the collapse of Home Capital Group

[ercchry]

The REIT holders and the insurers are the ones that will take the majority of the hit of there was to be a crash, alternative lenders are holding a very small percentage of the bag

[suntan]

Originally posted by Buster


You're making an argument that this is an isolated incident, with an isolated company, and that systemic issues in the RE market and the residential mortgage market had nothing to do with it. fine. I'll listen to that argument.

But this isn't a situation in isolation. there is plenty of data to support the notion that this is a symptom of greater systemic issues.

Look at it another way. If there WERE issues with the RE market and home mortgage market in Canada, and those issues were to bubble to the surface at the head of various serious issues....it would look exactly like this at the start. If you were to play a thought experiment about what a mortgage/RE crisis in Canada would look like in its nascence....you might dream up this scenario.

I don't think you understand how mortgages are underwritten in Canada.

The USA had(has) a big problem. A lender can write a mortgage and then securitize that mortgage. That mortgage is now an investment vehicle, sorta like the world's most insane bond. It then gets sold on a market. Granted it's an OTC market, but hell bonds are all sold OTC as well so there's still a big market for them. So of course the problem here is that no one actually knew what the risk profiles of the lendees actually were once the things were securitized because that information was never brought along. So of course since the new buyers were never aware of the risks involved, everything came crashing down once the lendees started being unable to make payments on the underlying loan.

In Canada the lender that writes a mortgage must keep it until it matures. Period. There is no way to slough them off.

Also, it seems that you don't seem to realize that the mortgages that HCG wrote are still being repaid by the lendees. That was never the problem.

So tell me, what is it precisely you think will take down the RE market?

[revelations]

Originally posted by Xtrema


The question is nobody knows how deep this goes and whose money is tied up in this.

» Click image for larger version

Total Big Short jenga moment there ....

[ercchry]

Originally posted by suntan


In Canada the lender that writes a mortgage must keep it until it matures. Period. There is no way to slough them off.

You REALLY think that 100% of mortgages are just sitting on the books?!

[ExtraSlow]

Originally posted by Buster
- Canada does not have the policy bullets left to handle a severe mortgage crisis. We either take it on the chin, and allow the correction in Canada to occur fast (ouch), we try to re-flate the bubble with cheap credit (and see CAD go to... 50 cents?)

How much cheaper could credit get? This bullet has long been fired.

[suntan]

Originally posted by ercchry




You REALLY think that 100% of mortgages are just sitting on the books?!

Alright then, tell me how they're securitized.

[ercchry]

Originally posted by suntan
Alright then, tell me how they're securitized.

Current rules? Yes, there are a small percentage that now have to sit on the books... LTV<65% and purchases (not loan amount) over $1m and some refinances... basically anything uninsurable needs a balance sheet... but this is all since November of last year... so most of this prior to will fall into this next paragraph:

ANYTHING that gets an insurer to sign off on it either on the front end or via bulk insurance on the back end can and is sold off as an investment vehicle just like south of the border... difference being that these loans are insured but that's about it

New rules are seeing lenders share the risk with insurers though... November was a big surprise for everyone in the industry and we're just now starting to see how it's shaping up. So far the biggest thing is just more down payment on uninsurable lending and higher rates for conventional vs high ratio

[Hallowed_point]

I think that ercchry is a mortgage broker, so I suspect that he does know the in's/out's. I couldn't believe all the questions that I was asked by the bank prior to getting approved. It was a real eye opener as a first time buyer. In retrospect, I'm glad it wasn't just a "ehhh ok sure here's a loan."

[ercchry]

*not a broker, I just work with them

[HiTempguy1]

Originally posted by Hallowed_point
I think that ercchry is a mortgage broker, so I suspect that he does know the in's/out's. I couldn't believe all the questions that I was asked by the bank prior to getting approved. It was a real eye opener as a first time buyer. In retrospect, I'm glad it wasn't just a &quot;ehhh ok sure here's a loan.&quot;

Yea, compared to people's experiences from 5+ years ago, things seem to have changed quite a bit.

[Buster]

Originally posted by suntan
I don't think you understand how mortgages are underwritten in Canada.

The USA had(has) a big problem. A lender can write a mortgage and then securitize that mortgage. That mortgage is now an investment vehicle, sorta like the world's most insane bond. It then gets sold on a market. Granted it's an OTC market, but hell bonds are all sold OTC as well so there's still a big market for them. So of course the problem here is that no one actually knew what the risk profiles of the lendees actually were once the things were securitized because that information was never brought along. So of course since the new buyers were never aware of the risks involved, everything came crashing down once the lendees started being unable to make payments on the underlying loan.

In Canada the lender that writes a mortgage must keep it until it matures. Period. There is no way to slough them off.

Also, it seems that you don't seem to realize that the mortgages that HCG wrote are still being repaid by the lendees. That was never the problem.

So tell me, what is it precisely you think will take down the RE market?

Let me ask you this: do you think that HCG operated with zero leverage?

