Mortgage meltdown, part deux

Watch CBS Videos Online

Canadian house sales hit 7-year low

Existing home sales drop 12%


#1 JOHN on 12.15.08 at 2:09 pm


Absolutely devastating!!

#2 squidly77 on 12.15.08 at 2:11 pm

below is a graph of the coming hurricane of alt-a and option arm mortgages
this will be much much worse than subprime..why ?
these are people who were considered to be of good risk not to default..they have helocs credit card and all kinds of other debt products
this one will put the entire system over the edge

things really are going to change..

#3 squidly77 on 12.15.08 at 2:12 pm

below is a graph of the coming hurricane of alt-a and option arm mortgages
this will be much much worse than subprime..why ?
these are people who were considered to be of good risk not to default..they have helocs credit card and all kinds of other debt products
this one will put the entire system over the edge

heres another graph..rememer that you have to add the different coloured lines together to reach the totals

things really are going to change..

#4 Trekie2 on 12.15.08 at 2:15 pm

Garth did we have any of these Altey (Sp?) and Option R Mortgages?

“Alt-A” simple means borrowers who have reasonable, but not great, credit. Yes, we have scads of them. ARM mortgages are “adjustable rate”, and while we have variable-rate mortgages, monthly payments are generally set for a specific number of years. The danger here, however, is the new damage to be done to the US eocnomy, then ours by extention. — Garth

#5 G on 12.15.08 at 2:25 pm

No comments needed from you Garth. This video tells the whole story. WOW!

#6 Amar on 12.15.08 at 2:40 pm

Oooops again!!!

#7 vtj on 12.15.08 at 2:40 pm

I’m amazed at the number of people who ventured out and bought several pieces of “investment” properties over the past few years, particularly in the US. Garth, we don’t hear too much about this sort of activity in Canada (at least I haven’t). Do you think that this sort of mentality was as prevalent here?


#8 Princess on 12.15.08 at 2:42 pm

has anyone run the numbers on canadian mortgages?

#9 Keith in Calgary on 12.15.08 at 2:45 pm

3 years ago (2005) wifey and I got approved for a ZERO DOWN, ZERO DOC (no proof of income) mortgage……..we just wanted to see if we could get approved. After all, she had just moved to Canada in 2003 and I just started my own business one year earlier.

We didn’t want buy because we saw it coming……but it was interesting to get approved like that.

Saw many a condo developer herre over the last 2 years with a 1-2-3% interest rate buydowns advertised (an “option ARM” in US speak)……free condo fees, a years worth of mortgage payments paid…etc…etc…..

Yep, there was never any large quantity of subprime mortgages granted in Canada…….for sure, they don’t exist here….un huh….never seen one…..heh.

#10 Bermygoon on 12.15.08 at 2:50 pm

I just don’t see how Canadian house prices would stop falling as long as the US market is still falling. Looks to me like we are in for at least a couple more years of Canadian house prices declining therefore.

Very interesting times have just begun.

Anyone know of any Canadian home builders that can be suggested as good shorts. I think the Canadian banking system is going to be hit hard very soon also.

Hold on tight!

#11 smwhite on 12.15.08 at 2:53 pm

The question for Canada is where are interest rates going to be in 2012. Go back 5 years to 2007 and you have the largest amount of RE resales EVER. The RE bottom in Canada could be as far away as 2012 – 2013.

I don’t think the BoC can save many of the no money down or 35 – 40 year mortgage buyers that will come up for renewal in 2012 – 2013. The pro-inflation policy of the western world is going to print so much money that commodities only have one place to go, up!

So the next time you hear an industry shill start off on this NOW IS THE BEST TIME TO BUY, plug your ears, start screaming at the top of your lungs and run away. My neighborhood is being inundated with homes, sitting, seen my first “NEW LOWER PRICE” sign this weekend.

Gold has now leveled out at about $800 USD even with central banks trying to manipulate and push the price down. Oil back to $100 and gold to $1500 very soon, too much money being printed out of thin air…

#12 Bro Manziere on 12.15.08 at 2:55 pm

@ squiddly77

I vaguely recall reading that some circumstances (like a drop in the value of the house the mortgage is held against) can cause some of those mortgages to reset earlier.
Can anyone provide clarification or confirmation of this?

#13 Chincy on 12.15.08 at 2:59 pm

Haven’t you all ‘herd’, it is different up here in Canada.

I figure a great trade is shorting commercial real estate…although it has already seen some losses, they are going to be huge losses moving forward.

