Mortgage prison

CLEANSE modified

So, what if you can’t pay your mortgage?

With housing frenzied and realtors erupting in many markets, it may seem an odd question. After all, only a tiny fraction of borrowers are three months behind in their payments. But every day more people walk into more debt. We now owe over a trillion in residential mortgages. Never before have so many people bought so much real estate with so little down. If the economy were to soften, rates rise or lots of jobs be lost, then many owners might wonder: why would I continue to pay a mortgage which is bigger than my condo’s worth?

Most homeowners have no idea what transpires when they can’t cough up the monthly. An unknown number (lots, I’ll bet) believe there’s a Canadian equivalent of jingle mail. That’s the sound an envelope full of house keys makes when you mail it back to the bank. Large numbers of Americans, their houses underwater and unable to service their borrowing, just moved out and sent the keys back, or left them on the kitchen counter after receiving foreclosure notices.

In reality, most US states (39 of them) are just like most Canadian provinces: you can’t walk.

Technically, there are ‘recourse’ and ‘non-recourse’ mortgages. Canada is a country where the former applies, which means once you sign up for a mortgage you will never be rid of it unless you pay it off over time or through the proceeds of a sale. Only Saskatchewan has non-recourse lending, where deadbeat borrowers can wiggle out of debt. Most Albertans think all mortgages there are the same, but not if you have an insured loan.

So, with a recourse mortgage, here’s the drill: you miss a few payments and the bank will send you a lawyer’s letter telling you to get current. The cost of that letter is often added to your debt. If you fail to heed, then you may receive notice of a foreclosure or a power of sale, depending where you live. If you still don’t pay, the lender has the right to kick you out, or just list the house for sale (after some legal stuff happens).

The property must be sold for ‘market value’ which means the bank can’t flog it for half price to some vulture. But if that sale does not raise enough money to pay the outstanding mortgage principal, plus arrears, penalties and legal costs, you’re personally liable for the difference. The lender can (and probably will) move to seize other assets you have (like your wedding savings account at the same bank), plus slap a garnishee on your wages. Just imagine how that will impact your career.

There’s no easy way out of this, except bankruptcy, which sucks. Your credit rate will turn to mush and you may be effectively shut out of many job opportunities as well (of course) as not being able to score another mortgage for several years.

Remember, it doesn’t matter if a mortgage is recourse or non-recourse, because the lender can still come along and seize the asset you financed (your house), and sell it. The only difference is that outside of Saskatchewan or Alberta (almost) defaulting on your home loans means the rest of your finances could also be destroyed. That will include your TFSAs, bank accounts, non-registered investment accounts and, in many cases, RRSPs.

It’s been argued that having recourse mortgages in Canada is a good thing because the fear of having a bank up your butt for years is enough to keep people paying their mortgages, and house prices stable. But this is patently untrue. In fact, when housing corrects we could find that our mortgage system actually made things worse.

Remember that the two US states which were devastated the most in the housing crash – Florida and Nevada – are both full-recourse jurisdictions. No jingle mail there. They have the same system as Canada, and yet house prices fell in certain areas by as much as 70%. Same with Ireland. Full-course there, too, but the country became a symbol of real estate destruction.

How come? A research paper done for the US central bank has a few hints. It found that when people are in financial distress and can’t pay their bills, it makes absolutely no difference what kind of mortgage they have. In other words, the knowledge that their lender might sue, and they can’t just walk, has little or no bearing upon their actions.

More significant is how lenders are affected. Just as CMHC insurance encourages bankers to take on dicey borrowers at low rates, so does the fact that these are recourse loans. The lenders know if the homeowner fails they can just seize the house and use the courts to get everything back. No risk. So why wouldn’t they loan money to anybody who asks for it, even if they show up with no savings, no credit history and not even a downpayment?

This makes the banks lending-horny even when everybody knows a bubble exists and will eventually pop. It’s this realization which led to calls in Ireland for a ban on Canadian-style recourse loans, because they encourage irresponsible lending.

Others think when TSHTF recourse loans make recessions more likely, and worse. That’s because homeowners facing a slump, and understanding all their other assets could be fair game, will curtail personal spending in order to avoid a default, and a suit. That’s how a housing correction could turn into a far bigger, job-sucking mess.

I wonder how many virginal condo buyers know about this?

122 comments ↓

#1 Happy Renting on 06.30.14 at 5:18 pm

Thank you for explaining how it all works, Garth. Happy Canada Day, I hope you relax tomorrow, take the day off!

#2 DM in C on 06.30.14 at 5:24 pm

Meh. We went bankrupt in 2001 due to a poor house purchase. Got suckered, had no equity and no wiggle room. It wasn’t as devastating as we thought. We’ve recovered. We should have stayed in the place longer and saved the mortgage $$, but were actually glad to be rid of that albatross.

In our case, it was sweet freedom.

#3 Paul on 06.30.14 at 5:26 pm

I wonder how many virginal condo buyers know about this?
————————————————————-
I wonder how many parents know this ,that co-sign the mortgage

#4 Jackofall on 06.30.14 at 5:28 pm

But Garth, houses always go up!

#5 Whitey on 06.30.14 at 5:29 pm

Nice post Garth…Happy Canada Day. How long before TSHTF is the question?

#6 X on 06.30.14 at 5:31 pm

Woah….I don’t understand, I thought RE only went up, we live in Canada, that’s how it works here right?

I wish the RE market would wobble a little more, perhaps then it would wake a few people up. Unfortunately, most are probably in too deep already, and those that could actually do something about the market are too afraid to tinker with it now, in case they start a snowball effect, which would not look good for their career.

#7 wayne on 06.30.14 at 5:33 pm

Given the job creation situation, it’s fair to say that the entire country outside of Alberta is hooped.

And Alberta will still feel major pain.

#8 TurnerNation on 06.30.14 at 5:44 pm

Hide other assets all in Whole life ins. or seg funds or annunities?

#9 randman on 06.30.14 at 5:46 pm

OMG!

Are we really all that stupid that this could be considered by anyone other than complete idiots?

A group of academics and activists is trying to drum up interest in an ambitious plan to provide every Canadian with a guaranteed minimum level of income — whether or not they have a job.

Rob Rainer, a campaign director for the Basic Income Canada Network, envisions a country where everyone is assured a minimum of $20,000 annually to make ends meet.”

http://www.cbc.ca/news/canada/guaranteed-20k-income-for-all-canadians-endorsed-by-academics-1.2691847?cmp=fbtl

#10 R on 06.30.14 at 5:54 pm

Moral Hazard?

#11 Joseph R. on 06.30.14 at 5:56 pm

“That will include your TFSAs, bank accounts, non-registered investment accounts and, in many cases, RRSPs.”

Mortgages are like divorces, just without the restraining order.

#12 BG on 06.30.14 at 5:57 pm

#181 Daisy Mae

I was agreeing with you.

****************************

My bad!

#13 Ugh on 06.30.14 at 5:58 pm

Sorry Garth. Keep selling your brand of fear. Implying a 70% correction in Calgary? Come on. You’re not that stupid nor that naive.

Now where did I say that? — Garth

#14 LH on 06.30.14 at 6:00 pm

Recourse loans are nothing compared to what we had in the Victorian Era.
The 0.1% in me wants to say, “bring back debtor’s prisons”, but then I realize that I am a debtor too, and if things were to turn out badly, I don’t want to lose my pound of flesh.

The quality of mercy … is “twice blest” indeed!

LH

LH

#15 Catalyst on 06.30.14 at 6:13 pm

On the commercial side, its difficult to attain a line of credit for SMB without a personal guarantee. Imagine if the same standard applied to retail lending.

We had a client come into our bank with a business that has strong profits. He dumped his life savings to buy it and now his entire net worth is invested into the business by buying it.

He comes to the bank to get an operator and cant because he is worth nothing other than the business. If the business goes broke there’s nothing to fall back on for the bank so the risk profile is not good. Good luck trying to convince a bank lending you money even with a license to print money because enterprise value lending doesn’t often apply to the small guys.

Now go to the bank to attain a $250k mortgage – they check your pulse – and your on your way.

First we need to admit there is a problem. That’s step one. Last week I read an interview where Joe O. said there wasn’t a problem. He deftly said it in a way to assume no responsibility by saying he has been advised there is no problem. So if we can’t agree we have a problem, there is a long way to go before we will look at corrective actions.

More on-topic with this post Garth. Contingency risk is more scary to people with assets. When your house is your only asset, bankruptcy is not a scary option.

