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Canadian subprime mortgage market to remain robust despite U.S. fallout
VANCOUVER, April 10 / - Canadian mortgage markets,
well-protected from the subprime fallout now occurring in the U.S, are
expected to thrive in coming years, according to a report released today by
Mortgage Architects.
"The Canadian mortgage market is clearly much stronger than its U.S.
counterpart," says Bob Ord, Chairman and CEO, Mortgage Architects. "U.S.
housing appreciation over the past two years has been primarily driven by
mortgage product innovations that have contributed to irresponsible borrowing-
it's a financial free-for-all for the masses. There are loans underwritten
using less than full documentation standards and non-owner occupied mortgage
loans. Second liens that allow borrowers to avoid mortgage insurance are
gaining acceptance among first-time and subprime buyers who would otherwise be
unable to make a traditional 20 per cent downpayment. Hybrid ARMS entice
borrowers with low initial fixed rates, but are vulnerable to payment shock
risk at the ARM reset dates. Is it any wonder why 44 American lenders have
failed in the last six months?"
Product and consumer differences, sheer volume, regulatory factors, as
well as performance and risk profiles differ significantly. Subprime
originations in the U.S. totaled 0 billion in 2006, of which 0 billion
was securitized. This area of lending has experienced exponential growth in
the past five years, representing 22 per cent of American originations in
2006. Canada's non-traditional market remains small at five per cent of total
originations (just under billion) in 2006 (with less than billion of
mortgages securitized to date).
"While it is true that some exotic mortgages are making their way into
the Canadian marketplace, their share of the market is too small at this point
to have any material impact," says Ord. "Our lending criteria makes it more
difficult to default on these loans. In Canada, for example, lenders are paid
for deficiency on sales. We have options available to us that will make the
lender 'whole' on foreclosure. Moveover, 50 per cent of defaults in this
country are 'cured', meaning that the borrower either sells the property or
borrows the money elsewhere."
In recent years, the trend to borrow against home equity has also
mushroomed in the U.S. to a record high of eight per cent of disposable
income. Although borrowing against home equity has played an important role in
overall mortgage market activity here, it only represents four per cent of
disposable income.
"Canadian consumers are also much more conservative in their spending
habits," says Ord. "Consumer bankruptcies in Canada fell by 6.4 per cent in
2006, following a nominal increase in 2005. Mortgage arrears are currently at
record lows - in clear contrast with the U.S. where delinquency rates are now
at levels not seen since 1991."
"All in all, the Canadian non-traditional mortgage market should thrive
going forward," says Ord.
"While subprime and alternative products exist in Canada, the safeguards
in place in the Canadian marketplace - particularly in the form of regulations
and strict qualifying criteria - make for a more stable environment, without
question. Canadians are clearly not biting off more than they can chew, and
the foundation of this market remains solid."
MyMortgageBC.com note: Most subprime lenders in Canada deal through mortgage brokers. A subprime lender is only used once all other mortgage options have been explored. |
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