Author Topic: WT...?! Uninsured mortgages in Canada  (Read 4635 times)

Stachey

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WT...?! Uninsured mortgages in Canada
« on: June 08, 2017, 03:19:02 PM »
The Globe had an article recently that said 46% of outstanding mortgages in Canada are uninsured!
If you have a large enough down payment, you don't need mortgage insurance but more and more people are taking out loans for their down payments. 
When is all this debt going to hit the fan?

RichMoose

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Re: WT...?! Uninsured mortgages in Canada
« Reply #1 on: June 08, 2017, 04:31:27 PM »
Yes it's nuts! Not to mention the billions in uninsured HELOC loans. I believe it has to do with mortgage value limit rules set by CMHC.

This stupidity is going to cost a while generation of Canadians their financial well-being.

Rockies

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Re: WT...?! Uninsured mortgages in Canada
« Reply #2 on: June 08, 2017, 08:48:06 PM »
This is interesting, but can anyone put this in context? What % of outstanding mortgages in the US or Europe are uninsured? What % were uninsured in the USA before the housing bubble? I did a quick search and couldnt find any statistics.

snacky

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Re: WT...?! Uninsured mortgages in Canada
« Reply #3 on: June 08, 2017, 09:36:11 PM »
It's a sound financial move to put 20% down to avoid CMHC fees. I don't see a problem- those uninsured mortgages are probably mostly properties with enough equity to weather a popping bubble.

damyst

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Re: WT...?! Uninsured mortgages in Canada
« Reply #4 on: June 08, 2017, 09:46:22 PM »
I'm going to be intentionally naive and ask - who needs mortgage insurance, anyway? When a client defaults on their mortgage, the bank can foreclose on the property. That scenario is less valuable to the bank than the original mortgage contract was, and this risk needs to be factored in to the mortgage interest formula.
With mortgage insurance, the bank can charge lower rates while taking essentially no risk (other than the systemic, 2008 sort of risk, but that's never going to materialize, right?)
In a perfect market, why would the cost of a mortgage plus insurance be any different than the cost of an uninsured mortgage?
« Last Edit: June 08, 2017, 11:41:15 PM by damyst »

JAYSLOL

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Re: WT...?! Uninsured mortgages in Canada
« Reply #5 on: June 08, 2017, 09:59:11 PM »
While I'm sure that some of the uninsured mortgages have down payments provided by other lines of credit, or borrowing from family etc and might be a financial stretch, i would guess that the rest (most) are not and would be less likely to default over those that didn't meet the down payment requirement in the first place.  I am more concerned about the debt to income ratio, and generally overheated housing market overall in Canada.  I was listening to the radio today and there were 2, TWO!! debt consolidation ads in a row on the station i was listening to.  When we get to 3 i know it's game over, lol. 

Stachey

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Re: WT...?! Uninsured mortgages in Canada
« Reply #6 on: June 09, 2017, 08:22:54 AM »
I was also surprised to learn that the proof of income requirements aren't as stringent if there is a large down payment. 

I know what you mean about debt consolidation ads.  They are on the bus benches, ads inside the bus and in the newspaper.  It was a debt fuelled bus ride the other day.  Lol

NorthernDreamer

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Re: WT...?! Uninsured mortgages in Canada
« Reply #7 on: June 12, 2017, 09:47:36 AM »
I'll be naive too and ask, is this such a big issue? We purchased our house 6 years ago with more than 20% down and never got mortgage insurance. We got term life insurance instead since we were starting a family. The amount paid out by life insurance stays the same over the term, but the amount paid out by mortgage insurance decreases every month.

I could see why mortgage insurance would be of more use in HCOL cities. We don't live in a big city and "only" paid under $350,000 for our place.

RichMoose

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Re: WT...?! Uninsured mortgages in Canada
« Reply #8 on: June 12, 2017, 10:31:56 AM »
This is a big issue because the ratio of uninsured mortgages, as a percentage of new mortgages, in Canada is going up. On it's own, that's not a problem as most people think it simply means that everyone has 20% down so it's all good. The problem is that many new homeowners don't have a true 20% down like a responsible Mustachian would.

