BREAKING: Insured and Uninsured Mortgage - Stress Test Changing

[Rocket1k78]

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The issue is there are properties that have increase over 50% in less than a year, owned by people with credit scores under 500... who are refinancing back up to 80%, a correction puts these under water, and a rate hike doesn’t even matter since once they blow that cash they probably can’t pay anyways... unless they can refi again, which they’ve done every year or two for a decade or so

Thanks for this explanation, im stuck in my calgary bubble lol

[suntan]

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Everybody should realize that it is really dumb for us to have so much of our economic activity tied up with RE. But how do you unwind the bubble without a crash? The only way is to do it slowly. Changing the mortgage rules so that it is harder to qualify is one strategy. I presume they are hoping it deflates the market across all price levels. If you also start to move the mortgage market over time so it can take more stress, then you can also introduce more stress (raise rates, normalize values with income, etc) without being catastrophic.

Rising inflation lowers asset values. It's just a fact.

I know govts seem to freak out about it, but truth is no-recourse doesn't exist anymore. So people aren't going to be walking away from their house because it dropped 5% in value.

[Buster]

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The issue is there are properties that have increase over 50% in less than a year, owned by people with credit scores under 500... who are refinancing back up to 80%, a correction puts these under water, and a rate hike doesn’t even matter since once they blow that cash they probably can’t pay anyways... unless they can refi again, which they’ve done every year or two for a decade or so

you're basically just describing all of the conditions for a massive bubble.

Add in the rate of fraud, which is certainly skyrocketing (you'd know far more about that than me), and voila. Canada avoided the market clearing RE event in 2008, but we might get one in the end. The Americans took the medicine and are now in a much better place.

[suntan]

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you're basically just describing all of the conditions for a massive bubble.

Add in the rate of fraud, which is certainly skyrocketing (you'd know far more about that than me), and voila. Canada avoided the market clearing RE event in 2008, but we might get one in the end. The Americans took the medicine and are now in a much better place.

We'll never have that happen in Canada. ARMs are almost nonextant in Canada.

[Buster]

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We'll never have that happen in Canada. ARMs are almost nonextant in Canada.

Mechanism will be different, but a reset on asset values can be triggered any number of ways.

[suntan]

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Mechanism will be different, but a reset on asset values can be triggered any number of ways.

It won't be nearly as dramatic, with ARMs people's mortgage payments went up 20% in one month.

[Buster]

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It won't be nearly as dramatic, with ARMs people's mortgage payments went up 20% in one month.

dramatic in terms of speed or dramatic in terms of degree?

[ercchry]

Still think all this shit is just bandaiding the underlying issue... easy access to unsecured debt combined with hereditary personal finance knowledge and lack of any sort of formal grade school based classes (CALM is fucking bullshit)

It’s just a revolving cycle of bailouts based on ever increasing equity for way too much of the population

[Buster]

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Still think all this shit is just bandaiding the underlying issue... easy access to unsecured debt combined with hereditary personal finance knowledge and lack of any sort of formal grade school based classes (CALM is fucking bullshit)

It’s just a revolving cycle of bailouts based on ever increasing equity for way too much of the population

It's an unwillingness for the gov't and the population to allow the capital markets to price mortgages and mortgage risk properly.

[suntan]

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dramatic in terms of speed or dramatic in terms of degree?

Speed. Even in terms of degree it will be far less in Canada due to our short mortgage term lengths.

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It's an unwillingness for the gov't and the population to allow the capital markets to price mortgages and mortgage risk properly.

Imagine it this way.

Low rate = higher asset values. Price/mth = $2000.

High rate = lower asset values. Price/mth = $2000.

So from a payment standpoint nothing really changes.

The good thing is the USA is money printing like mad, which is devaluing their currency and keeps ours relatively the same compared to theirs despite Canada's money printing, so the inflationary pressure is a little less.

[Buster]

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Speed. Even in terms of degree it will be far less in Canada due to our short mortgage term lengths.

If someone has a $500k mortgage but the market only says their house is worth $450k, the length of the mortgage doesn't mean much.

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Speed. Even in terms of degree it will be far less in Canada due to our short mortgage term lengths.

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Imagine it this way.

Low rate = higher asset values. Price/mth = $2000.

