Author Topic: Garth Turner - Real Estate in Canada  (Read 326710 times)

frank87

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Re: Garth Turner - Real Estate in Canada
« Reply #1380 on: March 20, 2017, 07:15:24 AM »
I don't think anybody is going to take out HCG. I'd say that foreigner are probably gonna sit this one out and it's too small for Canadian FIs to matter. Since 4 of the 5 banks called the real estate situation a bubble I doubt they'd spring for a sub prime lender. But who knows Lauratian has done dumb things before.

There is no way a bank takes them out. Why would they do it when they have a risk free model with the government? I was thinking more along the lines of EQB taking them out or doing some sort of merger since EQB is in the same situation as HCG.

For the record, HCG and EQB are leaders in the alt-A regulated market. There's not many players, and it's a highly niche-type market. Take a look at their non-performing numbers over time - it doesn't jive with the fraud thesis.

I used to think this.  However it doesn't really pass the reality test to me anymore.  I think their numbers are too good to be true.  Genworth Canada is a good example.  Their delinquencies are really low.  Part of the reason is that they restructure a lot of these loans and then don't disclose it.  They amend payments, delay payments etc and I think this gets them out of having to show these actual troubled loans more clearly in their accounting (ie. the semantics become different and thus not needed to report).  In Genworth's case the number of cases where they are 'proactive' is buried in one report they put out annually (I forget which one atm).  Here is a video that explains their process https://www.youtube.com/watch?v=ECHZ0a_-Ojw.  I suspect the other suspects EQB, HCG do something similar.  Read those SA articles on how HCG was selling off some of their Brampton originated loans.  Too much smoke here, anecdotal evidence for me to believe their deliquentcy numbers or more importantly that they will stay this low.  Seems impossible to me that you can lend in lower quality borrowers and face less risk.  Normal US banks has loan loss provisions in the 1 to 2% - and EQB and HCG are 0.10% - doesn't make intuitive sense to me.

Genworth Canada as a mortgage insurer doesn't hold mortgages, they guarantee them. They can't amend payments or delay them. If a mortgage that they insure goes into default, they reimburse the lender for any losses. Typically, losses get minimized because of the substantial LTV cushion. But if you're worried about their underwriting, look at their combined ratios.

It doesn't make sense to you, so you're trying to distort the facts so that it does make sense to you. Have you considered the possibility that your initial premise is wrong?


TBW

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Re: Garth Turner - Real Estate in Canada
« Reply #1381 on: March 20, 2017, 07:19:03 AM »
I suggest you watch the video I linked.  Explains how Genworth does all the things I mentioned.

There certainly is some chance I wrong and EQB and HCG are conservative lenders.  But I am sceptical.

frank87

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Re: Garth Turner - Real Estate in Canada
« Reply #1382 on: March 20, 2017, 07:24:54 AM »
I suggest you watch the video I linked.  Explains how Genworth does all the things I mentioned.

There certainly is some chance I wrong and EQB and HCG are conservative lenders.  But I am sceptical.

Yes, I'm aware of remedial programs that Genworth (and CMHC for that matter) uses for mortgages in delinquency or default. These programs are there to help avoid foreclosure, which is a costly situation for both the homeowner and the lender.

CalvinL

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Re: Garth Turner - Real Estate in Canada
« Reply #1383 on: March 20, 2017, 07:44:02 AM »
This is the typical belief system in Canada. You don't need cash flow because houses always rise. Why bother with cashflows? Borrow larger amounts and keep bidding asset prices higher so everyone can borrow even more.

It is a beautiful thing. If only the rest of the world could figure this out we would all have limitless funds.

The truth is you still need to "prove" cashflow. But that proof is where some brokers would bent the rules. I went to 2 different mortgage brokers and they both suggested me to "prove" cash flow by simply drafting a renting agreement with someone. There will be tax on those rental income, but the interest would be deductible. They really dont care if those rental incomes are legit. The message was "this is common sense and everyone does it. You are missing out if you don't" Their job is to present a case to the underwriters so that they don't have a reason to reject them.

EliG

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Re: Garth Turner - Real Estate in Canada
« Reply #1384 on: March 20, 2017, 09:21:09 AM »
This is getting comical.

My aunt and uncle who live in Woodbridge have been borderline bankrupt for years just refinanced their house with none other than Home Capital Group. Home Cap gave them a $700K mortgage and they are in their 70's! My uncle is retired and my aunt works as the deli manager at Metro. How on earth can they ever pay this back? There only hope is to sell before the market goes down. If they don't they're bankrupt. But how can a lender give someone in their seventies $700K? And this is to people who have been on the verge of bankruptcy for years. They have only kept their house because they have borrowed over $150K from family members. This makes no sense to me.

50, you need to provide some context otherwise your statement makes no sense.
how much is the house worth ?

if it's worth $2M.  a 700k loan is no big deal at all.  even if they default or if market corrects 30%, the bank is still ahead by repossessing.

$950K but it depends on bidding war. So it doesn't matter about paying back the loan. Only selling the house?

Is it an insured mortgage?

$950K number is kinda curious. Hight enough to keep LTV under 75% but low enough to be eligible for CMHC insurance (< $1M). I wonder if HCG deliberately low-balled the appraised value to off-load the risk to the taxpayers.

SafetyinNumbers

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Re: Garth Turner - Real Estate in Canada
« Reply #1385 on: March 20, 2017, 09:58:22 AM »
I thought CHMC insurance is only applicable if the LTV is more than 80%?
ELF IAM GCM.DB.U/DB.V/DB.X PIF C.N

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #1386 on: March 20, 2017, 10:28:23 AM »
Above 80% is required but you can get it for lower amounts.

scorpioncapital

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Re: Garth Turner - Real Estate in Canada
« Reply #1387 on: March 20, 2017, 02:02:48 PM »
The thing with insurance it's fun while not paying out, but when you have to pay out, things can get messy. It's like theory vs practice .


bbarberayr

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Re: Garth Turner - Real Estate in Canada
« Reply #1388 on: March 21, 2017, 12:12:46 PM »

clutch

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Re: Garth Turner - Real Estate in Canada
« Reply #1389 on: March 22, 2017, 05:11:01 AM »
I live in Toronto, and this bubble is definitely insane, but I can't wrap my head around whether I can bet against it or not.

Because to me, the premise "this bubble must pop" is not good enough, obviously because of the timing aspect. In some sense, I need to identify potential catalysts for the bubble to pop, and be sure that the catalyst(s) would happen soon.

Here are some scenarios that I though about...

- Highly levered, speculative local investors default on mortgage payments or must sell the property for other reasons. This requires one of 1) interest rate rising fast, 2) cannot find tenants (or rental market tanks), or 3) the investors lose their sources of income / wealth. 1) is unlikely given that the government can control it to prevent popping the bubble, 2) is also unlikely looking at Toronto's rental market right now (no sign of population decline) and 3) likely means some sort of global financial melt down, which is hard to predict.

- Foreign investors suddenly need to sell, perhaps because they suddenly need the money, or they now have an incentive to sell (better investment opportunity elsewhere or maybe China says bring your money back now and you can legitimately keep it?) or they figure that the investments no longer meets their hurdle rates. I really don't know whether any one can predict timing of these events...

Anyone else can think of other catalysts and their estimated timing?