Where this fails is the reasons why these new mortgages are not insured. CMHC has limits on which types of mortgages it will insure. First, the value of the property has to be less than $1,000,000. Second, you need 5% down on the first $500,000 and 10% down on the remainder. Third, your monthly housing costs must be less than 32% of income. And finally, your total debt plus housing costs should be less than 40%.

Brokers can fudge the numbers quite easily by underestimating some housing costs and somewhat over-inflating some income. But they can't fudge the $1,000,000 house value limit.

The end result is thousands of new home owners in pricey markets are borrowing their downpayments from secondary lenders or private loans. This also lets them get away with having housing costs well above 32% of income. If you're interested, just take a peek at the number of high loan-to-income mortgages being issued. In Toronto, Vancouver, Victoria, and Calgary between a quarter and a half of all new mortgages are being issued at more than 4.5x household income.

Ultimately, mortgage insurance provided by CMHC is very important to maintaining ridiculously high house values in Canada. Without it, our housing market would certainly collapse. Right now, our banks can place a loan with fractional reserve money, collect all the leveraged interest, and pass on 100% of the risk to taxpayers with CMHC. Without CMHC to take all the risk, no major bank would issue loans with 5% down, no major bank would allow a high loan-to-income mortgage, and our effective mortgage rates would go up substantially relative to government bonds as the banks demand more of a risk spread.

With a growing number of these monster, uninsured mortgages it destabilizes our financial sector. There's a reason why short sellers have been jumping all over companies like MCAN, Home Trust, and Equitable; the value of their assets could easy go down to 0, even with a moderate housing correction.

daverobev

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Re: WT...?! Uninsured mortgages in Canada
« Reply #9 on: June 12, 2017, 03:42:03 PM »
IMHO, mortgage insurance is... completely fine, but not when issued by the government.

It moves risk from the bank - whose *job it is* to gauge risk - to a third party outfit. Private company? Ok, no problem. Federal government, backstopped by the taxpayer - who may not own property and may have been entirely sensible with their finances? No, no, no. "The taxpayer" should not be on the hook for (nor the beneficiary of!) this. It's just wrong.

The banks should do their job. They should be required to do their jobs. Want a mortgage, but don't have x% down? Ok, your rate will be higher... or simply, no.

It's infuriating.

RichMoose

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Re: WT...?! Uninsured mortgages in Canada
« Reply #10 on: June 12, 2017, 04:32:59 PM »
IMHO, mortgage insurance is... completely fine, but not when issued by the government.

It moves risk from the bank - whose *job it is* to gauge risk - to a third party outfit. Private company? Ok, no problem. Federal government, backstopped by the taxpayer - who may not own property and may have been entirely sensible with their finances? No, no, no. "The taxpayer" should not be on the hook for (nor the beneficiary of!) this. It's just wrong.

The banks should do their job. They should be required to do their jobs. Want a mortgage, but don't have x% down? Ok, your rate will be higher... or simply, no.

It's infuriating.

I 100% agree. But how do you convince an elected government to change this when the majority of Canadian citizens believe high house prices are a God given right and that it somehow benefits the economy.

Unfortunately poor government policy allowed this to happen in the first place. It's hard to take something away that's been so heavily promoted by special interest groups as being a good thing.

daverobev

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Re: WT...?! Uninsured mortgages in Canada
« Reply #11 on: June 12, 2017, 05:24:51 PM »
IMHO, mortgage insurance is... completely fine, but not when issued by the government.

It moves risk from the bank - whose *job it is* to gauge risk - to a third party outfit. Private company? Ok, no problem. Federal government, backstopped by the taxpayer - who may not own property and may have been entirely sensible with their finances? No, no, no. "The taxpayer" should not be on the hook for (nor the beneficiary of!) this. It's just wrong.

The banks should do their job. They should be required to do their jobs. Want a mortgage, but don't have x% down? Ok, your rate will be higher... or simply, no.

It's infuriating.

I 100% agree. But how do you convince an elected government to change this when the majority of Canadian citizens believe high house prices are a God given right and that it somehow benefits the economy.

Unfortunately poor government policy allowed this to happen in the first place. It's hard to take something away that's been so heavily promoted by special interest groups as being a good thing.

