Genworth has responded to the Globe & Mail's somewhat fallacious story on "high risk" mortgages.
Brian Hurley, President of international development at Genworth, said this in a statement published by the Globe Tuesday:
It was the easing of traditional underwriting standards in the U.S. – not extended amortizations – that put so many subprime borrowers in loans they could not afford. Here in Canada, the overwhelming majority of 40-year mortgages are prime loans held by customers with solid credit – and who would have qualified for mortgages with 25-year amortizations. Arrears here are near all-time lows.
Genworth supported Ottawa's decision to limit its government guarantee to mortgages with a maximum 35-year amortization. Healthy competition between CMHC and Genworth has provided an important second set of eyes that act as a check against unwise lending.
On a related note, we heard an interesting stat from one insurer yesterday. Only 3 out of every 100 borrowers with a 40-year amortization would not have qualified at a 25-year amortization. It therefore appears clear that Canadians were using 40-year mortgages as an option and not out of necessity. (Contrary to the anecdotal cases we've seen.)
I think you guys may be missing the point of the damage 40 year mortgages have caused. With the traditional norm of buying as much house as you can possibly afford, lowering the monthly payments means that people have been biting off a lot more than they would normally chew. This has had the effect of rapidly rising home prices which otherwise would not have occurred. It’s one thing to say that they would have qualified for 25 year terms given current underwriting standards, but it’s something altogether different to know whether many of those customers WOULD have bought had they HAD to pay the higher monthly costs.
Anyway, as I’ve been writing on this blog for months now, the impending collapse is now upon us and where are the bubble deniers now?
Rob, as an aside, what do you think of the timing of CREA’s new way of reporting price changes? I find it rather interesting they on the way up they had no problem reporting the national average, when it was being led up by the big cities like TO and Vcr, but now on the way down suddenly that metric is no longer appropriate? LOL!
Toronto Bear – Traditionally, people would rent for 5 years and save money for a down payment, then buy a starter home upon marriage, then a bigger home when they have a child, then a bigger home when their incomes go up, then a bigger home when they have two kids.
The $0 down/40 yr means that people can now buy the home which will suit their needs for a much longer time. Think of the cost of moving five-times for each upgrade – $50,000? Think of the legal costs, the real estate fees??? Wouldn’t that look nice on your mortgage Principal instead?
Also, people are not forced to sell in a market downturn. They can be extended sometimes and if children keep popping out, sometimes people are forced to sell for a bigger home. At least if they get something larger, they don’t have to move when the markets are bad.
40yr / $0 down is a wise financial tool for the right people. It should be brought back but only for the most highly qualified borrowers.
I think they should start offering
60yr / $0 down / 5% cashback for highly qualified borrowers it just makes economic sense.
How about a 0 down 140/yr 15% cash back willable mortgage. That should ensure that we use up the next 75 years worth of buyers.
Beacuse people don’t work for 60yrs or 140yrs!
40yrs is sufficient because in a worse case scenario, that is usually the lenth of one’s working career. Once they retire, their house is paid! Obviously the majority of people pay it much sooner.
The debate over a insured product that does not exist is ridiculous at best, we may as well debate Saddam’s weapons of mass destruction that no longer exist and never did exist, next story please.
Who said anything about retiring?
Quote from Debater – “The debate over a insured product that does not exist is ridiculous at best, we may as well debate Saddam’s weapons of mass destruction that no longer exist and never did exist, next story please.”
It is also a little ridiculous that you cannot understand why this is being debated. The Globe was wrong and it was a short-sighted policy decision by the federal government. No offense but you probably want to bury this story because you are either pissed off that you can’t make your point, or you don’t understand the point.
It is surprising to see that only 3 out of 100 borrowers would not have qualified for a 25 year amortization. Doesn’t this suggest that Canadians are not generally buying “all the house they can afford”? Probably like me, many have chosen a 40 year amortization for other reasons. (For me: a zero cost way to manage risk …)
Besides, although I’m sure there was some contribution (maybe extending it towards the end?), 40 year / 0 down insured mortgages did not “cause” the rapid rise in prices. Nor is their demise the reason prices are now falling. Global economic factors and what is happening in many other countries (not just the US) definitely played a role there.
Geoff,
Quote from Debater – “The debate over a insured product that does not exist is ridiculous at best, we may as well debate Saddam’s weapons of mass destruction that no longer exist and never did exist, next story please.”
It is also a little ridiculous that you cannot understand why this is being debated. The Globe was wrong and it was a short-sighted policy decision by the federal government. No offense but you probably want to bury this story because you are either pissed off that you can’t make your point, or you don’t understand the point.
I get the point, I also read the Globe regularly, and realize the people that write for the Globe are at times skewed, the point I was making is-people here are arguing something that does not exist in the insured markets, for the record if you really love the 40 year amm. zero amm, Wells Fargo still offers it. It is only the insurers that do not any longer, so now that I have educated you please stop the banter.
40 year amm. zero amm–Meant to say zero down.
Oh Ottawa Bear your comments are so well intended but so naive!
So I guess the rise in home values in Canada was all due to fundamentals as opposed to the US where it was all due to subprime. LOL! And the fall in Canadian home values is only due to the economic conditions as opposed to the US prices falling due to it being a bubble! LOL! Canadians in general are either so naive or so smug it continues to baffle the mind!
People do not have to sell in a downturn, as you aptly point out. The problem is that unemployment is skyrocketing, and wages are falling, this is going to cause people to default on their mortgage payments, putting homes into foreclosure, etc. This unemployment/foreclosure/downward price pressure is a vicious cycle and that is what we are seeing in the US.
The difference in interest paid between a conventional mortgage (25 yrs) and a 40 yr mortgage is colossal. A heck of a lot more than your so-called 50k in moving expenses! LOL!
Our math-challenged society should get over what the monthly payments are and instead focus on the true costs. It’s the “I live month-to-month” and “I am entitled to a 50″ plasma in each room of my 3000 sqft home” mentality that got us in this mess in the first place.
People are greedy. It’s human nature. You dangle a carrot in front of them and tell them it will lead them to the promised land, and 99% of people will go for it. In this case, reduced monthly payments were that carrot. The dream was ever-increasing home values. The reality will not turn out so pretty.
I understand that people would have qualified for a 25 year mortgage, but with rising unemployment and largely 30% gross income used on dual family incomes doesn’t anyone think that prices will have to come down to reflect the true affordability of housing?
http://business.theglobeandmail.com/servlet/story/RTGAM.20081218.wrmortgage18/BNStory/Business/
Hmmm, CMHC’s non-comments to the reporters questions in this story really inspire a lot of confidence, don’t they.
That last link is too long to fit and got cut, off. Sorry about that.
http://business.theglobeandmail.com/servlet/story
/RTGAM.20081218.wrmortgage18
/BNStory/Business/
Quote: Rob, as an aside, what do you think of the timing of CREA’s new way of reporting price changes? I find it rather interesting they on the way up they had no problem reporting the national average, when it was being led up by the big cities like TO and Vcr, but now on the way down suddenly that metric is no longer appropriate? LOL!
TB, I couldn’t agree more. It’s probably not a coincidence they decided to change it now. On the other hand, it’s good they fixed it. The old simple mean approach was really misleading. – Rob