Tag: subprime lenders

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TORONTO CONDO MARKET REPORT: SUBPRIME LENDERS DODGING CANADA’S MORTGAGE RULES?

toronto condo marketToronto condo market report: Introduction

The subprime lending industry is alive and well in Canada; that is the subject of this Toronto condo market report. In fact, subprime lenders hold almost 8% of Canadian mortgages, which is a hefty 37.8% increase compared to the same quarter last year. And, this is the sixth consecutive quarter we saw the subprime lending industry grow. It’s now at its highest level in 10 years. Although many pundits blame the spike in prime lending to the new mortgage stress tests, it’s clear that this trend began years before stress testing was introduced.

Toronto condo market report: What are subprime loans and how do you get one?

  • Any loans that are for borrowers that do not have a good credit score
  • They’re done through private lenders, typically accessed through a mortgage broker
  • Private lenders are not federally regulated like the banking industry
  • Private lenders charge steep prices

Toronto condo market report: Why do people take subprime loans?

You may be asking why anyone would take a subprime loan and pay considerably more money than they would at a bank.

  • Transunion estimates that 11.9% of the 28.4 million Canadian consumers with credit profiles are subprime which means that they wouldn’t qualify for a mortgage from the bank
  • A borrower with excellent credit might resort to a subprime loan because the bank won’t lend them as much money as they need
  • Even a person with bad credit or no credit, there is a private lender willing to give a subprime loan

Toronto condo market report: How is subprime lending affecting Toronto’s condo market?

For some reason known only to the government, they don’t track subprime lending. CIBC Economics show that over:

  • 1 in 10 Toronto condos registered in 2017 was attached to astronomically high mortgage rates
  • 17.4% of owner-occupied condos registered in 2017 had a mortgage rate above 9%
  • 16.2% of condo investors with units that registered last year were paying more than 9%

Toronto condo market report: What’s going to happen if the market starts to soften?

The problem with paying astronomically high-interest rates is what’s going to happen if the market starts to soften? How will these condo owners with subprime loans get their money out, let alone make a profit?

The mortgage stress tests are in place for a very good reason. To ensure that Canadians don’t buy houses or condos that they can’t afford. Trying to avoid the system by going to private lenders and paying high-interest rates can put you in a financial danger zone.

Toronto condo market report: Are you in a financial bind?

If you’re in a financial bind because you’re living in a property that you can’t afford, or for any reason, you need professional help now. With a cumulative 50+ years of experience, the Ira Smith Team has helped people just like you who are facing a financial crisis. Give us a call today. We can help you overcome your financial difficulties Starting Over, Starting Now.

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TOO MUCH PERSONAL DEBT: OUR COMPLETE GUIDE TO KNOWING WHEN YOU HAVE TOO MUCH DEBT

too much personal debt
too much personal debt

Too much personal debt: Introduction

The reality is that we live in a credit-based society. As a result almost everyone lives with debt and we don’t give it a second thought. After all, who do you know that pays for a house or a car in cash? And who doesn’t use credit cards? Having debt isn’t necessarily a problem; taking on more debt than you can repay is the problem. So how do you know that you’ve taken on too much personal debt?

Too much personal debt: What’s too much debt?

Traditional lenders (financial institutions) will typically grant you a loan based on two main criteria (there are other factors involved).

  1. Total Debt Servicing Ratio (TDSR): Add up all of your monthly debt payments – mortgage/rent, car payment/lease, utilities, credit cards, lines of credit, etc. If these monthly payments add up to more than 40% of your income before taxes, it’s not very likely that a traditional lender will grant you a loan.
  1. Gross Debt Servicing Ratio (GDSR): GDSR is your mortgage payment plus heating and taxes and it should not exceed 32% of your income before taxes. If your GDSR exceeds 32% of your income, it’s not very likely that a traditional lender will grant you a loan.

If you don’t qualify for a loan from a financial institution, you know you’ve taken on way too much debt.

Too much personal debt: Way too much debt

Although subprime lenders will lend money to people who don’t qualify for loans from financial institutions, their interest rates are exorbitant. Borrowing from these companies can put you into worse debt than you’re already in, so run for your life.

Other signs that you’ve taken on too much personal debt are much more obvious. Are you having trouble making your monthly payments? Are you getting calls from collection agencies? Are you living from paycheque to paycheque?

Too much personal debt: When you have too much debt

If you’ve taken on too much personal debt, get help now. Call Ira Smith Trustee & Receiver Inc. today. With immediate action and the right financial plan we can help you get back on track to debt free living Starting Over, Starting Now.