Start a movement. A political party.

It's funny, because I'm what they call a "small c conservative" - the actual definition of the word, you know, small government, only governing the stuff that actually needs it, with regulators (arms length, not influenced by industry, etc) doing the necessary to ensure people have affordable (or at least reasonably priced) electricity etc. No gas plant scandal.

Politics should be so dull. Tax should be so simple.

The "Actually Conservative Party". Ha.

RichMoose

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Re: WT...?! Uninsured mortgages in Canada
« Reply #12 on: June 12, 2017, 08:13:05 PM »
Start a movement. A political party.

It's funny, because I'm what they call a "small c conservative" - the actual definition of the word, you know, small government, only governing the stuff that actually needs it, with regulators (arms length, not influenced by industry, etc) doing the necessary to ensure people have affordable (or at least reasonably priced) electricity etc. No gas plant scandal.

Politics should be so dull. Tax should be so simple.

The "Actually Conservative Party". Ha.
Haha! You're tempting me to go down the "conservatism" rabbit hole. Not so long ago I had a discussion with a co-worker about the farce that is the Conservative Party. All I will say about them is that they are better at marketing than anything else.

By your short description, I would suggest you're probably closer to a variation of libertarian than conservative.

I'm admittedly more leftist myself, but I'm not much for government paternalism. I do think progress, innovation, and social responsibility are important.

daverobev

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Re: WT...?! Uninsured mortgages in Canada
« Reply #13 on: June 12, 2017, 08:18:51 PM »
Start a movement. A political party.

It's funny, because I'm what they call a "small c conservative" - the actual definition of the word, you know, small government, only governing the stuff that actually needs it, with regulators (arms length, not influenced by industry, etc) doing the necessary to ensure people have affordable (or at least reasonably priced) electricity etc. No gas plant scandal.

Politics should be so dull. Tax should be so simple.

The "Actually Conservative Party". Ha.
Haha! You're tempting me to go down the "conservatism" rabbit hole. Not so long ago I had a discussion with a co-worker about the farce that is the Conservative Party. All I will say about them is that they are better at marketing than anything else.

By your short description, I would suggest you're probably closer to a variation of libertarian than conservative.

I'm admittedly more leftist myself, but I'm not much for government paternalism. I do think progress, innovation, and social responsibility are important.

Mm, most of what I've read about libertarian stuff has been on these forums, and I don't know... It's not a British thing, unlike me :)

Government should govern; make the hard decisions for the best of everyone and the planet. They should not... sell fucking beer.

RichMoose

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Re: WT...?! Uninsured mortgages in Canada
« Reply #14 on: June 12, 2017, 09:23:01 PM »

Mm, most of what I've read about libertarian stuff has been on these forums, and I don't know... It's not a British thing, unlike me :)

Government should govern; make the hard decisions for the best of everyone and the planet. They should not... sell fucking beer.

A lot of the libertarianism cast about on these forums tends to be more in line with right-libertarianism, a predominantly American movement that mixes right wing Christian beliefs with freedom movements and quasi-anarchism.

Left-libertarianism, which endorses public ownership, or common ownership, of natural resources and certain services is much more European in origin.

Not sure about Brits though as there's a lot of crown loving folk there still. The sub par beer and greasy fish and chips are a clever monarchist distraction ;)

daverobev

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Re: WT...?! Uninsured mortgages in Canada
« Reply #15 on: June 13, 2017, 06:59:14 AM »

Mm, most of what I've read about libertarian stuff has been on these forums, and I don't know... It's not a British thing, unlike me :)

Government should govern; make the hard decisions for the best of everyone and the planet. They should not... sell fucking beer.

A lot of the libertarianism cast about on these forums tends to be more in line with right-libertarianism, a predominantly American movement that mixes right wing Christian beliefs with freedom movements and quasi-anarchism.

Left-libertarianism, which endorses public ownership, or common ownership, of natural resources and certain services is much more European in origin.

Not sure about Brits though as there's a lot of crown loving folk there still. The sub par beer and greasy fish and chips are a clever monarchist distraction ;)

Heresy. Burn the Canuck!

