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Canadian Mortgages - Should We Be Concerned?
Greetings,
After a long hiatus from writing our newsletter, we're back at it - keeping you informed on the mortgage front!
One question that comes up more often than not these days is, "With the U.S. mortgage melt-down, shouldn't we as Canadian's be scared that this will happen to us?" Well I have to say it's a fair question; typically when the U.S. sneezes, Canada catches pneumonia right? Well perhaps Canada has taken its fair share of immunity building supplements because we only caught the sniffles this time. Why? One main difference is because the two mortgage markets are (and were) miles apart from each other. Firstly, let's look at what "type" of mortgages we are talking about...
Sure, we've all heard of the big banks like TD, Scotia, or RBC - these are the prime lenders out on the market vying for your business. But there is a completely different mortgage market out there called the sub-prime mortgages. These are the mortgages that tailor their business to the traditionally 'harder to qualify' borrowers. Sometimes they are very new at being business for self, or sometimes they just plain have a really beat-up and bruised credit history. The big banks won't really look at these types of clientele on a day to day basis, so we have to locate the mortgage possibilities elsewhere...enter, the alternative "sub-prime" mortgage market. These mortgages are regularly backed (funded) by investors that make their money off of lending it towards mortgages that don't qualify through traditional means. Ok - so if we have to look at mortgages from somewhere other than the big banks, aren't we paying exorbitant rates and fees? Sometimes yes, sometimes no. It depends on what the lender has going on at the time. So far, nothing different between the U.S. and Canadian mortgage market - both work off of the same principles...prime, and sub-prime mortgages.
Where's the difference you asked? Well, the U.S. mortgage market - in its advanced stages - introduced programs that allowed many, many borrowers to qualify on very questionable guidelines. The U.S. introduced a mortgage that birthed the acronym: the N.I.N.J.A mortgage. (No Income No Job or Assets) Sound crazy? What's worse is that these mortgages were qualifying the borrower on discounted rates (known as "teaser" rates) that, in the end, ballooned and "re-set" two or three years later. Suffice it to say that these companies were selling mortgages to borrowers that, in many cases, could not afford to pay them back. It was more of a "get in now, and worry about it later" type of craze. When the mortgage closes, the mortgage companies package them up, and sell them off to investment banks in "bundled packages". Numerous mortgages were sold off - we're talking Billions of dollars in mortgages. But let's remember one important thing here...it's billions of dollars in mortgages that in many, many cases could not afford to be paid back. That's a problem.
The Canadian sub-prime mortgage market, thankfully, did not mirror any of these types of mortgage products. Truth be told, when it comes to the alternative/sub-prime lending - Canada is still in its infancy stages. The affect it HAS had on Canada though, is that it all of a sudden became very hard for the mortgage companies here in Canada to sell off their mortgages in "bundled packages" to the U.S. investor. Let's call it being a tad gun-shy. Can you blame them? So, what ended up happening to the Canadian sub-prime market is this: most of the companies changed their lending guidelines by 'tightening things up'...overnight! Has it hurt our market? Definitely not. All it has done is better securitized future loans granted by these companies. Some call it 'harder to qualify', and they may have a point; but as you may see if you get too carried away, before you know it you can find yourself as a global focal point...not in a good way.
So, is there reason for concern for our Canadian mortgage market? In my opinion, we're doing just fine with what our lending guidelines are to the borrowers of the majority of Canadian homes. Thank goodness we didn't walk in our neighbours footprints...this time. As for now, we'll carry our box of tissues around and look after our sniffles. *sniff*
Feel free to let us know if you have any questions on what your borrowing position may be like - we'd be glad to assist you in any way we can.
Sincerely,
DAN
MASS, AMP Broker/Agent
Canada First Mortgage
direct:
403.294.0033 cell: 403.710.1505
fax: 866.902.4910
email:
dan@canadafirstmortgage.com
website:
www.canadafirstmortgage.com
193 McKenzie Towne Gate SE
Calgary, Alberta, Canada
T2Z 4G2
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