Ever heard of an ‘orphaned’ mortgage? If you haven’t, you’re not alone. But estimates from at least one predominant lobby group suggest there could be more than 30,000 Canadians facing foreclosure, from orphaned mortgages.
A recent article in The Globe and Mail breaks this issue down in much more detail, but long story, short: the article hints there’s a significantly large number of Canadians who suddenly face being ‘abandoned’ by their respective alternative lenders. And that’s because these alternative lenders can no longer lend to those customers, based on more challenging critera like poor credit scores
, lower-paying jobs, or minimal home equity (criteria upon which a traditional lender, such as a bank, wouldn’t normally approve).
The article goes on to explain that, upon renewal, these customers who’ve borrowed from non-traditional lenders and whom appear to have diligently paid their mortgage payments on time, every time, will be ‘orphaned,’ and expected to either pay the balance of their mortgage – or face foreclosure.
Top-level execs with these alternative mortgage companies, like XCeed and Ontario-based N-Brook Mortgage Group Inc., say they cannot renew the stranded mortgages because, quote, “the once-thriving securitization market that attracted investors to these risky – and lucrative – mortgages collapsed in the wake of the U.S. subprime mortgage crisis. To replace the lost pool of capital, lenders are asking the federal government to back a special billion-dollar fund that would renew the healthy mortgages of borrowers who do not qualify for loans from traditional lenders.”
And these execs, along with lobbyists, are asking the feds for a $1-billion dollar bailout program, as a solution to offset the potentially sky-rocketing costs associated with these possible foreclosures.
At the risk of seeming insensitive to these peoples’ plight, I think this is not our government’s responsibility. Ultimately and sadly, these people have to take responsibility for their decisions. Albeit, while these decisions they’ve made may have been a result of misguided advice from some of my colleagues in the Mortgage Brokerage business, they still have to face their brutal realities.
Most of these people will be able to re-qualify, and for those who can’t, they will have to move into a rental and yes they will likely face foreclosure as they will not be able to just sell their house. Also, I fear their closing costs (mortgage balance, payout penalties, and commissions) will exceed their sale price and they likely will not have the money to absorb these losses.
Which brings me back to the very lenders who loaned these people these mortgages and are now trying to look like “Robin-Hoods” and lobby the government to help these poor people. Make no mistake here – these lenders are not asking for the handout, out of concern for their borrowers. Rather, it is strictly out of concern for themselves. Who will be left holding the bag when these uninsured mortgages go into default and foreclosure? Yup, the lender. Shame on you guys. Nice try using the media and “wolf in sheep’s clothing” tactics. Fact is, you were paid a healthy risk premium to take on this risk, so put some ketchup on it and eat it. Don’t ask us (taxpayers) to bail you out of the mess you created.
What do you think? Send me your comments.
Comments
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By Paul McGill, December 17, 2009 @ 8:12 pm
Mr. Williamson
I’m not surprised at your comments or your lack of knowledge on this industry problem.
As the person who is dealing with the people losing their homes everyday I’m happy to respond. These are real people that are going to lose their homes, not for any cause of their own. Had the federal government applied a small part of the $60 billion it used to bail out the bank mortgage portfolios viable solutions could have been found to keep these people in their homes.
If you had seen details of the program proposed to the Government, which you have not, you would have seen the existing lenders were being asked to take subordinated positions so the playing field would be leveled. However rather than ask you choose to write the uninformed garbage you did.
The lack of liquidity in the Canadian mortgage market was never a lender issue, a sub-prime issue or anything to do with how the industry did business. It stems from a lack of capital market support in 2007 that snowballed with the resulting current consequences.
We have been working to find solutions for almost a year now and never once have we heard from a single broker to say how can I help with this industry problem.
Congratulations to you and all your colleagues for the interest and integrity you have shown for your customer base.
Paul, I re-read my post to see why you felt the need to be so critical of my
opinion
My point was not that these people do not have real issues, my point was that the lenders who received healthy risk premiums on their backs should not look to all the taxpayers to bail them out. To be clear the government buying back the CMHC insured mortgages, was for one thing a profitable venture for the government, so we the taxpayers made money on that, and it was no additional risk because CMHC already had insurance on these mortgages. CMHC, or the government received no default insurance from sub-prime mortgages, so how could they now have to take the risk? To what end?
Anyway, thanks for the comment, and quite frankly your insight. You are right many of us do not know the inside story because we are not told. Getting insight from people that are there is obviously helpful.
- Greg
By George Kostadinov, January 23, 2010 @ 5:34 am
Paul, in regards to the capital market issue in 2007, why not just let capitalism sort itself out?
Thanks for the insight.
George