It’s not subprime, it’s negative amortization and ARMs. some fuzzy math in there but it might really time to start shorting bank stocks.
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this post was added on monday december 10th 2007 around 3pm. it was added to the link category and was tagged: economy, housing, investing, usa
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Some of the payment stuff is interesting.
Here’s my take (a Canadian one).
The guidelines for mtg approvals in Canada is that your monthly housing payment should not exceed 32% of your gross take home (not your net). Total debt servicing should not exceed 40% of gross. Generally speaking, mortgages at F/I that require 20% or less are insured by CMHC or GE Capital, and those insurers require those guidlines be followed as a condition of approval. That being said, GE Capital is more aggressive, and willing to exceed those 32/40% guidelines. When I used to underwrite and approve mortgages, we used GE on the “tricky deals” as CMHC was less willing to budge.
F/I’s in Canada don’t offer interest-only or non amortizing facilities on high ratio mortgages. The only exception is Manulife through their manulife-one account.
I wouldn’t worry about mortgages in Canada on the whole. Banks have generally been conservative. The only losses that have resulted to-date are from out-right fraud rather than greed. There is “no” subprime market here as the big-five F/I’s are so dominant in the marketplace. They are a nice conservative oligopoly.
Their subprime real estate exposure is courtesy of their overzealous capital markets groups trying to make moves and getting caught.
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