#16 Mr Zipper on 06.30.14 at 6:16 pm

Bwahahahahahahahaaa…..what nonsense…..we’re richer than we think and here’s the unadulterated truth.

“Jackson says measuring net worth is the best way for households to measure their debt situation. Divide assets like your house, savings, and property by consumer debt and mortgages. The number tends to paint a much more positive picture for most Canadians.

“Household net worth hit an all-time height of 726% of disposable income. Up a whopping 12.1 [percentage points] on the back of big gains in the equity markets and high home prices in [the first quarter],” said Porter, who notes the debt-to-asset ratio is within two points of pre-recession levels, and equity in real estate is up to its best level in four years

“Canadian households have $5.39 of assets for every $1.00 in debt,” said Porter.

Debt and mortgages have made us all millionaires say the experts. The more debt you have….the bigger your assets they say… Because real estate can never go down you can count 100% of the last laughing appraisal that you got from the real estate punk who showed up at your door with his fingers still blue from the awfully challenging 20 minute exam he took to be qualified as an ‘expert’….

We’re rich Garth…we’re all rich…….the banks are making us all riiiiiiiiicccccchhhhhhh !!!!!!!!! And guess what…..I just smelled a fart and it didn’t stink…….it must be ….nirvana.

#17 Helen on 06.30.14 at 6:23 pm

As long as we keep welcoming hundreds of thousands of new residents to our cities every year, then homeowners don’t have to fear anything. And a 15% SFD correction isn’t going to scare homeowners….that would mean prices fall to January 2014 levels in Toronto.

Tell that to people with 10% equity. — Garth

#18 Bob's ur uncle on 06.30.14 at 6:29 pm

Hey randman #9,
I guess you would have to include Andrew Coyne in your list of complete idiots:

http://business.financialpost.com/2013/04/08/a-minimum-income-not-wage-is-a-fairer-way-to-distribute-wealth/?__federated=1

#19 shawnG in TO on 06.30.14 at 6:30 pm

* recourse mortgage = complete borrower responsibility. if you can’t pay on time, it’s all your fault. Bank will hunt you to get back every last penny.
* non-recourse mortgage = shared responsibility. If you couldn’t pay, maybe the bank shouldn’t have lend that much to you in the first place.

* recourse mortgage => lend to anyone who can fog a mirror, especially with backing from CMHC, during the good times. Completely devastate borrower’s personal finance during the bad times. ==> more economic gyration.
* non-recourse mortgage => caution with lending during the good times, and borrower get a clean start in bad times. ==> more economic stability.

so, time for non-recourse mortgages, and dump CMHC !

#20 Liquid on 06.30.14 at 6:34 pm

A new condo project in Metro Vancouver went on sale last week. Within 5 hours all 247 units were bought up. People actually camped out for 3 days to be among the first ones to choose the best units. I wonder if those buyers understand the consequences of being delinquent on a mortgage if it comes to that. I’m guessing not.

#21 Timmy on 06.30.14 at 6:40 pm

“THe data that Ley collected over decades shows Metro Vancouver has become similar to other Pacific Rim “gateway” cities in the way housing costs have been fuelled by high immigration-driven population growth and foreign investors.
As he works on extensive new studies of housing prices in Metro Vancouver, Hong Kong, Singapore, London and Sydney, Ley says, “In every one of these cities the market is being driven by something other than owner-occupiers. Not just new immigrants, but investors, including offshore investment.”
Politicians in Hong Kong, London, Singapore and Sydney are responding in more proactive ways to their housing dilemmas than the elected officials responsible for Metro Vancouver, Ley said in an interview.”

#22 Ben on 06.30.14 at 6:43 pm

Fascinating – I didn’t know the two US states with the biggest drops were non-recourse. The impression I got when reading outside of your esteemed organ was the opposite, Garth. Thanks.

#23 vtradz on 06.30.14 at 6:55 pm

hi Garth,

What if the person that is about to foreclose has no other assets and owes a balance to the bank because the property sale wasn’t enough to cover the debt?

#24 VictorV on 06.30.14 at 7:10 pm

So does anyone know what happens to us Saskatchewan folk with non-recourse mortgages? Is it just jingle mail back to the bank and we go on our marry way? Does this mean in the event of a correction Saskatchewan won’t be hit as hard?

#25 Dude Duderson on 06.30.14 at 7:14 pm

I give up.

Everyone I have talked to (anecdotal and small sample size in grand scheme.. yes) about real estate firmly believes that houses will always increase in value.

I really do give up.

#26 Backstep on 06.30.14 at 7:15 pm

Garth, I wish you’d spelled out the role of CMHC in a little more detail. In the case of default, does the bank have to clean out the borrower before going to CMHC for the balance? Or can they skip that for any reason and just be made whole by CMHC? What kind of wriggle room does CMHC have in case the banks don’t sell the house for market value or insufficiently shake down the borrower?

#27 R on 06.30.14 at 7:16 pm

Malinvestment.

#28 Porsche on 06.30.14 at 7:17 pm

Back in my era you could assume mortgages.

So back during the 18% mortgages collapse I walked from a condo that I had assumed a mortgage on and assumed the mortgage on a house, never skipped a beat.

Best move I ever could have made in hindsight.

#29 HatchetJob13 on 06.30.14 at 7:47 pm

Lots of people go through bankruptcy and, as long as they change their money mismanagement habits, find it to be a wise decision. Companies do it all the time.

How many years has it been now?

#30 bill on 06.30.14 at 7:58 pm

Happy Canada Day Garth!
very depressing although informative blog today.
hows the leg these days Garth?
had any time to ride the bike?
I am guessing the bike has a pretty good shine on it by now…

#31 Godth on 06.30.14 at 8:15 pm

HOW WILL CAPITALISM END?
https://newleftreview.org/II/87/wolfgang-streeck-how-will-capitalism-end?utm_source=newsletter&utm_medium=email&utm_campaign=NLR87

#32 takla on 06.30.14 at 8:17 pm

boom bust, boom bust, boom bust,this stories getting old here in Canada and tho the word Debt has always carried some amount of negative symbolence to it,with the obsene dollar amounts of residential morgages people sign up for this past decade, Debt is now recognized as the the back-breaker it realy is.
So good luck when you lose your job/medical issues crop up,marriage breaks up,ect ect and the bank comes calling for their 3-4-5 hundred grand @ the same time that the market resets and interest rates move up.your now married to that outstanding debt for the rest of your lives,real smart einstien!

#33 Shawn on 06.30.14 at 8:19 pm

Florida was full Recourse?

Florida was not full recourse in practice.

I have relatives there in the real estate business…

People could sort of walk away. It created a HUGE black mark on their credit file but they apparently did not have to go bankrupt and were not pursued for the difference (or not always).

There is a practice there of selling your home on your own for less than the mortgage owed and the banks often agreed to it. It is called a “short” sale. As in short of the full amount owed. If the bank agreed then I don’t think there was a black mark on the credit rating file. Not sure about that.

Bottom line Florida was neither fish nor fowl, it was not full recourse in practice. Nor could you walk with total impunity.

Florida is full recourse. Short sales happen in all jurisdictions, must be bank-approved and have nothing to do with recourse or non. — Garth

#34 Joe Schmoe on 06.30.14 at 8:32 pm

I had lunch with an old rich dude today.

We were talking investing opportunities and I brought up real-estate to check his opinion.

In the last 5 years the only thing he lost money on was residential real-estate….two condo deals gone south in Calgary, one house in Sylvan Lake (home of the 1million dollar cabin) and an apartment complex in Ft Mc Murray.

He can’t believe real-estate turned that quickly.

Who would have thought cows would make you money and real-estate lose you money!

Hmmm…wonder if I can get 95% financing on a few cows…

#35 Shawn on 06.30.14 at 8:33 pm

Underwater is a horror show?

Underwater on a mortgage is no fun but it’s not the end of the world.

Buffett said on this subject:

“Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do
not occur because a house is worth less than its mortgage (so-called “upside-down” loans). Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay.

Homeowners who have made a meaningful down-payment – derived from savings and not from other borrowing – seldom walk away from a primary residence simply because its value today is less than the mortgage. Instead, they walk when they
can’t make the monthly payments.”

Annual letter 2008

In Canada we can’t walk away anyhow. If house prices drop, people will grin and bear it and pay the mortgage for the most part. Bankruptcies will only be done as a last resort.

A job-loss recession is where we could see bankruptcies and the spiral down in house prices.

#36 Italians love real estate on 06.30.14 at 8:37 pm

Going bankrupt in this country is an absolute breeze.

In most cases you keep car , furniture rrsps and definitely cash value life insurance policies.