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SUBPRIME LENDER RESORTS TO BORROWING AT SUBPRIME: CANADIAN MORTGAGE RATES TO MOVE HIGHER?

subprime lenderSubprime lender: Introduction

Toronto’s real estate market has changed in May 2017. Many more listings have come onto the market and the Canadian subprime lender mortgage landscape has changed. The regulations for qualifying for a traditional mortgage have tightened significantly. Canadians in ever-increasing numbers have turned to alternative mortgage lenders or subprime lenders. For a higher interest rate subprime lenders give mortgages to people who are higher risk and don’t meet the criteria demanded by traditional financial institutions.

Subprime lender: Now the subprime lender is in trouble

The problems started in July 2015 when Home Capital Group disclosed it had cut ties with 45 mortgage brokers. An internal investigation revealed that certain borrower applications contained false income and employment information to get loans. The Ontario Securities Commission (OSC) alleges that the company broke securities law by making misleading disclosure after the company believed it discovered some brokers had falsified loan applications. All hell broke loose!

Subprime lender: No Capital = No Mortgages = No Business

Alternative mortgage lender Home Capital Group is now in big trouble. Its stock dropped 60% in a single day. A run on deposits have taken them into a deep dive to $391 million from $2 billion. Home Capital’s ability to attract new funding is now seriously in doubt.

Subprime lender: The subprime lender resorts to borrowing at subprime

Home Capital Group has taken out a $2 billion loan from the Healthcare of Ontario Pension Plan. With a 10% interest rate plus other fees and charges, the company is effectively paying 22.5% on the first $1 billion it borrows. This falls to 15% if it uses the full $2 billion available to it, according to Jaeme Gloyn, an analyst at National Bank of Canada. The subprime lender has borrowed at subprime rates so in effect the predator has become the prey!

Subprime lender: How can a subprime lender’s troubles affect you?

Home Capital’s problems have tainted the entire subprime mortgage lending in Canada industry. Stocks of other subprime lenders have also dropped. “Home Capital contagion has spread to the entire mortgage market, in particular, alternative mortgage lenders,” says National Bank of Canada analysts Jaeme Gloyn and Victor Dri.

Home Capital Group won’t be able to continue to fund at the same volume as they have in the past. This means that mortgage brokers and borrowers will approach other subprime lenders. This demand will probably lead to subprime lenders charging even higher interest rates, making mortgages unaffordable to many Canadians.3bestaward

Subprime lender: What does this mean for the Toronto real estate market?

If fewer people can get mortgages then the entire real estate market is going to feel the crunch. The Canadian financial services industry is much different from that in the USA. Although no one wants to set off alarm bells, what happened to Home Capital Group sounds all too reminiscent of the New Century Bank story in 2007 in the U.S. They too faced a liquidity crunch which eventually left them with no alternative but to declare bankruptcy – a move which set off the 2007-2008 financial crisis.

Is the subprime lender borrowing at subprime rates a warning? We are already seeing the Toronto real estate market slowing. It now resembles a very active market, but not the overheated market of the past year or so. Will it slow down more? Is the Toronto real estate market still a bubble about to burst? Only time will tell.

Subprime lender: Have you borrowed all you can borrow but still need more money to make ends meet?

Buying more house than you can afford is never a good idea. If you’ve bought more house than you can afford or are experiencing serious debt issues for any reason, the Ira Smith Team is here to help. We’re experts in debt, serving companies and people throughout the Greater Toronto Area (GTA) facing financial crisis or bankruptcy that need a plan for Starting Over, Starting Now. Give us a call today.

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NEW MORTGAGE RULES NOVEMBER 2016: HALLOWEEN GHOSTS AND GOBLINS FOR BORROWERS?

new mortgage rules ontario, new mortgage rules canada down payment, new mortgage rules November 2016, new mortgage rules, consumer debt, mortgage rate stress test, stress test, private lenders, shadow lending market, subprime lenders, trustees, ira smith trustee, the new mortgage rules

New mortgage rules November 2016

New mortgage rules November 2016: Introduction

New mortgage rules November 2016 come into effect. We recently discussed Canada’s alarming consumer debt and the housing boom. The government stepped in to prevent Canadians from assuming bigger mortgages than they could afford. One of the measures recently put into effect was a mortgage rate stress test for approving high-ratio mortgages.

New mortgage rules November 2016: Mortgage rate stress test

This stress test is now applied to all insured mortgages to prevent defaults in the future should the mortgage rates rise. Buyers applying for an insured mortgage now have to show they can afford to pay it back at the Bank of Canada’s five-year fixed rate of 4.64%. This means that some Canadians who could have qualified for a mortgage before the stress test will no longer qualify.

New mortgage rules November 2016: Can Canadians avoid the mortgage rate stress test by borrowing in the shadow lending market?

Some mortgage brokers who are clearly disgruntled at the thought of the Canadian mortgage rules forcing them to lose business have worked out a way to bypass the stress test and beat the system by sending their clients to private lenders – also called the shadow lending market or subprime lenders. Buyers borrow money from private lenders so that they can make a 20% down payment which qualifies them to take out an uninsured mortgage, therefore there is no stress test required.

