It’s often said that Canada doesn’t have a subprime mortgage problem, but there’s mounting evidence that’s no longer true.
Until this week, Canadians could easily get no-money-down, 40-year mortgages backed by the government. Subprime loans with no government insurance, typically given to those with poor credit histories, represented about four per cent of the industry. That sounds small, but it still represents hundreds of thousands of now potentially overextended homeowners. Adding to the problem is the fact that mortgage lenders themselves are now facing a severe credit crunch.
One of Canada’s largest subprime lenders, Xceed Mortgage Corp., announced last month it was “entirely shifting away” from what it calls “non-traditional” mortgages. Like other high-risk lenders, it backed its risky mortgages with commercial paper, a market that’s now completely frozen. Xceed’s shares, which hit a high of $4 last year, are now worth about 90 cents, and it has told some clients in Ontario it will not renew their mortgages—even though they’ve never missed a payment.
That’s what happened to Rick Lafleur, whose 900-sq.-foot bungalow was taken over and sold by Xceed. He’s now organizing a class action lawsuit against the company for dumping him. “I know there are a lot of other people in the same boat,” he says.
Robert McLister, a mortgage planner who writes the Canadian Mortgage Trends blog, says cutting off subprime mortgage holders will have consequences. “Will it cause excess [housing] supply to hit the market? That’s yet to be seen.” No one is predicting the hurricane of foreclosures that hit the States, but there will be rough weather. “It’s happening here,” says Lafleur. “Maybe not on a scale like in the U.S., but it’s still happening.”