Who cares if your ability to get credit is compromised moving forward.. Probably a good thing for a bankrupt.

Canada offers a free ride to bankrupts.

Keep buying real estate !’

#37 Shawn on 06.30.14 at 8:42 pm

Florida is full recourse. Short sales happen in all jurisdictions, must be bank-approved and have nothing to do with recourse or non. — Garth

Okay, I am just explaining what I was told by reasonably reliable sources. (You’re Welcome)

Do short sales happen in Canada?

I was told one could do short sales or even walk away in Florida with limited consequences. Told it went on your credit rating but that they did not come after your wages and such. Told by people who live there and have bought and sold houses and one of whom is a real estate agent.

The concept of full recourse also includes the practical ability of the bank to come after you. Perhaps there are barriers to that. Why would Florida banks agree to leave people with their other assets in a short sale if they could go after them?

Perhaps others on the blog have some knowledge of what went on in Florida.

#38 Italians love real estate on 06.30.14 at 8:42 pm

With regard to bankruptcy in canada I know of one ” high quality guy” who continues to rack up credit card debt through casino gambling and the like with no intention of paying it back.

He makes minimum payments shuffling one minimum from one card onto another as the total grows and grows. He has no assets to speak of.

He has made it clear that when he is no longer able to get more credit he will simply default, claim bankruptcy and start again.

Way to easy to do this in our wonderful country

#39 Question for the Blog dogs on 06.30.14 at 8:44 pm

I was just wondering: How exactly does the CHMC insurance feature into the whole recourse mortgages in Canada.

I mean, I know that the CMHC “insurance” is there to protect the bank, not the lender, and it is technically backed by the tax-payer (whatever tiny fraction of all outstanding mortgages we can actually afford with what CMHC has on its books currently).

And I also knew that Canada has full recourse mortgages.

But then in the case of a foreclosure, when the bank is after you, and they take all your other assets to pay off the mortgage, how does the CMHC insurance feature into this?

Thanks in advance to whoever’s willing to respond.

#40 Shawn on 06.30.14 at 8:47 pm

Recourse lending leads to excessive lending on houses.

For what it is worth, I agree with that. That seems a reasonable “deal”. The bank gets back its money OR the house (in good condition).

And in that case people should have no qualms about walking away because that would be “the deal” agreed to.

As you say it would keep the banks from lending excessively. They would have skin in the game.

#41 Grannie on 06.30.14 at 9:00 pm

Happy Canada Day Garth, and everyone on the blog.
Thanks Garth for all your knowledge and sharing. You are one of the greatest people, in our Canada! We are greatfull for Dorothy also, she keeps you in good shape, to handle this blog!

#42 lee on 06.30.14 at 9:05 pm

Unfortunately, in Ontario banks can’t go after your registered work pension to pay your mortgage off.

#43 Aggregator on 06.30.14 at 9:16 pm

Mortgage Renewal During Consumer Proposal

drowningindeb says:

I am so relieved, I just need to share my story. My husband and I are a couple of months into our C.P. [Consumer Proposal]. Our mortgage is up for renewal in September and I have been very stressed about what kind of rate we may have to pay. Our mortgage was with First Line Mortgages, which was recently taken over by CIBC. RBC (who we didnt owe any money to and was not in the C.P.) assured us they would take over the mortgage, but that it would be at a high interest rate. Thankfully though, CIBC contacted us a few days ago, practically begging us to renew with them at .5% below prime for 5 years. Of course we jumped at it, and our mortgage payment will now be almost $200 less per month than it was before. Such a huge relief!!!!  Another stress has been lifted!   :-)

What a happy story. A couple goes broke and the bank rewards them with a lower mortgage payment.

Wage garnishment after foreclosure

Sam12 says:

My mortgage was refinanced to provide money for home improvements.  The property has been foreclosed by the bank and sold, but there is an amount outstanding.  The collection company is threatening to garnish my wages. My name was never on the title, but I am a co-borrower.   Am I eligible for a consumer proposal to settle this matter once and for all?  I am a single mom, working and raising 2 children on my own.  My ex does not pay his child support payments.  If they can garnish my wages, how much can they take?  HELP, PLEASE!!!

She renovated her home thinking it was a great investment. Now she owns nothing.

life after a bankruptcy

HAPPY CAMPER says:

Hello, I completed a 9 month bankruptcy, was discharged and immediately applied for a Canadian tire MC and was approved for 500 limit, 6 months later they raised it to 1000. I then applied for a capital one card and was approved for 500, all unsecured. They have now raised it to 1000. Coming from 80,000 in debt, a huge weight was lifted off my shoulders. Recently applied for car loan, was approved for 14,000. Mind u at 15% interest, but can re-fi after 1 year to normal rates. Actually thought I wouldn't be able to obtain unsecured credit again. This go's to prove there is life after a bankruptcy. I remember someone told me to look at it from a business decision. One of the best ones I made amongst all the bad ones leading up to bankruptcy. Greatful there was a way out, and finding this support group. Thanks everyone.

No comment.

#44 Nemesis on 06.30.14 at 9:26 pm

#MortgagePrisonIsParadise!… #ComparedToTheAllGirlzBlackBoardJungle. #Or,WhySmokingManCouldNeverSucceedAsATeacher. #StingMadeMeDoThat. #EthanolFueledNonSequiturZen.

http://youtu.be/hYBijZSVuSM?t=1m43s

[NoteToSaltierDogz: That should AutoStart @01:43 – if it don’t, scrub forward. Unless, of course, you’re a Musicologist with a thang for VintageTOTP… or a CelebrityAutographed StratoOwner wondering why you ever gave up, “Sex, Drugs & Rock&Roll” for the PublicGood. In which case, just let roll from Frame0.]

#45 Sheane Wallace on 06.30.14 at 9:30 pm

With reasonable and sound lending practices (i.e. no government guarantees) prices would be 40 % of the current. With cash only purchases/full reserve banking prices would be 20-25 % of the current.
We will get there one way or another, if it happens to be through currency destruction first so be it.

#46 Fried Chicken on 06.30.14 at 9:38 pm

Garth,

Just some food for thought. In the discussion above, the underlying premise that was used in the example is that the individual could no longer pay their mortgage, and on this basis recourse vs non-recourse mechanisms were compared.

However, in a number of US states, where there was no recourse, individuals simply walked given house prices decreased far below the outstanding mortgage loan amounts. (Why would one stick around to pay a $400,000 mortgage on an originally $450,000 property if it became worth only $300,000 after a large housing collapse?)

And so people who were perfectly capable of paying down their mortgage, “walked,” because the only recourse the banks had was to the property.

What was the impact –> the ability to walk away from one’s property deepened the decrease in house prices more than otherwise.

Banks not only had houses from those who could not pay, but in some states, now owned houses of those who could but who realized how poor an investment the house became.

See the Federal Reserve paper, “Recourse and Residential Mortgage Default: Theory and Evidence in US States”. In the abstract they state, “Empirically, we find that recourse decreases the probability of default when there is substantial likelihood that a borrowed has negative home equity people.”

#47 TS on 06.30.14 at 9:46 pm

Not true.

My brother owned two houses in Windsor ( a rental unit and his own house).

Instead of making the payments on an asset that was losing value, he stopped making payments on both and the bank too them back. They never came after him.

He had $50,000 in severance from his job as well so they could have.

Obviously the bank had sufficient returns. — Garth

#48 Victor V on 06.30.14 at 9:49 pm

#24 VictorV on 06.30.14 at 7:10 pm

After years of reading and posting here, who knew I’d someday have a doppelgänger on this pathetic blog.

#49 Pope Nosty Snugglebumd the 666dq on 06.30.14 at 9:51 pm

Mortgage prison What a sickening, revolting, terrifying and horrific thought, to be a debt slave. We paid our mortgage off in the early 1980s, when interest rates were north of 21%. [email protected] (its former name) was flabbergasted that we had saved enough to retire it. Takes hard work, but it’s worth it.

However, here is what our former trusted BoC chief, Mark Carney has to say presently: Sound the alarm — Mark Carney works miracles in the UK.

#25 Dude Duderson on 06.30.14 at 7:14 pm — “I give up. Everyone I have talked to (anecdotal and small sample size in grand scheme.. yes) about real estate firmly believes that houses will always increase in value.”

Don’t give up, just get even (in a nice sort of way). Build up a nice liquid portfolio, rent a decent place, smile when others are strongly recommending you buy then silently say, “Yes dear, no dear, three bags full dear.”