Next: was the US meltdown as a result of mortgage companies going bust? Or was that a symptom of other issues? Is it possible for demand to decrease (ie prices go down) in the RE market, without a reduction in liquidity?

You are making the claim that RE is Canada is healthy because people still have access to mortgages. I'm saying a turning point in consumer confidence with respect to home prices would look exactly like what we are seeing in the economy right now. Perhaps it isn't. But it would look like this.

[ercchry]

With the knee jerk reactions you see in the markets I don't think you can take a single event, especially one that started with an Ontario securities complaint as a sign of anything yet

The 08 meltdown was due to a few variables but on the lending side, it was thanks to unchecked lending, rampant sub-prime, stated income... teaser rates, never in a thousand years able to afford the money lending which we are much stricter about especially since then... but the real issue was all those loans were passed off as being A files, when they were pure garbage

When it comes to housing I believe you have to look at larger picture stuff like employment, industry shifts, etc

If all of a sudden the remaining Canadian labour force is automated... yeah we're going to have a problem.

Rental vacancy rates are probably a great indicator too, as these will be the most leveraged individuals who will default on their multiple properties before the average primary owner starts to default, also with the stricter heloc rules and refinance rules it's going to be tough to dig a deeper hole for those who are out of work

I think you have to trust that the majority of people making lending decisions are acting in good faith and under current salaries people can afford to pay their bills... and being that only those uninsured (which requires deep equity in the property) are the only ones in this province that can even mail in their key, and we are the most relaxed province that there will not be mass defaults in this country

[Feruk]

HCG failed because of potential fraudulent activities of the board which caused a run on withdrawals of deposits in their HISA and other liquid assets. The ONLY way I see that tying into an underlying concern about real estate was if the board was lying about the health of the underlying mortgages. That's what I can't figure out. Anyone care to help?

[suntan]

Originally posted by ercchry


Current rules? Yes, there are a small percentage that now have to sit on the books... LTV&lt;65% and purchases (not loan amount) over $1m and some refinances... basically anything uninsurable needs a balance sheet... but this is all since November of last year... so most of this prior to will fall into this next paragraph:

ANYTHING that gets an insurer to sign off on it either on the front end or via bulk insurance on the back end can and is sold off as an investment vehicle just like south of the border... difference being that these loans are insured but that's about it

New rules are seeing lenders share the risk with insurers though... November was a big surprise for everyone in the industry and we're just now starting to see how it's shaping up. So far the biggest thing is just more down payment on uninsurable lending and higher rates for conventional vs high ratio

Jesus I was expecting you to mention mortgage back securities but nope, not even that.

[Buster]

Originally posted by ercchry
With the knee jerk reactions you see in the markets I don't think you can take a single event, especially one that started with an Ontario securities complaint as a sign of anything yet

The 08 meltdown was due to a few variables but on the lending side, it was thanks to unchecked lending, rampant sub-prime, stated income... teaser rates, never in a thousand years able to afford the money lending which we are much stricter about especially since then... but the real issue was all those loans were passed off as being A files, when they were pure garbage

Every bubble has similarities to ones in the past - and then it has differences that people tend to ignore.

For instance, Canada does not have rate shell-games that were such a big part of the US market. I would say that that environment created a specific timeline for the ticking bomb.

But Canada has had nearly 10 years of emergency low rates created through public policy. You can compare something things, but you can't ignore the frothy things in Canada's market that weren't present in the US but could be a contributor.

But the market is a reflection of peoples' aggregate desire to spend "X" on a house. If that demand psychology shifts, it doesn't matter what the rates or the rules say, you will see the same self-fueling of the downword spiral that you saw on the upward one.

[tirebob]

Crisis averted???

http://globalnews.ca/news/3408989/ho...mortgage-loan/

[ercchry]

Originally posted by suntan
Jesus I was expecting you to mention mortgage back securities but nope, not even that.

Really I didn't?! Wtf was I talking about in paragraph two? Did you go and google something? Cause a second ago you believed lenders were fully on the hook for all lending in this country

[suntan]

Originally posted by Buster


Let me ask you this: do you think that HCG operated with zero leverage?

Next: was the US meltdown as a result of mortgage companies going bust? Or was that a symptom of other issues? Is it possible for demand to decrease (ie prices go down) in the RE market, without a reduction in liquidity?

You are making the claim that RE is Canada is healthy because people still have access to mortgages. I'm saying a turning point in consumer confidence with respect to home prices would look exactly like what we are seeing in the economy right now. Perhaps it isn't. But it would look like this.

What does their balance sheet say? You do know how to read a balance sheet yes? But what does it matter anyhow? Lots of businesses have debt. So what?

What's the "turning point in customer confidence"? Did people stop buying homes in Toronto and Vancouver? Are people walking away from their homes? What???

[suntan]

Originally posted by ercchry


Really I didn't?! Wtf was I talking about in paragraph two? Did you go and google something? Cause a second ago you believed lenders were fully on the hook for all lending in this country

I was lying to see what people would say.

[ercchry]

Originally posted by suntan
I was lying to see what people would say.

You really are a piece of work