Canada is world’s largest sub-prime lender

canada housing collapse along the way chmc

canada housing collapse along the way chmc

“Reading the newspapers these days, you have to wonder whether Canada was on another planet when the global credit crisis hit.” — Murray Dobbin

All the news reports from Canadian real estate associations touting that the housing “recession has ended” is just about as worthless as the hot air coming out of politicians mouths. Very low interest rates made houses and condos too expensive, especially compared to the price of renting equivalent properties. Logic dictates that this is not the right time to buy a house (unless you expect currency depreciation and higher prices throughout the economy to reduce the value of your debt in real terms, a mere fraction what it is now). The best time to buy a home is when interest rates are at historical highs, and only the most qualified borrowers can keep up their payments. Higher interest rates will help correct some of the insanity in the ‘residential’ housing markets. There is an affordable housing ‘crisis’ in Canada, due in large part to low interest rates, 35-40 year amortization mortgages and an unregulated monster they call the ‘speculative’ market.

“The reality is, that if we put interest rates anywhere near where they ought to be, we would bankrupt most of our financial entities and we’d have a real collapse. We’re never going to have a real recovery until the market lets us have a real recession. Our phony consumer-based economy isn’t viable; it only exists as long as the Chinese and Japanese lend us money to buy their stuff.” — Peter Schiff

Why Canada’s Housing Bubble Will Burst
‘The largest sub-prime lender in the world is now the Canadian government.’
By Murray Dobbin, 22 Oct 2009, ALSO confirmed with

What do the mid-recession housing boom and the Harper Conservatives’ rise in the polls have in common? Answer: the Canada Mortgage and Housing Corporation’s massive sub-prime mortgage scheme that is keeping up the appearance of an economic recovery. Reading the newspapers these days, you have to wonder whether Canada was on another planet when the global credit crisis hit. House prices have actually increased in some provinces and now there is a shortage of houses for sale in southern Ontario. Credit is flowing everywhere.

But what few Canadians realize is that the housing market has avoided collapse (prices are down 32 per cent in the U.S.) because the Harper Conservatives directed the CMHC to change the mortgage rules to effectively make the Canadian government the biggest sub-prime lender in the world. What’s almost as alarming as this reckless policy is that no one in the financial media is talking about it, even though everyone knows the facts. I was alerted to the scandal by David Lepoidevin, a financial advisor with National Bank Financial, in a warning letter to his clients.

Propping up the real estate market

So long as borrowing requirements were tight, the percentage of loans that were securitized remained modest. But in 2007 the Harper government allowed the CMHC to dramatically change its rules: it dropped the down payment requirement to zero per cent and extended the amortization period to 40 years. In light of the mortgage meltdown in the U.S., Finance Minister Flaherty moderated those rules in August 2008 (it’s now five per cent down and 35 years). But these are still relatively very loose requirements and securitization has taken off.

In an effort to prop up the real estate market in 2008 (when affordability nosedived), the Harper government directed the CMHC to approve as many high-risk borrowers as possible and to keep credit flowing. CMHC described these risky loans as “high ratio homeowner units approved to address less-served markets and/or to serve specific government priorities.”

Canada Residential Mortgage Debt as percent of Salaries

Such warnings about a possible real estate melt-down have been repeatedly dissed by the Harper government which created the bubble to make itself look good in terms of economic policy. But now the Bank of Canada is voicing concerns, pointing out Canadians’ average debt is now 142 per cent of annual income – an all-time record. (In 1990 Canadians were carrying $88.60 in debt for every $100 of income.) That forced Flaherty to blink:

“We certainly want people to be careful and there’s lots of money being lent, and I do ask Canadians to be mindful of the fact that interest rates will not be low indefinitely.”

While the language sounds moderate, it is the equivalent of screaming from the roof tops for free-market zealot Flaherty.

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