Thousands of Canadians will be unable to renew their subprime mortgages,
despite never missing a payment. Now, some of the lenders who issued these
mortgages want the government to pony up a billion dollars for a rescue
package.
That’s the gist of this story by the Globe. The Globe estimates that up to 30,000 Canadians
are facing foreclosure because they can’t renew their mortgage. 30,000 is 6.5%
of the 460,200 home sales projected in Canada in 2009
It appears that a subprime lender lobby is trying to get the federal
government to guarantee a billion-dollar fund to help renew “healthy mortgages
of borrowers who do not qualify for loans from traditional lenders.”
Makes you wonder how healthy they are if the borrowers can’t re-qualify. The
story suggests that the main thing these homeowners have going for them is that
they’ve made their payments on time. Unfortunately, it takes a little more than
that to get a mortgage.
The story also quotes one broker as saying: “These (the affected homeowners)
are people that didn't do anything wrong.”
That’s kind of counterintuitive, you would think. These “orphaned”
borrowers, as they’re called, don’t qualify for a mortgage. They must be doing something
wrong. In actuality, they don’t qualify because their loan-to-value is too
high, or their income/debt ratios are poor, or their credit is shoddy, etc.
The orphans might have qualified if investors were still freely
loaning money to high-risk borrowers. But this isn’t 2007 anymore, and they
aren’t.
It’s important to remember that, when a subprime borrower gets an 11%
mortgage (a rate quoted in the article), it’s supposed to be temporary. You’d
be nuts to pay that rate for long. The idea is to pay it for a year, get your
act together (settle up debts, get new credit, establish repayment history,
etc.), and then refinance with a prime lender.
But should the government fork out 1,000 million dollars to help "a
sliver” of the country’s homeowners? We are not convinced.
The story quotes an unnamed official as saying, “The government thinks this
group (the lender lobby) is asking for help for itself.”
Robert Davis, CEO, WealthBridge, an Oakville Private Mortgage Company, thinks that much of this really boils down
to “a predatory lender who has earned an 11% yield and who have been paid
handsomely” and may have provided “bad advice.
Now they want a bailout?
And, of course, the borrower has to take some responsibility also.
Davis says,
“Postponing the homeownership dream by 12 to 18 months could have put these
people in a better situation.”
True.
In addition, brokers have a responsibility in the subprime business to coach
borrowers—so the borrower doesn’t get overleveraged, and so he/she can qualify
with a prime lender at renewal.
“These clients should have been given a plan to clean their credit rating
and improve their beacon scores, save some money over the next 18-24 months,
and consider purchasing at a later date,” says Davis. “This could have put them in a
mortgage with possibly half the interest rate they were charged, a 2.75%
insurance premium and a healthy financial situation.”
In the end, the hard truth is that some disasters can be avoided…and not
everyone deserves to be a homeowner.
Im not going to say what everybody else has said, but I actually do want to discuss your understanding of the topic. Youre truly well-informed. I cant believe how much of this I simply wasnt aware of. Thank you for bringing more information for this topic for me. Im truly grateful and really impressed. =-=
