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We're all on the hook for Canada's mortgages?
I recently learned that the Canadian government guarantees (nearly) every mortgage sold by banks in Canada. So when the housing market goes South, we'll all be collectively on the hook for the inevitable wave of defaults, while the banks get off scot free?
Tell me it ain't so ! |
Re: We're all on the hook for Canada's mortgages?
Originally Posted by FlyingDutchman6666
(Post 10133767)
I recently learned that the Canadian government guarantees (nearly) every mortgage sold by banks in Canada. So when the housing market goes South, we'll all be collectively on the hook for the inevitable wave of defaults, while the banks get off scot free?
Tell me it ain't so ! |
Re: We're all on the hook for Canada's mortgages?
Originally Posted by FlyingDutchman6666
(Post 10133767)
I recently learned that the Canadian government guarantees (nearly) every mortgage sold by banks in Canada. So when the housing market goes South, we'll all be collectively on the hook for the inevitable wave of defaults, while the banks get off scot free?
Tell me it ain't so ! The new rules announced this week state that this insurance is not available for homes valued at over $1mi. So if you buy a house for $1mi you have to have at least $200,000 to put down. |
Re: We're all on the hook for Canada's mortgages?
Originally Posted by HGerchikov
(Post 10133823)
The Canadian Mortgage and Housing Corporation (CMHC) provides insurance for mortgages where the downpayment is less than 20% of the purchase price, thereby allowing people to borrow up to 95% of the value of their homes. The home owner pays a premium for this insurance, the rates are dependent on the loan to value, so if you borrow 95% of the purchase price you pay more than if you borrow 85%. Is this what you are talking about?
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Re: We're all on the hook for Canada's mortgages?
Originally Posted by HGerchikov
(Post 10133823)
The Canadian Mortgage and Housing Corporation (CMHC) provides insurance for mortgages where the downpayment is less than 20% of the purchase price, thereby allowing people to borrow up to 95% of the value of their homes. The home owner pays a premium for this insurance, the rates are dependent on the loan to value, so if you borrow 95% of the purchase price you pay more than if you borrow 85%. Is this what you are talking about?
The new rules announced this week state that this insurance is not available for homes valued at over $1mi. So if you buy a house for $1mi you have to have at least $200,000 to put down. Is there even a pot to begin with? Given the banks' smashing ability to rationally calculate mortgage risk, I'm not too hopeful that the govt will do any better. Why not make the CMHC a private entity which can go bankrupt without taxpayer's money being on the line? |
Re: We're all on the hook for Canada's mortgages?
Originally Posted by dollface
(Post 10133838)
That's what I was thinking - the purchaser pays the inurance premium on this don't they?
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Re: We're all on the hook for Canada's mortgages?
Originally Posted by FlyingDutchman6666
(Post 10133884)
Yes, that's exactly it. So the home-owner paying some premium makes it all-right then? Who calculates these premiums - is there enough money in the pot to deal with a wave of defaults when property prices drop 10% in the GTA? What about 20%?
Is there even a pot to begin with? Given the banks' smashing ability to rationally calculate mortgage risk, I'm not too hopeful that the govt will do any better. Why not make the CMHC a private entity which can go bankrupt without taxpayer's money being on the line? What has property prices dropping 10/20% got to do with people defaulting on their mortgage payments? And what makes you think that even if it was privatised, and it went tits up, they wouldnt be bailed out anyway? How is tax payers money on the line here? :huh: It's funded by the CMHC premiums that are collected when the mortgage is taken out. Not really sure where you're coming from to be honest. |
Re: We're all on the hook for Canada's mortgages?
Originally Posted by jericho
(Post 10134080)
It sounds to me like you're discovering this as if it's the latest news.:blink:
What has property prices dropping 10/20% got to do with people defaulting on their mortgage payments? In addition, dropping prices gets people in negative equity. If they *need* to sell, they won't be able to, so they'll default. And what makes you think that even if it was privatised, and it went tits up, they wouldnt be bailed out anyway? How is tax payers money on the line here? :huh: It's funded by the CMHC premiums that are collected when the mortgage is taken out. |
Re: We're all on the hook for Canada's mortgages?
