Canadian sub-prime issues

A fact many are unaware of is that the large majority of people in the USA who lost their homes in the sub-prime meltdown did not miss a mortgage payment. Rather, they paid their mortgages on time and in full but, when the term of the mortgage was up, could not obtain refinancing.

The inability to re finance is partly because of a general tightening of credit. But more specifically, the people who had sub-prime mortgages were borderline (at best) and did not have sufficient credit to get a new mortgage in the current market. Moreover, because house prices fell, their houses no longer supported the financing required. (Lenders won't advance a $250k mortgage on a $200k property even if, when purchased, the property was worth $350k).

How this affects Canada is not immediately clear.

House prices have not fallen as badly as in America and, more generally, mortgages have not been extended to people with weak credit as extensively as in America.

That said, house prices have fallen and there are weak borrowers.


Lenders seek Ottawa's aid as thousands risk losing their homes

From Friday's Globe and Mail

As many as 25,000 Canadian home owners who consistently met their mortgage payments could lose their homes unless Ottawa or other financial players help supply capital to the struggling subprime lending market.

A loose network of about 12 alternative mortgage lenders began lobbying the Prime Minister's Office and the Department of Finance in January about what they say is a looming problem: An estimated $3-billion to $5-billion worth of subprime mortgages are coming up for renewal over the next four years, and the lenders say they can't renew them because capital has dried up for higher-risk borrowers.
James Morton