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Chilling Thing Insiders Said about Canada’s House Price Bubble

Home Capital Group, Canada’s biggest “alternative” mortgage lender, is not a bank – which today is part of its problem because it cannot create money to lend out; it has to obtain it first by attracting deposits and borrowing money through other channels. Through its subsidiary, Home Trust, it specializes in high-profit mortgages to risky borrowers, with dented credit or unreliable incomes who don’t qualify for mortgage insurance and were turned down by the banks. This includes subprime borrowers. 

Since revelations of liar loans – What, liar loans in Canada?! – surfaced in 2015, things have gone to heck. Now it’s experiencing a run on its deposits. Teetering at the abyss, it obtained a $2 billion bailout loan on Thursday. The terms are onerous. And on Friday, the crux of the deal emerged – the amount of mortgages it has to post as collateral. It’s a doozie. 

It sheds some light on what insiders think mortgages and the homes that back them are worth when push comes to shove. A bone-chilling wake-up call for the Canadian housing and mortgage market. 

The fact that the price of these “alternative” mortgages has been set at 50 cents on the dollar when push comes to shove – a reflection of the potential prices of the homes backing these mortgages – gives some clues about what insiders think the outcome might be of Canada’s magnificent no-holds-barred housing bubble.

DYI:  Canada is only a few steps away from an economic train wreck of biblical proportion.  Admittedly I’ve been saying this for the past 5 years as a clear example that markets can and often do stay far more irrational than we believe is possible.  Nevertheless the seeds are piling up for a debt real estate smash causing massive unemployment that will take about 10 to 15 years to work off.  I wish the Canadians well and the best of luck they are going to need it!

DYI