(I certainly appreciate/respect the crown. While in *theory* there should be no power transfer through lineage - no hereditary peerages, which were abolished in the UK - but do you know what? People in politics are short-termist idiots. We HAVE to have people who can afford to take the long term view, else we are fucked. And, climatically, we are fucked for exactly this reason. Benevolent dictatorship? Best form of government. Because they can make decisions with no repercussions. Can't work/happen of course. But the current system is really struggling. We can't focus on the important stuff because we're too busy... fucking around with all the little bits every change of government).

Seadog

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Re: WT...?! Uninsured mortgages in Canada
« Reply #16 on: June 13, 2017, 10:53:48 AM »
I think it may have been the globe and mail had an article about 2 months ago saying that banks out there are now charging lower interest on loans that require mortgage insurance.

To me this is the epitome of ridiculous, but can understand that it makes sense from their standpoint. While a market decline of >20%, just after a purchase, along side with a foreclosure leaving the bank with an asset worth less than the loan is exceptionally unlikely, it is still more likely than the gov't of Canada (CHMC) folding entirely and not honouring it's commitments.

Honestly I think the whole point behind mortgage insurance, gov't programs assisting people with down payments, foregoing various transfer taxes, all this shit designed to actually help people buy homes is fucking pointless.

All this does is merely shift the equilibrium point. It may help briefly in the interim, but the market very quickly absorbs it, and then society reverts back to it's balance point where it's bloody difficult to buy a house. Requiring 20% down and it's hard to get a loan like in the 80s is difficult? Fine. Lets change it to 5% and make it so anyone can get a loan backed by CHMC. Prices naturally spike, and we're back in the exact same spot, where it's bloody difficult to buy a home...

Just like that thing they did in the US where they gave $8000 to buy cars around 2008. Ironically it most helps out everyone *except* the actually people who got the money. You have more money chasing the same assets, so prices naturally spike, and if you're in the car buying market, you haven't been awarded any competitive advantage, since it's available to everyone else too. Who it *does* tremendously help though is people selling cars (or current home owners in Canada's situation of crashed interest/home buyer programs). One step removed, it's also great for anyone these people deal with, such as the people they rent showrooms from, or say home depot with the Canadian/housing example.

RichMoose

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Re: WT...?! Uninsured mortgages in Canada
« Reply #17 on: June 13, 2017, 11:23:11 AM »
Now that this thread is thoroughly off topic, I'll share my crazy idea for true democracy: a lottery system.

It goes like this. No elections, no political parties, no career politicians.

Basically, everyone in a given province, or country (depending on the government) gets their name, or SIN #, put in a theoretical hat. Every three years, there is a lottery and half the candidates are chosen to fill legislature. Once chosen, a candidate can accept or decline their role which is a 6 year commitment to service. If they accept, they will be expected to serve starting in 6 months time so they can make appropriate arrangements for work etc. If they decline, another name will be drawn.

Every citizen over the age of 25 is eligible for service except people convicted of violent offenses, or offenses of trust such as fraud or major theft. However, you can not serve more than one term in legislature. Also, after completion of service, you cannot work for the government or in any type of lobbying role for at least 3 years (by which time your fellow legislators will all have completed their terms).

In legislature, the house is divided into two groups: junior legislators (who have less than 3 years in) and senior legislators (who have more than 3 years in). Portfolio positions (cabinet ministers) can only be filled by senior legislators and each position is voted on by the entire legislature to ensure the best senior legislators fill each portfolio position. All votes for each issue will be "free votes".

In legislature, you get paid well, get your housing allowance, and contribute to a healthy DC pension. You also get your salary for 1 year after your service so you can take your time find new work and not be tempted to rush into a position that could compromise your fellow legislators.