#14 squidly77 on 12.15.08 at 3:06 pm

when is a billion dollars not a billion dollars
when its leveraged out at 10 12 or 17 to 1 thats when..
for every billion a company loses through loan defaults the cost is many many times that..

the link below helps explain whats happening

#15 squidly77 on 12.15.08 at 3:12 pm

whoops wrong link above try this one

#16 David on 12.15.08 at 3:23 pm

The clip is a good summary of the second wave of the housing asset bubble deflation. That the cancer would spread up to the so called “good mortgages” has been predicted for some time now. There is no reason to blame shoddy underwriting, no documentation loans or predatory lending for this second wave of collapse. Put simply, people caught up in the euphoric rise of houses abandoned their normal sensibilities and over paid. The second wave is a portent of a generation long housing price collapse and there will many more waves to follow. It is a bit tougher to finger wag at qualified buyers with good credit scores. A solid credit score only lasts as long as a solid middle class job that was not out sourced.

#17 vtj on 12.15.08 at 3:44 pm

#15 squidl77: thanks for posting.

I can’t believe that products such as these so-called “POA’s” were actually allowed, and I can’t get over the sheer number of people who bought into these ridiculous products without fully appreciating the potential risks.

I’ve been trying to be optimistic about the situation but I’m starting to come to the realization that we’re going to have to go through a lot more pain before things get better.

#18 MikeB on 12.15.08 at 3:46 pm

Saw this last night but you know… people in Toronto with seemingly lots of dough just shrug it off as “not here so no biggie”… I point out that we trade with the US. Keep in mind we don’t even make a step unless they make a step. Example.. Our government won’t put a nickel into the auto “bailout”, really a bridge loan, until the US decide to do something. That’s a bridge load as well. We are all tied to the US dollar..
There is a very good reason why the banks are leery about loaning to one another without a hefty rate. They all know something is lurking bigger around the corner.
Paulson, Bernanke and Bush will be swimming in warm water next year laughing at the poor sots who will try to right the ship that these clowns capsized.
On the same night I saw the reporter who threw his shoes at George W. Bush. What was Bush’s reaction when interviewed… smug and cool… didn’t bother him… He feels the same way about the US economy as well.

REAL ESTATE… just spoke to a very vocal and well educated broker. Told me that in the first 12 days of December, sales in a central area in Toronto had 21 sales last year. THIS YEAR . 1… yes ONE. DOWN over 90%. I asked… When will this translate into real price drops. He felt very very soon…. as early as next spring.

#19 y3maxx on 12.15.08 at 3:48 pm

End of the world for BC….

Canada B.C. hiding full cost of Olympics: auditor

British Columbia’s financial watchdog says the provincial government is fudging its Olympic budget and he’s refusing to release an Olympic audit until the Liberals turn over the numbers.

Auditor general John Doyle said the province’s $600-million price tag for hosting the 2010 Winter Games doesn’t reflect expenses like the B.C. pavilion at the Beijing Olympics, while the province’s finance minister said those kind of costs have nothing to do with Vancouver’s Games.

The dispute is holding up a scheduled auditor’s report on Olympic spending. “Government has resisted reporting on all these matters for some time,” said Mr. Doyle. “I am the third auditor general to look at this, and the third auditor general to come to the same conclusion and that is that government should actually provide a wholesome, clear and timely accounting for all the Games-related expenditure.”

Mr. Doyle is holding back his audit, saying until the government gives over all the information, there’s no point releasing it.
The Olympics is guaranteed to lose money, and lots of it.

How high-risk mortgages crept north to Canada

In the first half of this year, as the subprime mortgage crisis was exploding in the United States, a contagion of U.S.-style lending practices quietly crossed the border and infected Canada’s previously prudent mortgage regime.

New mortgage borrowers signed up for an estimated $56-billion of risky 40-year mortgages, more than half of the total new mortgages approved by banks, trust companies and other lenders during that time, according to banking and insurance sources. Those sources estimated that 10 per cent of the mortgages, worth about $10-billion, were taken out with no money down.

The mushrooming of a Canadian version of subprime mortgages has gone largely unnoticed. The Conservative government finally banned the practice last summer, after repeated warnings from frustrated senior officials and bankers that the country’s financial system was being exposed to far too much risk as the housing market weakened.

Just yesterday, Finance Minister Jim Flaherty repeated the mantra that the government acted early to get rid of risky mortgages. What he and Prime Minister Stephen Harper do not explain, however, is that the expansion of zero-down, 40-year mortgages began with measures contained in the first Conservative budget in May of 2006.
So much for the unbelievable hype that Canada was not involved in some of the same nonsense with mortgages that took place in the US. Another myth bites the dust.

Canada yet to do due diligence on autos: minister

Canada is closely watching the fate of the U.S. auto rescue package but will not be able to advance an immediate aid plan of its own because of its desire to study company plans in detail, Industry Minister Tony Clement said on Friday.

“We have some due diligence we’ve got to do here,” Clement told a business audience in Brampton, Ontario, near Toronto.

Unlike in the United States, there is little legislative resistance to a Canadian bailout of the auto industry, even though it goes against the grain of the Conservative government.