#65 Flawed on 06.29.14 at 7:26 pm — “Bitcoin is decentralized and everyone has a say.”California (legalizes) Bitcoinin’

Whatever one views about Sandy Hook, all possibilities should be considered. Here is one more possibility; First we take Ukraine, then we take Hong Kong; China’s ICBM; Remember Stuxnet? It’s back, but in a different part of the world.

#50 Fed-up on 06.30.14 at 10:05 pm

I call BS that “very few Canadians are 3 months behind on their mortgage”. I believe the true #’s based on past criteria (10 years ago or more) is alarmingly higher but fudged and franken-numbered to avoid any public bad press and hysteria.

A friend of mine is a branch manager of Royal Bank in Toronto and she tells me that banks have been asked to be ummm “much more accommodating” than they have been in the past when borrowers are in arrears.

It all stinks to high hell.

#51 Butch on 06.30.14 at 10:08 pm

Wait – we’re still on this whole house “correction” thing? 2025 is a long ways away still.

Let’s get some advice on the stock markets – might this be where the real bubble is?

#52 Freedom First on 06.30.14 at 10:11 pm

Thank you for laying out the fate of the financial future many Canadians are and will be facing Garth. Makes it even more clear how helpful your Blog has been for many people who have listened to your advice and are now managing their finances in a sane manner, thus avoiding becoming a financially vulnerable Mortgage prisoner.

This is exactly why I like: Cash, Cash flow, Income streams, No debt, Liquidity, Diversified assets/asset classes, Re-balancing, avoiding fear and greed, and most important, always placing “Freedom First”.

#53 Randman on 06.30.14 at 10:18 pm

Bob’s yer Uncle

YES

#54 TurnerNation on 06.30.14 at 10:21 pm

It’s true are you age you become less of a ‘leftee’ and more of a ‘rightee’.

This said I had no problem voting in the Federal byelection (voting list not used for list of jurists ;-) ) in my riding today, voting against perennial
condo-minion sapper (formerly city councillor) Lib Adam Vaughan in favour of the NDP guy. If nothing else than to rankle H.

Looking at it the poor have never had it so good today.
– Unlimited access to ‘free’ healthcare.
– Unlimited access to free legal (Legal Aid).
– $500-2500 tax-free free cash each month (Welfare for singles-to-families). Maybe not enough for living but hey has anyone given you tax free cash?
– Dollarama dollar stores with everything from personal items to school supplies to household supplies to clothes for $1-3.
– Unlimited monthly travel over entire TTC transit network for $130/mo pass. Tax-deductible cost, natch.

#55 Keith in Calgary on 06.30.14 at 10:23 pm

I went BK in 1998……….stuck it so far up Revenue Canada’s ass that I hit the one of the Reichmann’s feet……

It only affects employment prospects if they specifically require a satisfactory credit bureau report for a financially sensitive position…….and it never affected my job prospects thereafter………or my ability to rent property either.

Real estate equity up to a certain amount is exempt from seizure by the BK trustee…..IIRC it is $60K or something like that……of course not many today have any equity at all……which means they’ll have no emotional or moral attachment to the property or the remaining debt as well, making them more than happy to walk away after 6-9 months of no mortgage payments and living for free.

#56 Deutschland on 06.30.14 at 10:43 pm

I’m hearing quite a few teachers are having a tough time with the strike here in BC. Many are using the skip a mortgage payment option to get by until they get their signing bonus.

#57 Smoking on 06.30.14 at 10:43 pm

Bankruptcy not bad at all.

In 90s, when a China man came into my factory , offering me a product that I was producing at 1/2 my the cost.

I sublease my equipment and machinery to a company in BC and became an importer.

Few years later the leasing company, went under. There creditors, came after me when the company I sub leased the equipment too went under and machines vanished.

I had personal guarantees on the equipment, I lost the
paper work, for the sublease…. And the re assignment.

Bill was 1.5 m

I folded the import company, and declared personal
bankruptcy…

Within a year, I was back in business, credit cards.

In the whole process, my house was spared, even my car..

It was painless, mind you, I didn’t chince out on a good attorney and trustee.

I learned that, paper work like that belongs in a safety deposit box at the bank…

#58 saskatoon on 06.30.14 at 11:03 pm

#43 Aggregator

At some point (now, or perhaps very soon) it isn’t about economics: money, recouping cost, interest, bankruptcy…

these are, of course, “important”–but, ultimately, secondary to their purpose as mechanisms of social control.

#59 The Man From Nantucket on 06.30.14 at 11:10 pm

#8 TurnerNation on 06.30.14 at 5:44 pm
Hide other assets all in Whole life ins. or seg funds or annunities?

If you know the mortgage default and forclosure is coming, I think this would certainly be a play worth checking out.

I don’t think any of those is a great investment for most, but, if it comes down to locking it up there or losing it all………

#60 kits388 on 06.30.14 at 11:13 pm

Van – yesterday I gained some really good insight into the Van real estate high end market. Garth is perhaps right about Van and it will not end well despite the HAM. I have Ben looking for a higher end home for several years but could not bring myself to buy … And the market continued to move against me. I have followed the market closely and have noticed a significant number of sales are listed several months later for at least $1m more. A recent $3m sale is now listed for $5.5m. What I learned was very, very interesting and explains a lot. Despite our better judgement, we went to several open houses yesterday. All of the real estate agents that we met in West Van had basically the same story. 80% of the buyers in desirable areas of West Van are Chinese and a significant number of the remaining are Iranian and some Russian. The locals are priced out of the market in those areas. The long term residents that are selling are pocketing a $1m or more and then buying further west. The key thing is only half or less of the 80% are mainland Chinese. I was told the other 40% are Canadian resident (perhaps born in Canada) who are buying to speculate to sell to the “naive just off the boat Chinese” as two agents said in the hope of pocketing at least $1m on a quick flip. One agent said the flippers are taking risks that most of the non-Asian population are not willing to take. That means a lot of very greedy people can and likely will get burned if the stream of Mainland HAM stops or slows down. I hope they all get screwed because they have materially skewed our local market. Van might as well be called a Macau casino.

#61 Courage and poo on 06.30.14 at 11:16 pm

Nice breakdown, much appreciated.

#62 Garth Hater on 06.30.14 at 11:16 pm

One thing Garth didn’t mention is that most mortgages issued after 2002 or so are effectively NINJAs. So when they start collapsing like a domino a government will have no choice but to throw in yet another government program of “help to home owners”. Mortgages will be marked to market to let the borrowers continue to pay monthly. All the losses will be quietly passed on to the taxpayer. PROBLEM SOLVED.

#63 Panhead on 06.30.14 at 11:22 pm

Exactly what happened to a co-worker who purchased a new house in the early eighties. Interest rates hit the roof, so his wife took on a second job and he was making good money but could not hang onto the house. The bank sold it and he had to keep paying until the difference was paid off. Eventually it cost him his marriage also … scared him off for many years …

#64 Andrew Woburn on 06.30.14 at 11:31 pm

One way out when TSHFT would be a class action suit alleging reckless lending. I speculate that the success of such a lawsuit by a class of aggrieved borrowers might get CMHC off their guarantee.

Think I’m dreaming?

Wells Fargo Loses Appeal to Throw Out Suit Alleging Reckless Lending

Wells Fargo Had Argued That National Mortgage Settlement Protected it From Second Suit

http://online.wsj.com/articles/wells-fargo-loses-appeal-to-throw-out-suit-alleging-reckless-lending-1402435121

#65 Flawed on 06.30.14 at 11:34 pm

#45 Sheane Wallace on 06.30.14 at 9:30 pm
With reasonable and sound lending practices (i.e. no government guarantees) prices would be 40 % of the current. With cash only purchases/full reserve banking prices would be 20-25 % of the current.
We will get there one way or another, if it happens to be through currency destruction first so be it.

*******************************

Enter bitcoin.

#66 Sydneysider on 06.30.14 at 11:41 pm

#21 Timmy
“Politicians in Hong Kong, London, Singapore and Sydney are responding in more proactive ways to their housing dilemmas than the elected officials responsible for Metro Vancouver, Ley said in an interview.””

That’s not true in Sydney. The NSW state govt is making a fortune out of stamp duty on house purchases, and is doing what it can to get new players into the market to keep the bubble growing.

http://www.propertyobserver.com.au/finding/residential-investment/house-and-land/32111-nsw-first-home-buyers-can-buy-up-to-750-000-under-extended-grant.html

#67 Star Stuff on 06.30.14 at 11:50 pm

Garth, I want to thank you for this blog. Every time I have the urge to buy, I sit down with a cup of tea and read your blog. The madness soon passes. At this point the math says rent. So we rent. Not to mention being able to pick up and move with short notice. Moving is what we happen to be doing right now. My husband earned a promotion so off we go. Which brings me to a question I have. With his new position comes an automatic benefit plan with F——y. Should I just add my savings and contributions with his? Or keep mine self directed like I am now? I know they are a mutual fund company, but they seem to have other products too. Any opinions from your blog dawgs would be welcome too.

