- Bundled subprime loans: Introduction
- Bundled subprime loans: How are mortgage lenders regulated in Canada?
- Bundled subprime loans: The bundled mortgage loans definition
- Bundled subprime loans: How do they beat the system?
- Are bundled subprime loans legal?
- Are bundled subprime loans worth the risk? Do you want another global economic collapse and world debt crisis?
Bundled subprime loans: Introduction
Bundled subprime loans. To bundle, or not to bundle; that is the question. Bundled mortgage loans have become a hot topic these days because they are a tactic used by sub-prime mortgage providers to “beat the system”.
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Bundled subprime loans: How are mortgage lenders regulated in Canada?
- Regulated lenders in Canada can’t lend more that 80% of a property’s value without obtaining a government-backed insurance
- If the borrower has bad credit, lenders can’t lend more than 65% of a property’s value.
- Insurance requires banks to run income stress tests on borrowers.
Bundled subprime loans: The bundled mortgage loans definition
Bundled home loans package a primary mortgage with a second offering from an unregulated group. It is a product offered by sub-prime mortgage providers.
Bundled subprime loans: How do they beat the system?
With a bundled loan the strict mortgage lending rules don’t apply. Borrowers can make down payments of only 10% instead of the 20% or 35% on mortgages not backed by government insurance.
Are bundled subprime loans legal?
At the moment bundled subprime loans are legal. However, the Office of the Superintendent of Financial Institutions (OSFI) assistant superintendent Carolyn Rogers warned mortgage providers under its jurisdiction against providing such products.
“They are rules. They are not guidelines, and they are not principles. We absolutely expect regulated entities to be adhering to them,” Rogers said. “Anytime a regulated entity is or appears to be designing a product or an approach that is, by its design, circumventing the rules we would take issue with that.”
The OSFI will be cracking down on bundled loans. Canada’s six biggest banks do not offer bundled loans for good reason.
In the United States, before December 2007, when banks bundled mortgage loans and sold the resulting mortgage-backed securities, the poor credit risk combined with the drop in US home prices, many say explained the global economic collapse & the world debt crisis complete with allegations of white-collar crime.
Are bundled subprime loans worth the risk? Do you want another global economic collapse and world debt crisis?
Borrowers can be at risk if they load up on too much debt at high rates of interest. “I would suspect that at least 10% of homeowners who are taking out this type of product may find themselves in hot water within the first couple of years of home ownership,” said Scott Hannah, the head of Canada’s Credit Counseling Society, a charity that advises consumers on debt. The Credit Counseling Society’s Hannah urged regulators to ban the products.
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