However, Ottawa was almost certain to refrain from pouring money into the industry if the United States was going to let the companies go belly up.

“It is difficult to imagine a solution in Canada without a solution in the United States,” Clement said.
This sounds suspiciously like a case of “Monkey See, Monkey Do” just as with subprime. Will Canada ever learn?

#20 Pierre on 12.15.08 at 3:49 pm

Garth you are a scary Guy :-) !

#21 nonplused on 12.15.08 at 4:25 pm

Yikes! It’s only Monday and I’m scared stiff already!

#22 timbo on 12.15.08 at 4:55 pm

I really think we should strike now before the problem really destroys confidence up here.

Nationalize the banks to make everything transparent and people can see the books and enact a massive usury law to get rid of predatory lending practices period. If we wait , as this recession gets deeper, which it will, people will be handing there keys in droves and destroying our financial system as well. Yes I know this is a version of price control but real-estate equity is a foundation that most Canadians rely upon and a key to financial stability. Get it into the public interest and heavily regulated and confidence will abound.

but all the above begs the question, do we have the political will or am I wrong?
time will tell-

#23 Denver-Calgary on 12.15.08 at 4:58 pm

On the Olympic theme…

I am grateful that Calgary put on the 1988 Olympics – it was fantastic, and I grew up there.

Only one city has ever turned down the Olympics – that was Denver, based on the history of financial losses of cities who previously held the Olympics and environmental concerns.

It’s hard to say no to a country that says “Yes, let’s put that on credit” and “The next gen can deal with the environment” to almost everything.

#24 Diabolo on 12.15.08 at 5:04 pm

I am seeing a balanced stack of cards crashing in slow motion. This is HISTORY folks…

#25 westcoastrenter on 12.15.08 at 5:14 pm

the 60 minutes segment was old news. All of this was clearly outlined in John Talbott’s 2003 book “The coming crash in the Housing Market”, and his 2006 book ” Sell Now”.

Actually, not. Those mortgages referred to on 60 Minutes had not been originated in 2003. — Garth

#26 Chincy on 12.15.08 at 5:37 pm

another good video worth watching…interview with Real Estate mogul Tom Barrack

#27 Patrice on 12.15.08 at 5:45 pm

who will buy a condo or a house here in Canada, when you can buy 3-5 similar condos or houses down in the states for the same price?

A second crash would really hurt.

Many people would cry.

#28 john on 12.15.08 at 6:24 pm

…but he is bullish on the stock market which makes me question his forecasts

The problem I am having is the financial experts are bullish on the markets…the real estate experts talk about soft landings and good opportunities to buy.

This is what makes you quite credible to me. You have no bias to either the markets or real estate.

#29 The Tallyman on 12.15.08 at 7:13 pm

Have to agree with #22 Timbo
“Nationalize the banks to make everything transparent”

Unfortunately the corrupt thieving gov prefers the greedy helping out the greedy approach.
No accountability and a little skimming off the top each time bailout funds exchange hands.
That’s capitalism and shoe dodging at it’s finest.

They just smugly smile, deny and if they happen to get
caught there’s always the inquiry loophole that always ends the same… “Errors were made and we have to make sure something like this never happens again.”

Only thing is no laws or changes ever happen.
A few weeks pass and the whole issue drops from the publics radar.

The model we have is broke and we need a complete overhaul.

Ever thought about starting your own party Garth?

#30 The Tallyman on 12.15.08 at 7:19 pm

And to go one step further
Make all Govt transparent, Especially CMHC
Let the public see those damn books!!!

#31 JO on 12.15.08 at 7:22 pm

This video is old but valid. Most of these mortgages from these 2 classes will end of in default, but this goes to show this crisis was the result of many factors, including the greed of many borrowers and those who lived recklessly. The Fed (fractional reserve banking issue and debasement of the currency via printing), regulators and governments, banks (espcially IB’s), appraisers, and borrowers engaged in a spectacular public spectacle. The true victims are those who saved and lived a frugal life, those with savings in banks upon which this poor credit was created on, and all taxpayers who will bear the brunt of most losses. The great Ponzi scheme economy we have seen in the last 7-8 years is crashing down. Add to the mortgage issue all the credit card and commercial debt going bad, and anyone who questions deflation for now should have their heads examined. That said, all these stimulus and bailouts going on are complete nonsense. They will delay the inevitable as debt will have to be paid or defaulted on, and losses will have to be taken. These short term measures will only add to our misery and happen only due to no politician wanting the pain to occur under their watch. Because of these measures, we might be lucky enough to see short term, meagre recoveries in the economy (with temporary inflation and rising interest rates) but we will have a poor economy with deflation for a much longer than necessary time as the economy lapses back into recession after each stimulus (Japan anyone?). The bottom in housing will be close when the average economist, investor, taxi driver and citizens as a whole tell you that housing is the last place you should be investing because it is bad. We are still 3-5 years away at least from this era.