High rate = lower asset values. Price/mth = $2000.

So from a payment standpoint nothing really changes.

The good thing is the USA is money printing like mad, which is devaluing their currency and keeps ours relatively the same compared to theirs despite Canada's money printing, so the inflationary pressure is a little less.

It's getting to the "lower asset values" that is the dramatic part.

[suntan]

Well people need to understand that assets that are leveraged will change in value.

And unless people want their credit smashed to bits, they ain't walking away.

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If someone has a $500k mortgage but the market only says their house is worth $450k, the length of the mortgage doesn't mean much.

One of the biggest issues with mortgages in the USA is that the length of the loan is the same as the amortization period. So you're lending to some schlub for 25 years. That's why lenders want to resell mortgages so badly - no ones wants a loan that's decades away from being done.

[Buster]

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Well people need to understand that assets that are leveraged will change in value.

And unless people want their credit smashed to bits, they ain't walking away.

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One of the biggest issues with mortgages in the USA is that the length of the loan is the same as the amortization period. So you're lending to some schlub for 25 years. That's why lenders want to resell mortgages so badly - no ones wants a loan that's decades away from being done.

If you area a lender with an underwater asset and someone that can't or won't pay, you are the bagholder. Length of term and am does not matter.

[suntan]

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If you area a lender with an underwater asset and someone that can't or won't pay, you are the bagholder. Length of term and am does not matter.

Are you really thinking lendees are going to walk away?

Back in the day, Alberta had real no-recourse - you could away and your credit was not affected. That exists nowhere in Canada anymore.

Again, with fixed and variable rate mortgages, the payment won't change unless there's massive interest rate moves. Also they can just extend the amortization term.

[killramos]

20% Down or bust.

Problem solved.

[Buster]

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Are you really thinking lendees are going to walk away?

Back in the day, Alberta had real no-recourse - you could away and your credit was not affected. That exists nowhere in Canada anymore.

Again, with fixed and variable rate mortgages, the payment won't change unless there's massive interest rate moves. Also they can just extend the amortization term.

Some won't, some will. Who knows?

What will happen to lenders when their leverage goes to the moon as asset prices correct? What will happen to a lender if they are being asked to renew a $500M loan on a $450M property, with a client that may or may not have been fraudulent in their applications?

What happens to borrowers that WERE fraudulent and can no longer service their debt. We know in RE bubbles that fraud is a very non-trivial part of the mortgage market.

[JustinL]

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All I think is there isn't much point in wasting your capital on a 20% down payment right now. Keep the cash, pay the extortion insurance, ??????, profit?

The math on that is pretty easy to do. Calculate the cost of CMHC insurance on a given property; calculate how much you think you can make by hanging on to a % of the downpayment, figure if you can beat the instant tax free savings of not paying the CMHC fee and then govern yourself accordingly.

[suntan]

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Some won't, some will. Who knows?

What will happen to lenders when their leverage goes to the moon as asset prices correct? What will happen to a lender if they are being asked to renew a $500M loan on a $450M property, with a client that may or may not have been fraudulent in their applications?

What happens to borrowers that WERE fraudulent and can no longer service their debt. We know in RE bubbles that fraud is a very non-trivial part of the mortgage market.

Let me walk the conversation back.

1) BoC raises rates. How much? Well let's say back to 4%.
2) This should chill the market substantially for new mortgages.
3) Sales drop. Not a lot because there's always buyers that don't need a lot of leverage.
4) Prices drop.

What next?

[Buster]

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Let me walk the conversation back.

1) BoC raises rates. How much? Well let's say back to 4%.
2) This should chill the market substantially for new mortgages.
3) Sales drop. Not a lot because there's always buyers that don't need a lot of leverage.
4) Prices drop.

What next?

prices won't drop much with mortgage adjustments. The event, if there is one, will be a loss of confidence in the RE market. It will be a psychological shift more than a policy one. The BoC and policymakers are desperately holding onto the hope that they can change the psychology a little bit, without it turning into a flood.

[mazdavirgin]

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If someone has a $500k mortgage but the market only says their house is worth $450k, the length of the mortgage doesn't mean much.

Doesn't this typically result in the bank demanding a lump sum payment prior to renewal to bring the mortgage back into the black?