticipated that they had found a cash machine. Financial institutions would lend to anyone who could just about fog a mirror. It was so easy in Canada at one point that an investor or home-buyer could get a mortgage just by ‘declaring’ their income, no proof required.
Fortunately in Canada, our Bank Act has forced our lenders to be more conservative. In fact, all loans in excessive of 80% of the property’s value must be insured, protecting the lender from loss.
As well the percentage of sub-prime lending is substantially less in Canada. In mid 2007, over 21% of mortgages in the U.S. were sub-prime compared to only 5% in Canada. Of this 5%, all are insured against loss.
You could also see why many individual buyers were caught up in little or zero down, what could be better than that???
While Canada is approaching a record low number of mortgages in arrears, only 0.24% according to Canadian Bankers Association, we will see an increasing number of U.S. loans go into default, as $850 Billion of their sub-prime loans become re-set with much higher interest rates and higher payments between now and June 2008. So watch for an increased tightening of credit availability across North America as Canadian lenders respond to U.S. results.
Duncan Seward is a mortgage broker in BC who specializes in the alternative mortgage market. He is an advocate for people who have been turned down by conventional lenders for second mortgages in BC and for mortgage loan refinance and debt consolidation in BC.
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