In the meantime, look for the large number of people who were involved in this ponzi scheme to ask for bailouts and play the blame game, and to seek out left wing politicans who will pander to their misery. They will look to anyone who escaped this nonsense and all “rich” people as targets. There will be political polarization as the baby boomers attempt to bail themselves out of the reckless era on the backs of the younger generation. You already see this in some pension changes slated to occur. Teachers already passed changes benefiting the older workers at the expense of the young ones, and more recently, a proposal was made by the Actuaries” Standards Board to change a formula used to calculate the commuted value of defined benefit plans where younger workers want to leave the plan and take a cheque for the refund of overcontributions and the rest as a locked in RSP. This rule change will effectively punish all laid off/resigned younger workers in DBP plans.

These are examples of the explosive confrontations that will occur over the next 5-10 years as a result of this mortgage crisis.


#32 Mike on 12.15.08 at 7:37 pm

to #28

But he didn’t say what he’s bullish on. Energy, precious metals, commodities, financials, etc, etc …. so for him to make a general statement “we are bullish on the market” can mean anything.

What may be good in certain sectors (gold/silver + commods) for investing may not be good for the pocketbooks of the masses anyway

#33 islander on 12.15.08 at 10:28 pm

Timbo, you scare me.

“Nationalize the banks to make everything transparent and people can see the books and enact a massive usury law to get rid of predatory lending practices period…do we have the political will or am I wrong?”

For fascism? Politicians want it. You might even say we’re getting it. But I don’t want it. And nobody with any sense of how successful economies work wants it.

#34 pbell on 12.15.08 at 10:29 pm

What makes me puke about this current pseudo-Liberal government in BC is that they constantly had the audacity to blame any financial mess for the first half of this decade on the previous 90s NDP government. The problem is when all is said and done post-Olympics, the past NDP will look like amateur debt defaulters compared to what this Campbell crew will leave this province. The looming great depression will only exacerbate the situation. I am not a fan of the Olympics because all it is is a corporation which exploit amateur athletes. It has become a rich mans “Hob knobbing event.”

#35 Blacksheep on 12.16.08 at 1:52 am

This is getting UGGGLY!

#36 timbo on 12.16.08 at 7:07 am

#33 interesting reply , thank you.

you might not want it but I believe it has to happen due to the huge bubble economy collapsing upon itself. Banks are not solvent now and if my tax dollars are going to buy assets(laugh) from a bank to hold their books together I would like to know what I am buying.

What do you offer as a solution?

throw money every month at an ever contracting market? Watch as more and more companies merge to buy into the free money program or even worse purposely run themselves into the ground to get tax dollars? The US has started a very dangerous precedent by bailing out selected companies and letting others fail to be merged into larger monopoly’s. Banking, Insurance, Auto’s? They did this peace meal by reacting after the fact. Everyone now faces the fact that they have to either merge to become to big to fail or become a bank to get funds. Steel, agriculture, coal, forestry, are now going to follow. Monopoly anyone ?

What I am stating is that we nationalize the banks,open the books,regulate, strip the gambling factor off the books and stabilize the system now. A bank should not be using dollars in hedge funds but in loans to a community. Leave that up to a separate corporation with higher risk and higher reward. Keep key savings and key loan operations solvent and heavily regulated.

for an example does the TD depositor become affected if the a TD hedge fund becomes insolvent? Government has caved in to speculators to increase risk and reward in the boom and is going to hurt the little guy in the bust.

#37 Trekie2 on 12.16.08 at 9:30 am

I found the video interesting, but watching market trends and comparing them to history I see the Canadian housing market to have a major price decline starting in the spring of 2009 and lasting till 2010 then a slow trickle to the bottom….just like all the past pricing drop charts I have seen show….there is a major and quick fall in prices and then a slow fall of several percentage points for a few more years…maybe from 2010 to 2012-15? I have always watched our economy for “triggers” to start this downward spiral…and I think this time it’s been the world economy at large that has “triggered” the average Canadian into waking up….unfortunately I still think a large number of us are asleep at the wheel….

#38 Patrice on 12.16.08 at 10:02 am

#36 Timbo
> What do you offer as a solution?

indeed you have scary ideas.

you complain about the us bail out but you want our government to bail out our banks?

You are suggesting our government should control more things like the banks and get bigger and bigger?


not good.

Free market is the only solution.

Anything less (like the bail out and other socialist policies) will make things worse.

Don’t try to fix your falling castle of card; the castle sucks. it is meant to fall.
And it will fall eventually no matter what you do.
Instead of wasting your money trying to fix a lost cause, let it fall to the ground and keep your money to build a better castle.