#68 Observer on 07.01.14 at 12:02 am

Central Banks can’t say they weren’t warned….

Ultra low interest rates and the failure of policy to “lean against” the build-up of financial imbalances are in danger of making the global economy permanently unstable, the Bank for International Settlements has warned.

http://www.telegraph.co.uk/finance/personalfinance/interest-rates/10933457/BIS-ultra-low-interest-rates-could-make-global-economy-permanently-unstable.html

#69 Mr Zipper on 07.01.14 at 12:05 am

While waiting for the fireworks I read an interesting article directed at investors…..and that would include real estate investors as well……..As we have always heard…….” Don’t fight the FED”…..

http://www.financialsense.com/contributors/tom-mcclellan/still-only-chart-that-matters

It ain’t over till the fat lady sings. And how can the FED remove stimulus when it is the FED itself which gobbles up the stimulus it prints? I see things doubling rather than correcting…at least for the next few years. Obama won’t lower rates until Hillary is president…..Hillary won’t lower rates because she doesn’t want to be the ‘bitch’ who crashes the party.

We’ll see inflation alright….and when rates have to go up they’ll go up in a hurry…..but right now….it’s smooth sailing…both the stock market and the price of real estate are going to continue to benefit from long term cheapo rates.

#70 Andrew Woburn on 07.01.14 at 12:06 am

#9 randman on 06.30.14 at 5:46 pm
OMG!

Are we really all that stupid that this could be considered by anyone other than complete idiots?

A group of academics and activists is trying to drum up interest in an ambitious plan to provide every Canadian with a guaranteed minimum level of income — whether or not they have a job.
==========================

Capitalism has been substituting capital for labour since the Industrial Revolution. That is what the word, “capitalism” means. We have now reached the point where many people cannot get jobs no matter if they are willing to work. Millions of Americans are on food stamps and or disability payments because they would otherwise starve. No amount of economic recovery will bring them all back into the workforce.

The concept of a guaranteed income based on citizenship was floated in the sixties but was dismissed as utopian. Today the proponents are just looking at reality. We can let the unemployed die in the streets, we can pay some kind of degrading welfare or we can decide that the automated modern economy can provide all citizens with a basic dividend. Within five years you or someone you know will lose the last job they will ever have to technology. What are you going to tell them?

#71 SHELTER THE MONEY NOT THE PEOPLE on 07.01.14 at 12:16 am

#9 randman on 06.30.14 at 5:46 pm

A minimum income is a twisted way to compensate for the fact that our society skews most of the wealth, like cream, to the top 10%. It isn’t blatant, it is a gentle steady pressure in law, regulation and in taxation that enables the wealthy to continue to absorb more and more wealth in an unfair way.
For example we have large corporations like pharmaceuticals with lobbyists twisting the arms of our politicians to make stronger and stronger patent laws just for them to keep out the little guys and keep the big guys in the money.
I met a guy recently that told me There are only 5 companies that he knows of in Western Canada that are allowed by transport Canada to make platforms on top of truck frames. He said it keeps the competition out and his company very busy.
Anyone can get authorized but it took years for his company to do so.
Regulation and protectionism keep raw capitalism out and cronyism in.
is it any wonder why we have so many disenfranchised people?
A minimum income is an expensive way to buy votes.

#72 Nemesis on 07.01.14 at 12:24 am

#ThisVersionIs… #CrossPlatformCompliant. #Hey,Like,IWasBusy… #GimmeABreak,Eh!?

http://youtu.be/KNIZofPB8ZM

#73 SHELTER THE MONEY NOT THE PEOPLE on 07.01.14 at 12:25 am

Today I was at the Bank teller and overheard the next teller talking to her client.

She was consoling him on his high property tax bill saying that it is like a penalty to those whose properties have gone up.

What a master stroke of genius our good government has concocted. I will bet they had the masterminds of all time at work on this scenario.

Gov needs votes…Make house prices go up through low interest rates , open the flood gates of Hot Money, and let in a pile of corrupt officials from Overseas with suitcases of real estate bound wealth.

Municipalities need more tax… Well look at the above. That will bring up the tax base so they can score big time.

Those who don’t have enough to compete with the above for homes can move to the deep suburbs and drive to work. Who care’s about them.

#74 Equities vs SFD on 07.01.14 at 12:30 am

My bet is stocks sink 15% before bousing does.

Anyone want to bet?

Of course. US markets are ripe for it. But unlike RE, it will be (as always) short-lived. — Garth

#75 SHELTER THE MONEY NOT THE PEOPLE on 07.01.14 at 12:34 am

#50 Fed-up on 06.30.14 at 10:05 pm
Right! They will go easy on defaulters and keep mum about it.
You can be sure the Gov. will strong arm their banking and CMHC cronies to keep the ponzie scheme going until the next election.
For sure …. Until the next election.
Watch the date October 19, 2015. After that anything can happen to Canadian real estate.

#76 Blobby on 07.01.14 at 12:40 am

One thing you missed out on Garth (and this MIGHT only be true in BC, but i know it happens here for a fact).

This also might interest #47 TS

Is that the banks dont have to come after you for the money immediately. Most will assume that at point of foreclosure – you have nothing.

So they’ll wait (I believe) up to 10 years (might be wrong on exact numbers there.. might be 5 years), when your life is back on track and you have a bit of money in the bank…

THEN they’ll come after you for the money..

This is also why it’s not advisable (IMHO) to take a mortgage out with the same bank you do day to day banking with… (If what im told is true – If you do, They can see how much money you have, and take it without warning).

#77 Equities vs SFD on 07.01.14 at 12:47 am

Huge protest in Hong Kong today.

If what erupts, 300,000 Canadians will arrive on Vancouver’s shores.

If this happens, SFD home prices will hit the moon. It will become the priciest market on the planet. The average net worth of those Canadians is in the $5-10 Million range.

#78 Setting the Record Straight on 07.01.14 at 12:50 am

For those who suggested voting be mandatory

–where should the jackboots be sent?

#79 Setting the Record Straight on 07.01.14 at 2:06 am

“Nowadays any legal adult can vote & seriously, those who do not are the ones who squeal the most about what ‘the government’ does that they do not like. ”

The informed citizen refuses to vote.

If you enter a boxing ring, do you complain that your opponent hit you?

No –only people who refuse to vote have a legitimate basis to complain about government.

#80 Setting the Record Straight on 07.01.14 at 2:26 am

“We have never been more divisive as a nation. If patriotism manifests in this country, it is to one’s province and not towards our nation. It is a shame that we can’t work together to make this country strong again, by willingly pooling our resources and our talents. Instead provinces are pitted against one another and our national pride is gone.”

No one is the answer. What’s the question? Who wants to be in the same country as Ontario and Quebec?

Secession!

#81 Sgip on 07.01.14 at 3:15 am

The LOVE of money

#82 edward ing on 07.01.14 at 6:53 am

Garth, you have to explain what happens when a CHMC insured loan goes default. It is unclear. The CHMC website doesn’t make it any clearer. With a private insurer, the insure pays the lender the difference and because it is non-recourse and the insurer goes after the borrower. When it is CHMC, it has the rights to go after the borrower for the difference, but does it? It is government agency, does it just take a loss as a matter of social policy? Now let’s say the worst happens and there is a huge amount of default, CHMC revenues cannot keep up with the insurance claims by bankers?

When you take a mortgage, you borrow from the bank, not CHMC. Mortgage insurance protects the lender, not the borrower. even though the consumer pays for the insurance premium. If you default, your creditor is the bank, which can take whatever action it wants to reclaim the full amount, plus costs. CMHC is the lender’s ultimate fallback, but the homeowner is the primary and overriding source of compensation for a bad loan. — Garth

#83 Sheane Wallace on 07.01.14 at 9:05 am

#62 Garth Hater

All the losses will be quietly passed on to the taxpayer. PROBLEM SOLVED.
………………
You mean there would be lies about defaults the same way there are lies about inflation, people would be broke with no jobs, unable to pay houses and nobody will notice?

And somebody will magically print some money or sell some bonds with no buyer to cover the losses, with interest rates staying low forever?

