A friend of mine who emerged from the financial industry as a recovering banker once noted that many Canadians are two or three paycheques from being homeless.There is a lot of wisdom in those words.
Canadians are more in debt than ever; debt that is often accumulated for housing.The big problem here is the system itself.Today a double income is almost a prerequisite to acquiring a mortgage.I will stop short of stating that Canadian mortgage lenders are predatory, but some of the qualifications are certainly too lenient.
Recently the federal government changed some of the lending rules making mortgage loans more difficult to acquire by removing the 40 year and no equity up front loans.This is a step in the right direction but is it enough?
Consider the 30% gross debt service requirement applied to a double income.It is a recipe for disaster if one wage earner is removed from the income picture.Of course there is the “insurance” against such scenarios but is it really?So far the record of the insurance industry in its dealings with mortgage lenders has been less than stellar.The TD-Canada Trust and Canada Life fiasco has to be held up as the poster child for this.One of the major problems here is that the mortgage lender is not an insurance expert and so is pitching only what they have been told.You can't blame the front line worker for doing his or her job.
Perhaps the mortgage industry itself needs to reevaluate its lending practices.A major shift would be the 30% GDS shifted to a net and/or placed on the single wage earner.This would certainly allow for savings by the other wage earner and the lender could easily pitch that extra income toward a savings plan that will cover those rainy days or allow for early discharge.It makes good business sense for everyone.Both parties make money and provide a blanket of accumulating money as a buffer from the streets.It could be built into the mortgage itself.
The other aspect to all of this are the Real Estate members who are unified under a national organization.While from a professional point of view it makes sense, there could also be a more sinister side to this: collusion in housing prices.This illegal activity is nearly impossible to prove without inside information. One has to wonder how housing prices rise exponentially with a market that has a glut of housing.One can understand housing prices increasing in a short market but not one that has excess inventory.In other words the Laws of Supply and Demand are reversed.There is also the question of manipulation by pronouncements picked up by the media promoting selling.Often consumers are perhaps a little too quick to jump on the bandwagon.Sell and make a tidy profit but repurchase at an inflated price and “move up” is a false sense of improvement.
It is a prerequisite for mortgage lenders to verify property values prior to lending but if those property values are inflated on a broad scale then would the lender necessarily be aware of this?It is a question no one can, or will answer.
For the consumer it is as always buyer beware, but now the added tenet of borrower beware has to be added to the mantra.Failure on either front could potentially leave the buyer homeless.