Unfortunately they are still around. They have been popping up all over the country and causing major problems for the homeowners that took them out and it is going to get worst as the bulk of them are up for renewal over the next two years.
Fortunately the subprime market never grew to more than 5% of the total mortgage market but 5% is still enough to cause some major problems for those less fortunate. It is estimated that there are still another 30,000 of these mortgages coming due within the next 24 months.
The problem is the lending guidelines are tightening and this will cause even more grief as many of these people will not qualify for new loans. This combined with the relatively low home value growth will leave many of these loans with negative equity if they decide to sell the home. These loans had negative equity right from the beginning due to very little to money down and with most of the borrowers being self employed and merely stating income, it is highly unlikely in most cases with the current economic conditions that there financial situation has improved.
Benjamin Tal, senior economist at CIBC World Markets said “In the wake of the financial crisis, the business of subprime loans has dried up. Prior to 2007, there were at least a dozen subprime lenders in Canada and it was the fastest-growing sector of the entire mortgage market” and he pegged that market to be about 5% of the total market. All of the subprime lenders are gone except for a few that have changed their model and became banks such as Xceed. These players have ask the Federal government for help in developing a fund to allow many of these mortgages to be renewed but at the time of writing this article there was no help being offered and since this market is a very small piece of the pie I doubt any help will be forthcoming with the governments current financial mess of their own.
In my opinion there is no subprime high ratio mortgage market anymore but there still is a conventional market. What this means is, any subprime mortgage up for renewal that has less than 80% equity will be next to impossible to fund with another lender unless there financial position has increased to where they will qualify for new high ratio financing.
To conclude, this Mississauga mortgage broker remains very curious and will patiently wait and see how this all plays out but it does have the ability to negatively impact the market by increasing home supplies and potentially adding more homes to the power of sale category. So the next time somebody says that Canada is financially stable because the lenders there were never irresponsible like the American lenders. I would have to say that the only thing many of Canadian realtors and mortgage brokers did is not market the Canadian public so aggressively and irresponsibly.
Paul Mangion
M.O.S. MortgageOne Solutions Ltd.
WWW.GTAMortgageMatters.com
paul@paulmangion.com