New mortgage rules November 2016: Is it a good idea to borrow from private lenders?

Typically, private second mortgages in Toronto charge a minimum interest rate of 7% – 10%. For people who really want to be home owners it may seem like a good idea, but they’re going to be left with a very high mortgage payment; perhaps higher than they can afford to pay in the long run.

The new mortgage rules November 2016 and programs like the mortgage rate stress test are enacted to protect Canadians, not punish them. Thinking that you can beat the system doesn’t make sound financial sense.

New mortgage rules November 2016: Do you have too much debt?

Have you assumed a mortgage that you can’t afford to pay? Are your mortgage payments stopping you from paying your other debts? Don’t let these ghosts and goblins scare you.

Contact Ira Smith Trustee & Receiver Inc. today. Our team of professional trustees can help you manage your financial crisis and get you back on your feet Starting Over, Starting Now.

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#VIDEO – SUBPRIME CANADA: LOANS NOT HURTING THE HOT GTA REAL ESTATE MARKET OR ONTARIO#

Subprime Canada loans the introduction

Our vlog this week is on how subprime Canada loans are not hurting the GTA real estate market, or the Ontario economy at all. Last Tuesday, we published our blog titled PERSONAL INSOLVENCY: DROP IN OIL PRICES SERIOUSLY IMPACTING CANADIANS FINANCIALLY. One of our findings was that in Ontario, the rate of insolvency filings declined.

The reason is simple. The Ontario economy is not dependent on higher oil prices for its strength.

When I think of subprime lending, I think of the meltdown in the US economy in 2007 and 2008, and all the people who lost their homes. As can be seen in this year’s Presidential election, there is a lot of unhappiness in the US about many things, including jobs, wages and the economy. Globally everyone is looking for change; Canada’s Liberal party under Justin Trudeau and their sweep to power and the recent Brexit vote, are merely two recent examples of the global wish for change.

Recent TransUnion data on subprime Canada lending

Recent data shows that subprime Canada lending, is not having an effect on the Canadian economy and certainly is not hurting the hot GTA real estate market or Ontario. The data points out some interesting trends:

  • subprime Canada lending is becoming a bigger part of Canada’s economy
  • the average amount owed on Canadian credit cards rose by 1.8 per cent over the past year, but among subprime borrowers, it rose 5.7 per cent in a year
  • among less risky borrowers with good credit ratings, credit card balances have been declining, by 1.5 to 4.7 per cent over the past year

“Average balances haven’t moved much, if you consider all Canadians together,” TransUnion director of research and analysis Jason Wang said in a statement.

“But once we segment by risk tiers, we find a gradual shift where subprime consumers are increasing their share of the debt load relative to the low-risk population.”

The TransUnion research included the following types of subprime lenders and subprime lending:

  • subprime mortgage lenders
  • subprime personal loans
  • subprime auto lenders
  • subprime credit cards

Subprime Canada delinquency rates

There are also regional differences in delinquency rates. The TransUnion data shows that delinquencies shot up in Alberta by almost 12 per cent, but declined in Ontario (and BC, who also has a hot Vancouver real estate market). Despite the growth in subprime Canada lending, TransUnion found that Canada has a generally healthy and well-functioning consumer credit marketplace, at least outside oil-exporting regions.

So what does this subprime Canada lending data mean

When you combine the catapulting delinquency and insolvency rates in the oil patch, and see that higher credit score people outside of the oil patch are reducing debt and their delinquency rates, it points out the regional disparities. It shows how the oil patch economy is suffering due to low oil prices. It shows me that sustained low oil prices will only keep the hurt going in the provinces that are dependent on higher oil prices for jobs and consumer spending.

What should you do if you have too much debt and can’t borrow more even in subprime Canada?

In our earlier blog titled SUBPRIME PERSONAL LOANS SECRETS REVEALED, I advised that if you can’t qualify for a traditional loan, a subprime loan is not the answer to your problems. High interest rate subprime personal loans are not an answer for being unable to repay your debts. Taking control of your debt with the help of a professional trustee is the answer.

Meet with one of our licensed insolvency trustees for a free consultation with Ira Smith Trustee & Receiver Inc.

We’ll discuss all your options. The options include bankruptcy alternatives – credit counselling, debt consolidation and consumer proposals. We will also tell you about bankruptcy if that’s the best option for you.

There is a way out of your financial problems. We can offer the right solution for you. We will do so without resorting to a subprime loan Starting Over, Starting Now.

THIS VLOG WAS INSPIRED IN PART BY OUR eBOOK – PERSONAL BANKRUPTCY CANADA: Not because you are a dummy, because you need to get your life back on track

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