Tag: subprime lending industry

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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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Brandon Blog Post

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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