We are exploring the limits of debt and currencies, they could be elastic but eventually will break. This is why they need government guarantees as nobody in their right mind would give away 80 % of the loans in the last 8-10 years insured by CMHC.

So it is clearly government meddling with markets, there is clearly moral hazard, somebody has to be investigated and even tried if needed.

#84 [email protected] on 07.01.14 at 9:28 am

What was the story behind 1 king st w??????

Seems to be a good price for dt toronto????

#1604 – 1 King St W – Toronto $189,900
(MLS® #: C2901407)

#85 mortgagebrokeron on 07.01.14 at 9:47 am

People can put money into seg funds and go bankrupt, and the money can not be touched.

As long as the money was put in 12 months or more before declaring bankruptcy, it’s off limits to the people you owe

#86 Dave B on 07.01.14 at 10:07 am

The perfect article to cap it all off:
http://www.thestar.com/business/personal_finance/spending_saving/2014/07/01/70_in_their_20s_dont_consider_a_mortgage_a_debt_survey.html

#87 World Traveller on 07.01.14 at 10:29 am

It’s okay folks, with Adolf Harper implementing CASL, that should put the final nail into the Canadian economy and then you’ll get that housing correction you’ve been hoping for.

#88 Daisy Mae on 07.01.14 at 10:33 am

#15 Catalyst: “He deftly said it in a way to assume no responsibility by saying he has been advised there is no problem.”

******************

Yes. But he’s fooling no one.

#89 General Motors Quality Control Senior VP (Intern) on 07.01.14 at 10:57 am

Happy Canada Day Everyone!

Feel good knowing your taxes have helped support this great company!

Anyone who has been killed or injured by our vehicles, your check will be in the mail soon. (Thank you to Steve Harper and his gang for writing those checks to us, btw)

Though our sales have dropped to about 5% in Canada, we know you still like us, you really like us!

http://www.cbc.ca/news/business/gm-auto-dealers-sue-gm-canada-as-sales-plunge-1.2692310

As for the delays in fixing the ignition systems, plese understand there’s only so much an intern can do alone.

Yes, I am an unpaid intern. The only full time paid jobs GM has created since 2008 have been for Public Relations specialists, absolutely essential to our success. About 3,175 have been hired since then and they provide great value for your money.

Good news is that I have recently picked up some additional internship gigs, and this will lead to paid full time employment soon enough, I’m sure.

I will be doing quality control for five major Canadian banks on high ratio mortgage applications.

I will also be taking over the Tuesday shift for quality control for comments on this blog. (In my opinion, the major trolls are not posting nearly enough, so get to it boys and girls!!)

#90 torontoshock on 07.01.14 at 11:05 am

Can’t believe the prices in Toronto. Nothing under 1 million for SFH and that will buy you junk!

#91 Holy Crap Wheres The Tylenol on 07.01.14 at 11:10 am

Sat on my boat reading this dismal blog about bankruptcy. My neighbour on his larger than my boat and I chatted about about your blog. He said quote unquote, “I went bankrupt and once and it taught me one thing, don’t blow all your cash living large.” He used to go to Las Vegas and blow $50K-$100K on a weekend with his wife and her stuck up friends. I thought well he’s living large now, ah but here’s the difference he has invested in properties now in the Caribbean where they can’t be touched. These generate income as rentals to wealthy retirees. He has somehow managed to stay under the radar just in case he blows it again.
I really don’t ask him how he generates his income as he might have me whacked.

#92 Sheane Wallace on 07.01.14 at 11:13 am

#65 Flawed

why bitcoin and not commodities?

#93 Chump on a Stump on 07.01.14 at 11:14 am

Thanks Garth, for addressing this issue.

Someone I know went bankrupt a few years ago. They said the whole process was rather underwhelming. Even the trustee they were dealing with passed it off as no big deal, stuff happens.
Nobody went after them for anything, and it’s a little sickening to think of all the nice stuff they got to keep.
Correct me if I’m wrong, but I think bankruptcy in Ontario is individual, not family. So their significant other was able to purchase a brand new home with practically nothing down. And they have been able to get credit cards again without trouble.

Canada’s lenient bankruptcy obligations negates moral hazard as well as financial accountability. It’s no wonder more than 70% of Canadian households didn’t take advantage of cheap credit and high leveraging. I mean, where else in the world can someone who can’t afford a diningroom set without credit, go ahead and purchase a large home on the bank’s credit card? It speaks to the financial mayhem that is going on right now, but I think in the end, there won’t be the schadenfreude catharsis some people are waiting for.

#94 Aggregator on 07.01.14 at 11:15 am

When you take a mortgage, you borrow from the bank, not CHMC. Mortgage insurance protects the lender, not the borrower. even though the consumer pays for the insurance premium. If you default, your creditor is the bank, which can take whatever action it wants to reclaim the full amount, plus costs.

Sort of, but not exactly. If your mortgage has been securitized into an MBS, CMB or covered bond, the lender must transfer to property title to CMHC, who acts as an agent on behalf of investors, the new owners.

Recourse is pursued on a pure arbitrary (and discriminatory IMO) basis and vary on factors such as a borrower's financial situation, local market conditions and whether the default will be judicial or contractual (foreclosure or power of sale respectively).

A lender or insurer will always try to offer assistance before considering recourse. Even if the borrower is a deadbeat at high risk of defaulting again, it's better to keep them paying their mortgage and defaulting on other debts so the mortgage doesn't have to be removed from a pool of securities and replaced with another.

If the property is illiquid, CMHC and the lender will find a way to keep the borrower paying via workout deals or unconventional methods (borrowing more debt at a higher interest rate).

How Can Mortgage Professionals and CMHC Help?

Your mortgage professional wants to establish and maintain a positive relationship with you over the long term, and is fully trained and equipped with the tools to help you deal with the temporary financial setbacks that you may be facing.

For mortgages insured by Canada Mortgage and Housing Corporation (CMHC), CMHC provides mortgage professionals with tools and the flexibility to make timely decisions when working with you to find a solution to your unique financial situation. These tools include:

-Converting a variable interest rate mortgage to a fixed interest rate mortgage in order to protect you from a sudden interest rate increase, should one occur.

-Offering a temporary short-term payment deferral. Your mortgage professional may be prepared to offer greater payment flexibilities, particularly if previous lump sum prepayments have been made, or if you have previously chosen an accelerated payment schedule.

-Extending the original repayment period (amortization) in order to lower your monthly mortgage payments.

-Adding any missed payments (arrears) to the mortgage balance and spreading them over the remaining mortgage repayment period.

-Offering a special payment arrangement unique to your particular financial situation.

So don't worry about defaults. Big daddy market maker CMHC will take care of everybody, until they can't.

 

#95 ozy - LET THEM SINK on 07.01.14 at 11:25 am

LET THEM SINK! I DID NOT ASK THEM TO BUY A CONDO IN THE CONDO-FOREST.

Why so much fuss about all of these cash-flow negative condos…???? let them fight the builders, agents, condo-boards, prop. managers, etc to no avail …but why do I have to hear it here everyday??? it’s like a new bomb in middle-east. nothing new. we are immune to such news, why do I care again for cash-flow negative investments. Tell me something to make $$$ not loose it!

CONDO Eldorado GAME IS ALREADY OVER FOR 2 YEARS. Let’s mature and move on. would ya?

#96 Mike T. on 07.01.14 at 11:39 am

Happy Canada Day

wish I had better news to report…another broke mega project in the Okanagan. I have lost count as to how many so far, maybe DA can enlighten us

http://www.castanet.net/edition/news-story-118093-33-.htm#118093

‘There seems to be a cash flow problem at the Ponderosa development in Peachland. Court documents say some contractors are not getting paid and work has been halted at the site’

#97 Mr. Reality on 07.01.14 at 11:48 am

When are people going to give debt the respect and fear it deserves?

Oh yes, when rates normalize. That’s when it becomes expensive to carry such a high debt load. its beyond me people still think that record low rates are not the primary driver to this lovely situation we have gotten our selves in……

Sheeple

Mr. R.

#98 Shawn on 07.01.14 at 11:58 am

How to Goose House Prices

Garth notes that lenders with recourse to your other assets can be lax in their lending standards. Especially they can lend “too much” on a house safe in the knowledge that if the price of the house falls you can’t just hand back the keys because they can come after your other assets.

Add in government mortgage insurance and the banks have every incentive to lend liberally.

I think once you have government insurance, liberal lending is the result, recourse or not.

A system of no government insurance and no recourse would result in high down payments, tight lending and low house prices.

On the other hand the best system to really goose prices is no recourse combined with government insurance.

