U.S. banks issue, but don’t hold, mortgages
Ray Turchansky
Province
Troubles in the U.S. mortgage-lending industry are blamed for high sales of existing homes in the U.S. Photograph by : The Associated Press
EDMONTON — The havoc that subprime mortgage lending practice is wreaking on the United States housing industry won’t likely be an issue in Canadian housing.
“Last year I made fun about how they gave away money, and anybody would get these mortgages, these low-documentation loans,” said Brad Willock, senior portfolio manager with RBC Asset Management Inc., speaking to the Salloum Wealth Management Group.
“If you want a mortgage, we’ll give you an interview. How much would you like?”
Willock said subprime is not a big issue in Canada.
“In the States, the banks write the mortgage but don’t care if they get the money back because they don’t hold it any more, they package it up and off it goes. Most of the risk is held in the hands of hedge funds. These mortgages were put into baskets and sold off as a bond, typically a high-
yielding bond, and most of the buyers were wealthy folks who put their money into hedge funds, and pension plans. A lot of hedge funds bought insurance against defaults, and some are going to prosper because of it.
“But in Canada, the Royal Bank keeps your mortgage, the TD keeps your mortgage. You have to pay them, or they’ll come and get you and take your house. Also, there are five major banks in Canada. In the U.S. there are 3,000. You can get mortgages online from people who aren’t even banks.”
Benjamin Tal, senior economist with CIBC World Markets, says there will not be a direct effect on Canadian housing.
“The U.S. really pushed the envelope when it comes to providing exotic mortgages,” said Tal. “We have a very boring market in Canada.
“The subprime market is only five per cent of mortgages in Canada and interest-only [with no principal paid down] is only one per cent, as opposed to 20 per cent in the U.S. But the mortgage market in Canada five or 10 years from now will be very different from what it is now.”
© The Vancouver Province 2007
