The Vice is Tightening on Weak Credit Borrowers

It's getting tougher for "credit-challenged" Canadians to get mortgages at decent interest rates.

GMAC Residential Funding of Canada, MCAP Financial and N-Brook have all curtailed or halted lending to home buyers with questionable credit profiles.  In fact, MCAP has suspended it's new subprime products just a few weeks after launching them.

In addition, Xceed--another big subprime lender--has recently been facing challenges of its own in securing capital to loan out.

Much of all this stems from the problems related to Coventree Inc.--which, in turn, stem from the U.S. subprime debacle. 

In short, it's getting harder for non-bank Canadian lenders to obtain money to lend out.  That's because investors--who securitize Canadian mortgages, are growing increasingly risk-adverse (despite there being little evidence of Canadian credit deterioration).

If you need a mortgage and have poor credit, or cannot prove income, there are still options.  However, you may want to be a bit more pro-active in the event the market tightens further.  (Although there is no way of knowing for certain if it will.)

If you have good credit (approximately a 680 Beacon score or above), you have little to worry about for now.  Canada's housing market and economy are still healthy and "A-credit" mortgage rates are holding steady.

Comments

[FourPillars]

I find the whole subprime mess in the US quite unbelievable and the fact that some companies still recently wanted to introduce them here is amazing.

I realize that some people are going to be denied the opportunity to buy a home because of this, but I think that if someone can't afford a house then they are better off renting until their finances improve. Buying a house they can't afford and then having to sell it (or lose it) will hurt them more in the long run.

Mike

[Canadian Mortgage]

Hi Mike, You're right. No one should buy a house unless they can afford it. Canadian lenders are quite unlike their American counterparts from a few years ago. If you can't afford a house in Canada, you probably won't get a mortgage. Yes, some people fudge their numbers and trick the system, but that will happen regardless. Subprime products are booming in Canada because of demand. However, as you read yesterday, it's going to be a tight market here for less-credit-worthy borrowers in the short to medium term. Have a wonderful day, Melanie

[Dave]

A quick questions - what happens to peoples mortgages if the lender were to become insolvent???

Would/could they call the loan?

In a personal bankruptcy all noted creditors loans are exonorated. How does this work with a business bankruptcy??

Thanks again for a great site!

Dave

[Canadian Mortgage]

Hi Dave,

The insolvent lender would probably sell its mortgage portfolio to another institution, who would then take over all the debts.

Mortgages are not a demand loan. Generally, unless you are more than 3 months in arrears, a lender cannot legally ask you to pay it off early.