In that case as long as the bank follows the rules of government insurance (which always includes allowing low down payments and high monthly mortgage payments as a percent of income) they are safe.

The non-recourse homeowner in a rising house price market then plays a game of heads I win, tails you lose. If house price rises I gain equity. If house price drops I hand back the keys and lose only my small down payment which was probably offset by at least a year to live in the house rent free.

THAT was the system that existed in at least parts of the U.S.

On top of that the entire U.S. allows (most) home buyers to refinance at low fees if interest rates drop. So for homeowners that was and is a game of heads I win, tails someone else loses.

And THAT is how to goose home prices.

In Canada they got gooses even with recourse because the buyers have forgotten that house prices can decline.

In Canada, CMHC is here to stay and so is recourse so all discussion of what happens without CMHC or recourse is just wishful thinking on the part of those who would like lower home prices.

If home prices drop it will not be because CMHC went away or recourse went away.

#99 Spectacle on 07.01.14 at 11:59 am

Thanx G.

#95 ozy Let Them Sink.

Ozy, it’s not just a condo in the condo forest. It is all real estate, and now, it’s going to take All Your Wealth. Do not think you can make $$$, without first understanding the complexity of how not to lose $$$, or have it taken away from you. “They” want you to be “immune ” to the news, to wear you out and separate you .

A quote worth researching……”Quote from Maurice Strong, U.N. ( and a UN Agenda-21 ) environmental leader:

“Isn’t the only hope for the planet that the industrialized civilizations collapse? Isn’t it our responsibility to bring that about?”)

Ozy, have you noticed that the new generations are going backwards as everything they touch is turned into a ” negative cash flow investment” .

Garth understands this, preaches it “every day” , and advises to invest to avoid this risk and build individual wealth. I thank him for this blog!

There are ways to make money, build a business , and secure your ( our…) future if that is your goal.

Regards All….

#100 TurnerNation on 07.01.14 at 12:00 pm

#84 [email protected]

1 King West lots its 90s, Stinsonian sheen years ago. He was run out of town.The ‘new’ tower is in the 15-20 yrs old range, time for repairs I’d say. Its older section is currently covered in scaffolds and tarps. Why. High but all inclusive condo fees, high commercial property taxes.

Before you make a move talk to this fellow an early investor and manager of many units there he knows all:
http://ca.linkedin.com/in/stephenchow

While still too high prices are coming down at the Thompson hotel down King W (taxed residentially) as t across the street the new ‘Thompson Residences’ build underway will cannibalize their brand and amenities. .
Lots of condo issues on the hotel side but it’s kind of under control now. Me I just hang on their rooftop patio these days.

If this could be had for closer to 200k one day…
http://beta.realtor.ca/PropertyDetails.aspx?PropertyId=14469920&CultureId=1

#101 Whats Up With That on 07.01.14 at 12:05 pm

The following has nothing to do with Real Estate…
My mind is completely blown by this woman. Her Name is Karen Straughan and you can see all her videos on Youtube. She is a full blown Anti-Feminist and she makes alot of sense. She is concerned about the future for her daughter and two sons. The last video I saw on YouTube is entitled “Feminism, socialism in panties”
https://www.youtube.com/watch?v=dm3FlbUf5gA
Too bad she didn’t happen along 2 decades ago. It might be too little too late because all our institutions have been subverted.

#102 randman on 07.01.14 at 12:24 pm

Andrew W

“The concept of a guaranteed income based on citizenship was floated in the sixties but was dismissed as utopian. Today the proponents are just looking at reality. We can let the unemployed die in the streets, we can pay some kind of degrading welfare or we can decide that the automated modern economy can provide all citizens with a basic dividend. Within five years you or someone you know will lose the last job they will ever have to technology. What are you going to tell them?”

I don’t know what I’m going to tell them Andrew but it sure as hell won’t be that a guaranteed $20,000 is gonna work

Here’s Mish rebutting this stupid idea in better terms than me…

If you made less than $20,000 annually, but were guaranteed $20,000 whether you worked at all, would you work?

Most wouldn’t. And it should be obvious why: People like free time and they would gladly take more of it if they got paid for doing nothing (about $9.61 per hour).

Read more at http://globaleconomicanalysis.blogspot.com/#wOsmbCRLA55PyPhy.99

#103 Lurcher on 07.01.14 at 12:46 pm

#60 kits 388:
I can certainly confirm lots of speculation on RE in the Van/Burnaby area. Any 1950s bungalow in my area in Burnaby-Metrotown that comes up for sale is bought by ‘developers’ and demolished to build massive and ornate new houses that maximize lot size and are clearly aimed at the Asian demographic (wok kitchens, feng shui design elements, etc.) The building cycle just goes on and on; moreso now than I have seen for the last few years.

#104 Kaganovich on 07.01.14 at 1:07 pm

102 Randman

Andrew W

“The concept of a guaranteed income based on citizenship was floated in the sixties but was dismissed as utopian. Today the proponents are just looking at reality. We can let the unemployed die in the streets, we can pay some kind of degrading welfare or we can decide that the automated modern economy can provide all citizens with a basic dividend. Within five years you or someone you know will lose the last job they will ever have to technology. What are you going to tell them?”

I don’t know what I’m going to tell them Andrew but it sure as hell won’t be that a guaranteed $20,000 is gonna work

Here’s Mish rebutting this stupid idea in better terms than me…

If you made less than $20,000 annually, but were guaranteed $20,000 whether you worked at all, would you work?

Most wouldn’t. And it should be obvious why: People like free time and they would gladly take more of it if they got paid for doing nothing (about $9.61 per hour).

I think the crux of the problem has to do with the nature of the work and level of pay for it. The strokes you paint with are too broad randman. I would wager that Shedlock would even continue to write and think if he were offered an extra pay packet. So would Garth. These arguments you make are simply entry points into discussions about human development via work vs human exploitation and degradation via labour as a commodity. After reading Rand, you may want to sober up by paging through Polyani.

#105 Flawed on 07.01.14 at 1:44 pm

#92 Sheane Wallace on 07.01.14 at 11:13 am
#65 Flawed

why bitcoin and not commodities?

********************************

Bitcoin is a method of payment that is not hierarchical and cannot be corrupted and co-opted unlike money/credit or whatever spin you want to put on “money’ that is created out of thin air.

Bitcoin will rise in value because of the mis-trust and misuse of our current corrupted “usery” system that we have today. The system of money is collapsing under its own weight now its just not broadcast on the “mainstreet news” so most people are not aware of it.

Canada’s economy did not grow at all last month. Private sector workers are making less after inflation than 20 years ago. How is that going to support greedy public sector workers who want raises every year and fat pensions at 55? We just had to shell out $900 for dentist work because we do not have a tax payer funded benefit package like the public sector does. This sort of thing is collapsing economies around the world.

Bitcoin will rise because the charade called traditional money is losing value daily plain and simple.

#106 Flawed on 07.01.14 at 1:53 pm

So it is clearly government meddling with markets, there is clearly moral hazard, somebody has to be investigated and even tried if needed.

********************************

HAHAHAHAHA……good luck with that.

The Rothchilds just got caught dealing with Iran and got fined. If you and I did that we would be put on trial for working with terrorists.

The system has to collapse before the sheeple see what’s going on.

http://www.forbes.com/sites/francescoppola/2014/07/01/bnp-paribass-sanctions-penalty-is-not-enough/

#107 saskatoon on 07.01.14 at 2:51 pm

#104 Kaganovich

i don’t think the issue is whether people would continue working or not (scrubbing toilets anyone?) but from where the guaranteed salary would come.

it would necessarily come through human exploitation, degradation, debt, etc..

…so having a guaranteed min. salary couldn’t possibly eliminate these things…only intensify and perpetuate them.

but i guess when government uses coercion, violence, and force in the name of “fairness”…it’s all good.

#108 Musty Basement Dweller on 07.01.14 at 3:33 pm

See below. It seems Mr Carney’s regular weasel words aren’t gaining him a lot of friends in England. Well duh. It always amazed me how us Canadians were so enamoured with someone who never really said anything of substance.

http://www.theglobeandmail.com/report-on-business/international-business/european-business/carneys-bank-of-england-honeymoon-is-over/article19394225/

#109 Raymond Lutz on 07.01.14 at 3:37 pm

I’m off topic (for sure) but here’s a (brand new) Rent VS Buy calculator http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

For a starter, they even include closing costs in their calculation but their “home price grow rate” doesn’t go below -5%, clearly not a canadian site…

Ah, by the way, I missed your readership survey. You probably don’t care but last year my household income was 67 000$, I drive a Kia Rondo and, no, frugality doesn’t suck… 8-)

#110 Andrew Woburn on 07.01.14 at 3:41 pm

#102 randman on 07.01.14 at 12:24 pm

If you made less than $20,000 annually, but were guaranteed $20,000 whether you worked at all, would you work?

