We like to drop in on Garth Turner every now and then to see if the world is any closer to ending. We enjoy his stuff, if for no other reason than he makes you think.
He had an interesting guest post Monday that reiterates Turner’s claim that Canada has a subprime mortgage problem brewing.
The post’s author argues Canada’s subprime market is much bigger than 5% of all mortgages, as industry stats suggest.
The writer feels there are at least three other classes of borrower that should be classified as “subprime:”
Anyone who has GDS/TDS ratios over the standard 32%/40%, a 40-year amortization, and significant living expenses to which lenders are oblivious (high electric or heating bills, high car insurance and gasoline expenses, high condo fees, etc.)
Young families with multiple dependents, large child care expenses and food bills, and a mother on extended maternity leave
Self-employed borrowers who significantly overstate their incomes (of which there are many)
The theory is, if the economy and housing values go south, these folks above could increase defaults and accelerate the fall.
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