A bank bundling uninsured mortgages into bonds during a housing bubble.
Sigh, this is what bailing them out gets you, rocket scientists ruining more lives.
Against the wall next time, and I don’t mean for a pat-down.
A bank bundling uninsured mortgages into bonds during a housing bubble.
Sigh, this is what bailing them out gets you, rocket scientists ruining more lives.
Against the wall next time, and I don’t mean for a pat-down.
The US banks dud the same thing prior to the ’08 collapse.
Canadian banks are nervous. They must see a correction on the real estate horizon.
“It works for Bombardier…….. so why not”, they’re thinking.
What could possibly go wrong?
I see Kate’s sense of humour is starting rub off on Lance 🙂
Don’t forget that when a Canadian Bank fails, the gummint won’t be bailing them out, instead, the depositors will be “bailed in” in exchange for worthless bonds. Have as little as possible to do with Canadian Banks.
“If the mortgages are good quality it’s okay.”
RACIST!
I believe the issue was bought to a head in the states because Clinton forced the banks to lend to ethnic minorities, aka “the poor”.
Canadian bankers are not that stupid, but there’s no telling what the turd may do.
His pot law has riders letting cops pull anyone over, for no reason, and administer a breath test or saliva test, so I wouldn’t put it past him to make the banks lend to losers like the Syrian invaders.
from the article:
Lender is looking to securitize uninsured prime mortgages
Around 95 percent of the securities in the transaction will be rated Aaa. The lowest rated portion will be B2, and there is a non-rated portion as well, the bond grader said.
Kinda like counting the chickens before they’re hatched…
The real problem in the US was CDS and then collateralize debt obligations which were like mortgage backed securities but actually were made up of credit default swaps sold to investors. An inverse credit default swap. So anyway you had mortgage bonds resold many many times and when they went bad you had a lot of losers. Not the case with these.
“Around 95 percent of the securities in the transaction will be rated Aaa. The lowest rated portion will be B2, and there is a non-rated portion as well, the bond grader said.”
The US Bond Rating Corporations were how do you say, Overly Optimistic? about the US Mortgage Bonds in 2006-2008. Aaa rated mortgages suddenly started defaulting, and you know the rest.
Time to sell those BMO shares
The real problem was that politicians forced financial institutions to kae bad mortgage loans in the name of fairness, racial equality, whatever. The banks, etc. merely took what steps they could to reduce their risk – by spreading around the public.
But the fault lies with the minority-vote seeking, morally preening politicians.
In Canada don’t you need 20% down to be uninsured? A far cry from NINJA mortgages with 0 down…
You do realise due to regulations that punish bank exposures, it is smart business for banks to pass through mortgage risk and hand it off to institutions that need to be hedged by bond portfolios right? Securitisation is no different to insurance. Where it’ll get deadly is if the B2 bonds get repackaged to be sold as AAA…
1)Cdn mortgages are vastly different from US mortgages. You cannot walk away from an underwater mortgage in Canada like you can in the US.
2) these are low LTV (loan to value) loans. Uninsured mortgages have big downpayments, so homeowners have lots of skin in these mortgages.
3) US mortgage default rate even before the sub-prime implosion, was double digits. In Canada, the default rate averages about 0.25%: during the big recession in 1981, that doubled, to 0.49%. The main reason for that is (and you never see this mentioned when people try to compare the US and Canada “housing bubbles”) that Canadian mortgage law is very lender-friendly, while US mortgage law is very borrower-friendly. Comparing Canadian mortgage-backed securities to US ones is like comparing apples to durians.
4) normally Cdn banks keep these non-insured loans for use as ring-fenced collateral for covered bond issues. BMO is doing it this way for a reason: it’s likely cheaper funding for the bank, plus the mortgages are good assets. If BMO was not keeping the bulk of the issue themselves, institutional investors would be all over this deal faster than a tornado on a trailer park.
I agree. In terms of risk, “prime” mortgages are a better bet than stocks. Don’t see anything wrong with this.
“If the mortgages are good quality it’s okay.”
99.63% of Canadians never miss a mortgage payment. There is no mortgage crisis to repair.
(Dominion Lending Centres)
“There is no mortgage crisis to repair.”
Not yet.
But wait until a whole city full of nothing but million dollar houses becomes a city full of $500k houses. That is Toronto, right now. In 416 area code you cannot buy even a rip-down-and-burn craphole in a bad neighborhood for under a million bucks. I know, because I’ve been looking. Most crapholes in downtown are going for a million five this year. That is $1,500,000,00. Plus tax.
Nobody in Canada has a million-five for a rip-down except a developer. He’s going to sink a hundred grand into a spif-and-flip, take a $300k profit for his risk and get out of Dodge as fast as he can. The new house will sell for $2.3 to $2.5, depending on how hot the bidding war gets.
Who’s got $2,500,000 for a -small- house with no garage? But, let me say again, bidding war.
It is “estimated” that 20% of renovated homes get purchased by foreign buyers and then sit empty. When the government that is trying to cover its @ss estimates 20%, you can assume half or more of these houses are going to foreign interests.
Canadians can’t live in Canada because the real estate is too expensive? How long is that going to last?
As well, the government will be forced to Do Something. Does anyone think what they come up with will be reasonable? This ever-increasing house price thing exists because of TAXES. A home is the only place left where they can’t steal your money. Therefore the market is artificially driven up, and there is never a correction. Add foreign money to the situation, you get Toronto.
The only thing that will -lower- house prices is to end the tax free sale of homes. If the proceeds of a home sale are taxed as income, there will be no point in spiffing and flipping houses. The Liberals might do something like that. It probably kills them that they don’t get 30% of a million dollars every time a house changes hands.
That would be a crushing, economy destroying nightmare. But Liberals are stupid. They might go for it.
Therefore, rizwan, while there is currently no mortgage crisis in Canada, that situation is like a river in the spring. The ice keeps getting thinner and thinner. You better move that fishing hut.
Deplorable phantom it won’t be a mortgage crisis. It’ll be a pension crisis in 25 years… Old folks who spent 20 years paying off an oversize mortgage instead of viversifying.
it is ALWAYS the politishuns, making the rules, whose prime strategy is to do WHATEVER to get reelected. EVERYTHING ELSE is secondary.
taking this view explains everything they do. what they never do is play devil’s advocate and take a hard look at their tanker full of legislation and find the loopholes and figure out if they are fixing one ‘problem’ by creating thousands more.
like the time the local city council tried to make landlords ante up delinquent utility bills. Myself and the local landlords association took great offense at this. I pointed out in the age of the privacy act, the landlord could never monitor the bill payments of the tenants, especially in those last 3 months of the lease, when word on the street quickly gets around that the time is right to stop paying the gas and hydro and water, seeing as they would move out before they were cut off.
thus, the thing would severely backfire, punishing good tenants with higher rents to cover the losses, huge deposits to ensure landlords don’t get stuck, less available rental units when other leave the market in disgust, etc etc etc.
politishuns absolutely NEVER take a hard look at their ideologically driven policies and laws. never. conservatists, lieberals, new democraps, not one of them ever at any level municipal, provincial or federal.
otherwise they are not a ‘team player’ and quickly get shoved out the door.
as far as the real estate bubble, I say let it pop !!! my brother the grade 10 millionaire said it best, it just creates a golden opportunity for those who wisely wait for it to happen so they can scoop up a bargain when the suckers wind up holding mortgages exceeding the assessed value. anyone buying tranna real estate now really needs to bone up on things like the tulip speculation craze in Holland or the florida boom decades ago. etc etc.