While it's not perfect it does solve a few issues:

1) The legislature will be largely representative of the population (men/women, old/young, by race, rich/poor, etc.)
2) It takes the money, and obligations that come with it, out of politics
3) Each issue would be decided on by a true majority of the population
4) Everyone has an equal opportunity to serve and share their ideas without annoying elections (certain criminals excepted)
5) There is a reduced incentive to line your own pockets
6) It forces politicians to work together like normal citizens instead of being bound to their parties
7) It encourages accountability as you can't serve forever and you will need a job and your fellow citizens trust once you finish service

What do you guys think?

damyst

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Re: WT...?! Uninsured mortgages in Canada
« Reply #18 on: June 13, 2017, 11:28:21 AM »
Honestly I think the whole point behind mortgage insurance, gov't programs assisting people with down payments, foregoing various transfer taxes, all this shit designed to actually help people buy homes is fucking pointless.

All this does is merely shift the equilibrium point. It may help briefly in the interim, but the market very quickly absorbs it, and then society reverts back to it's balance point where it's bloody difficult to buy a house. Requiring 20% down and it's hard to get a loan like in the 80s is difficult? Fine. Lets change it to 5% and make it so anyone can get a loan backed by CHMC. Prices naturally spike, and we're back in the exact same spot, where it's bloody difficult to buy a home...

You're being far too generous. It's not "pointless" - it's a gigantic vacuum that sucks money away from the working and middle classes, and hands it to a tiny elite of rich bankers.
If you're interested in this stuff and haven't yet seen Inside Job, stop what you're doing and go watch Inside Job. They explain it very clearly and thoroughly there.

daverobev

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Re: WT...?! Uninsured mortgages in Canada
« Reply #19 on: June 13, 2017, 03:53:27 PM »
Now that this thread is thoroughly off topic, I'll share my crazy idea for true democracy: a lottery system.

It goes like this. No elections, no political parties, no career politicians.

Basically, everyone in a given province, or country (depending on the government) gets their name, or SIN #, put in a theoretical hat. Every three years, there is a lottery and half the candidates are chosen to fill legislature. Once chosen, a candidate can accept or decline their role which is a 6 year commitment to service. If they accept, they will be expected to serve starting in 6 months time so they can make appropriate arrangements for work etc. If they decline, another name will be drawn.

Every citizen over the age of 25 is eligible for service except people convicted of violent offenses, or offenses of trust such as fraud or major theft. However, you can not serve more than one term in legislature. Also, after completion of service, you cannot work for the government or in any type of lobbying role for at least 3 years (by which time your fellow legislators will all have completed their terms).

In legislature, the house is divided into two groups: junior legislators (who have less than 3 years in) and senior legislators (who have more than 3 years in). Portfolio positions (cabinet ministers) can only be filled by senior legislators and each position is voted on by the entire legislature to ensure the best senior legislators fill each portfolio position. All votes for each issue will be "free votes".

In legislature, you get paid well, get your housing allowance, and contribute to a healthy DC pension. You also get your salary for 1 year after your service so you can take your time find new work and not be tempted to rush into a position that could compromise your fellow legislators.

While it's not perfect it does solve a few issues:

1) The legislature will be largely representative of the population (men/women, old/young, by race, rich/poor, etc.)
2) It takes the money, and obligations that come with it, out of politics
3) Each issue would be decided on by a true majority of the population
4) Everyone has an equal opportunity to serve and share their ideas without annoying elections (certain criminals excepted)
5) There is a reduced incentive to line your own pockets
6) It forces politicians to work together like normal citizens instead of being bound to their parties
7) It encourages accountability as you can't serve forever and you will need a job and your fellow citizens trust once you finish service

What do you guys think?

Yeah I mostly agree. Have you read the "Mars" trilogy?

It's tough because 6 years is both too long and too short. You need people to get up and running fast and also not be passed along any nepotism.

But yeah. Fuck Cheryl Gallant. "I'm the only way to stop the changes to Canada Post's door to door delivery!" Fuck you. You lying manipulative *politician*.

Stachey

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Re: WT...?! Uninsured mortgages in Canada
« Reply #20 on: June 15, 2017, 09:46:42 PM »
We see where an "inexperienced" politician is taking the US. (But experienced ones aren't the solution either as evidenced by a lot of the other ones running around DC).

And I agree with whoever said a long term view globally is definitely required.  Overpopulation is a huge problem yet who is tackling that issue?  Religions make it worse.  The UN doesn't deal with the problem, do they?  What other overarching global organizations are there?