Private Profit, Public Loss.... it's the only way to do business....;)
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Re: We're all on the hook for Canada's mortgages?
Originally Posted by FlyingDutchman6666
(Post 10134123)
It's new to me. I know of no other countries that operate such a scheme.
How would you? You didnt know Canada had such a scheme until yesterday. When people default on their mortgage payments, the bank forecloses on the property, and tries to sell it. Which floods the market with properties, and prices drop. ... Erm, which is where CMHC comes in, so that they dont have to foreclose. In addition, dropping prices gets people in negative equity. If they *need* to sell, they won't be able to, so they'll default. Or simply not sell. Let's nationalise all the banks then, if they go tits up they'll be bailed out anyway, so what's the difference? Premiums are calculated on the basis of risk. If they are calculated on cloud-cuckoo-land assumptions (for example, that Canadian real estate prices will never drop and default waves never happen), then the income generated by the premiums won't be sufficient to cover the insured damages. The taxpayer is on the line for the shortfall. Still confused where you're getting your info from. They're not based on the assumption that prices will continue to rise. Default waves (as you call them) may happen next year.... or in 20 years. Throughout all that time, CHMC has been collecting premiums But, fyi, they made over $1.6bn profit last year. Profit to tax payers since 2002 is $16bn. I dont hear you complaining at that. |
Re: We're all on the hook for Canada's mortgages?
Originally Posted by jericho
(Post 10134590)
They arent the only insurance company offering this protection either.
But, fyi, they made over $1.6bn profit last year. Profit to tax payers since 2002 is $16bn. I dont hear you complaining at that. |
Re: We're all on the hook for Canada's mortgages?
CMHC protects banks against losses when they have to foreclose. Do you think CMHC will prevent the bank from foreclosing on you if you fall behind on mortgage payments? If so where do I sign up? :lol:
If people need to sell, then by definition they cannot 'simply not sell'. And renting the house out doesn't help - rents don't cover mortgage payments when house prices are falling. You seem to think 1.6bn/year is a lot of money for a national mortgage guarantee scheme. It's peanuts. |
Re: We're all on the hook for Canada's mortgages?
Originally Posted by jericho
(Post 10134080)
It sounds to me like you're discovering this as if it's the latest news.:blink:
Not really sure where you're coming from to be honest. While I don't profess to having detailed knowledge of how the CMHC works, the OP only has to look at the current standing of the Canadian banking system (old-fashioned and for the most part still happily in business thank you) to see that, while the US and UK and many other countries systems went tits-up in the past few years, all but a couple of the Canadian banks are still muddling along quite happily. They have risks, of course, and Canadians sure do like those lines of credit, but out of many countries I have seen, this one does not (yet) have the housing crisis of others. |
Re: We're all on the hook for Canada's mortgages?
Originally Posted by FlyingDutchman6666
(Post 10134927)
CMHC protects banks against losses when they have to foreclose. Do you think CMHC will prevent the bank from foreclosing on you if you fall behind on mortgage payments? If so where do I sign up? :lol:
If people need to sell, then by definition they cannot 'simply not sell'. And renting the house out doesn't help - rents don't cover mortgage payments when house prices are falling. You seem to think 1.6bn/year is a lot of money for a national mortgage guarantee scheme. It's peanuts. If you have any evidence to suggest CHMC dont know what they're doing, please feel free to share it. The fact that you're commenting on an organisation that's been in existence for 80 years, however, suggests it's you who probably doesnt know what they're talking about. |
Re: We're all on the hook for Canada's mortgages?
Originally Posted by ultrarunner
(Post 10134791)
Still a drop in the ocean (no pun intended) compared to oil companies and their execs with huge houses.
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