Canadian Subprime in the Globe…Again

A week ago the Globe & Mail ran it’s latest subprime “expose,” entitled “Canada's Dirty Subprime Secret, to which the Vancouver Sun replied Friday: “There is no secret subprime mortgage problem in Canada.”

The Globe's story was largely anecdotal and attributed a big portion of defaults to subprime lenders.  It used seemingly large foreclosure statistics (e.g. “10,000 foreclosure proceedings”), in a way that would make a layman think Canada had a virtual foreclosure epidemic.

Like so many stories before it, it was a completely one-sided, and dare we say irresponsible, article that offered absolutely no context whatsoever.  For example, it gave no mention of how record job losses are contributing to Canadian foreclosures.  "Everyone knows unemployment is up, everyone knows we're in a recession, everyone knows that real estate has dropped - by definition you're going to get higher defaults when any of those things happen," said Xceed Mortgage’s Ivan Wahl to CMP.

The Globe also attributed no blame to the borrowers themselves, many of whom knowingly got in over their heads.  (Interestingly, blaming the consumer for bad decisions is a BIG no-no apparently. Maybe it just doesn’t sell newspapers. Whatever the case, it’s politically incorrect to hold homeowners accountable for their actions and you rarely see it written about in mainstream publications.).

Most importantly, however, the Globe provided no historical backdrop to compare their numbers to.  The Globe’s position seems to be that Canadian foreclosures are largely just a big mess cooked up by greedy lenders.

How big is the actual problem of foreclosures in Canada?  In the U.S., 3 out of every 100 U.S. homes is in foreclosure.  In Canada the rate is 10 times less, up slightly from record lows (on an absolute basis).  Furthermore, Canadian arrears are half of what they were in the 1990s, according to CAAMP President, Jim Murphy.

The globe also labeled many defaulting borrowers as subprime even though they weren’t.  The Vancouver Sun writes:

Non-standard, or non-conforming mortgages, sometimes referred to as Alt.A, are not subprime. They are given to borrowers with good credit histories and have low loan-to-value ratios. However, they do not meet bank guidelines for conventional mortgages.

The Globe didn’t (and couldn’t) delineate which defaults met that criteria, versus those that were actually subprime.

Industry executives called the Globe story a “witch hunt,” “inflammatory,” and “scare tactics.” We won’t get into that aspect, but it’s clear that certain business journalists need to take more time in researching statistics before stewing up controversy.

The unfortunate truth is that many Canadian’s take what the Globe says at face value because they trust Globe reporters. This kind of reporting couldn’t betray that trust more.