#104 Kaganovich on 07.01.14 at 1:07 pm

I think the crux of the problem has to do with the nature of the work and level of pay for it.

=====================================

With respect, gentlemen, you are looking at work through a 20th century lens, i.e. there are always jobs out there if you get off your rear, retrain or move and working is a choice. I am looking at a time when there simply are no jobs for thousands of competent, ambitious people of average skills willing to do anything to get work. Whether its five years or 25 years, it is coming.

The world is rapidly bifurcating into high-skill, high paid jobs and everything else. Middle-class, middle-skill jobs are eroding just like physical, blue collar jobs before. With each wave of change, some will find other work, most won’t because there will be simply be fewer and fewer jobs that can be handled better by humans.

I grew up in an age when you weren’t really a full citizen if you were able bodied and didn’t work. Will my grandchildren be entitled to be full citizens if they can’t ever find productive work? I loathe the idea of a guaranteed income but that is what mass “disability” payments in the US amount to. I loathe even more the idea that thousands of able-bodied people will become demoralized wards of the state so the idea of a citizenship dividend by right is less repellent to me. At the very least $10K per annum could facilitate job sharing.

#111 Sir Spamalot on 07.01.14 at 4:06 pm

Happy anti spam legislation day. Thanks to the CRTC, be prepared to be spammed, the spam will ask for your ‘consent’, if you prefer you can ‘unsubscribe’, I know you’re thinking ‘But I never subscribed to anything’

#112 The American on 07.01.14 at 4:22 pm

Garth, thanks for providing the accurate information about 39 of the U.S. States being non-recourse. Often I hear many of my Canadian friends making the assumption that the U.S. as a whole just allows a home owner to walk away, without consideration to penalties, poor credit, or shame. I can yell, plead, and explain away, but it does no good. Perhaps you being a Canadian can knock some sense into these people. For example, in Florida, I had a family member who initially paid $255,000 for his home. Then three years later, the home was “worth” $475,000, at the peak. Two years after that, he had watched the home’s value sink to $275,000. Another year later, down to $200,000, and still sinking, as nearly 55% of all homes in his once beautiful neighborhood were now sitting empty due to foreclosures and short sales. All this while, he made each payment on the note due, paying no attention to the home’s market value. That is until the jobs in his profession began drying up. See, housing is a chicken-or-the-egg concept. When so much of an economy’s GDP relies on the housing industry, inclusive of construction, legal, contracts negotiation, materials, distribution, marketing, etc., it touches nearly ALL walks of profession on at least a limited scale. When so many of those jobs began to fail due to falling values, it inadvertently affects everything else, right down to where you choose to buy your toilet paper and bubble gum. In turn, those seemingly peripheral or non-affected jobs become at high risk as well, and eventually dried up too. My family member was affected similarly. He and his wife both lost their jobs. He was an attorney working for a respected firm, and she was working for Disney in HR. Hey, if people can’t afford a house payment, they can’t afford a trip to Disney for a family of four, and in turn cuts have to be made. I guess HR seemed like a good place. Well, eventually, their savings dried up after nearly 8 months of both looking for work. The solution? Stop making payments on the home. It was a choice of groceries on the table vs. paying for an asset that continued to plummet in value. He called to discuss with me. I said to hand the keys back to the bank and be prepared for a battle, but it was indeed his best course of action with proper preparation. And a battle they did receive. They had a first mortgage and a Home Equity Line of Credit (HELOC). Yeah, they bought a stupid boat of all things, against my recommendation. But hey, real estate never goes down he pleaded with me. I told him to get real. In the U.S., the HELOC can never be forgiven on your credit report, unless said offender can strike an equitable deal with the bank holding that HELOC to forgive it. This happens rarely, unless you’re willing to fork over your first born. Eventually, they gave the keys back to the bank and said “keep this piece of crap.” My take is the banks all but drove up the prices, knowing full well they were handing money out to people all around who could never truly afford it initially. In turn, it ultimately adversely affected even those people who were responsible, had good credit, and made timely payments. So, screw the bank, in my humble opinion, especially if they aren’t going to consider such actions as mortgage debt forgiveness after making trillions in profit from predatory lending practices. And yes, predatory lending is happening all over Canada… I see it in the products being developed and marketed in nearly all markets in Canada right now. Only you call them something different. Make no mistake, these are the same products we witnessed here in the States nearly 8 years ago. Anyway, they walked and their credit greatly suffered for it, dropping to about 490. They were prepared, though. Prior to walking, I helped them get structured for the long haul, and before they stopped making payments. I explained to take those dollars remaining from not making the payment and buying distressed real estate for pennies on the dollar. They did just that. They purchased an 1,100 sq. ft. condo that needed some work for a whopping $35,000, put $10,000 into it, and lived in it on a loan I provided them. Today, that condo is worth about $120,000, and we all profited a nice ROI. Also, just six years later, their credit is now well above 780, both have great jobs again, have a very nice savings, and they successfully purchased another home of similar quality and size to the previous for roughly the same amount. This time, sans HELOC and ignorant spending practices, having learned a valuable lesson. Regardless how people may want to judge this behavior, it is eat or be eaten. In this case it is the wolf chasing the fox. Only, the fox has to be smarter than the wolf. And the fox was.

#113 Captain Sensible on 07.01.14 at 5:00 pm

#112 The American on 07.01.14 at 4:22 pm-
great post, thanks for chairing

#114 Captain Sensible on 07.01.14 at 5:00 pm

#112 The American on 07.01.14 at 4:22 pm-
great post, thanks for chairing!

#115 WhiteKat on 07.01.14 at 5:27 pm

A bit off topic, but not really as this does relate to the ‘money is the root of all evil’ heading.

The anti-FATCA fanatics are more than a little sad this Canada Day, but at least Globe and Mail wrote a short article on the fight they are waging with the Conservative government.

http://www.theglobeandmail.com/news/politics/group-plans-constitutional-challenge-to-budget-bill/article19399762/

#116 Kaganovich on 07.01.14 at 5:45 pm

Andrew Woburn

No argument with what you are pointing out. I share those concerns, but I was actually using a nineteenth century lens through which to look at the problem. There is a distinction between work and labour that was quite evident those who were encountering capitalism for the first time.

#117 Kaganovich on 07.01.14 at 6:00 pm

Saskatoon

The basic income would come from an increase taxation of unearned income, just like the new deal. I think the top incomes were taxed at 93%, negotiated down from the proposed 100%.

#118 Italians love real estate on 07.01.14 at 6:03 pm

Listen, you can avoid bankruptcy all together by simply threatening it.

All you have to do is make an offer to your creditors for pennies on the dollar. Make sure that they know that of they do not accept it, that you will claim bankruptcy.

Problem solved.

Unfortunately rift raft in this country all to safe from harm.

#119 MinInMission on 07.01.14 at 7:08 pm

Dorothy keeps Garth in shape???!!

I thought it was the Amazons

Happy Canada Day!!

#120 Suburbanguy on 07.02.14 at 10:06 am

Garth,
While you are correct in that Ontario is a recourse province, there are differences between Power of Sale and Foreclosure. If a bank chooses the Power of Sale route, then it can recover the losses through the courts. If it forecloses, it absorbs the losses.
Forclosure is a relatively quick process. Power of Sale, not so much. –and there’s the rub. Power of Sale can drag on. If the owner comes up with the money at the “11th hour”, the whole process must start over when the owner perhaps defaults again is a couple of months.

Canadian banks have usually chosen to go the Power of Sale route and recover losses by other means.

You may wish to read this. — Garth

#121 Craig on 07.02.14 at 2:04 pm

This mortgage-prison story should be turned into one of the RSA animate type videos. Would go a long way to educate the masses on this subject. Could go viral too…

Heck… There’s probably a dozen of your posts that should be turned into these types of videos.

http://www.quora.com/How-are-RSA-animate-videos-made

#122 bankruptcy geek on 07.02.14 at 10:15 pm

RRSP’s are excluded in a bankruptcy except for any contributions made within 12 months before bankruptcy.

Check out s.67(1)(b.3) of the Bankruptcy and Insolvency Act.

http://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html?searchUrlHash=AAAAAQAKYmFua3J1cHRjeQAAAAAB