Tuesday, October 07, 2008

Harper Put Our Mortgages At Risk

I've been in the mortgage business for almost 20 years, at the receiving end of course. I've had standard bank mortgages, guaranteed mortgages, high-risk second or third mortgages, mortgages with banks, mortgages with mortgage companies, so I'm pretty well versed in how mortgages work and which kind bring the most peace of mind. Even so, I found the US mortgage crisis bewildering and incomprehensible. If the bank had sold my mortgage to another bank, as they said they did in the States, I'd have been pissed. Mortgages treated as commodities, in which other investment institutions get a piece of the interest, is nuts. A mortgage requires a relationship between lender and lendee. It's a huge amount of money, the biggest loan a person is ever likely to have in their lifetime. I remember the amount of my first mortgage was so much bigger than any debt I'd ever had before that it both terrified me and was beyond my comprehension.

People run into problems every once in awhile, and being able to talk to your mortgage lender and knowing that the lender knows you and your track record helps to stave off premature foreclosures, as happened so often in the US this past year. Foreclosures are not good for banks. They have to sell quickly in order to get their money liquidated, and that means they will always get less for a house than the owner would. And of course foreclosures are a disaster for the homeowner.

Some have opined that it was Bill Clinton's Fair Housing Act that started this mortgage mess in the US, forcing banks to loan money to people unable to afford a mortgage. And then Susie Orman and the finance guy from CNN, on Oprah recently, both nodded in agreement that banks upped the mortgages when people applied. A person would say I need $150,000, and the bank would say we can give you $250,000, take it. Here in Canada, upon renewing my mortgage for 5 years, I once had one bank try to sneak in a 25-year amortization instead of the 20 we had paid down to. More interest for them, she neglected to mention; but smaller payments for me, she said when I caught the fine print. I dressed her down good. She was pissed at being "cheated" of her greater interest; I was pissed at her putting me in greater financial risk by upping my payouts over the long term. Both my own personal case and that Oprah example was bad banking, yet a version of the Clinton Act has been done well here in Canada.

Long before Clinton came along, we have had the CMHC. If you didn't have the requisite down payment, if you were high risk, if your income was too low, if your debt-to-income ratio was too high, CMHC would insure your mortgage. Yes the interest rates were higher, but CMHC was a safe method of helping those who wanted a house but couldn't get the time of day from their bank. It's worked for years. And it hasn't sent us into an economic freefall that has led to banks everywhere freezing their credit lending, even to those who had nothing to do with this mess and have had good credit, like the mortgage crisis in the US has done.

And then along comes the Conservative government and decided the CMHC way wasn't good enough. They allowed 40-year mortgages. I thought that was a real bad idea. A person would be close or past retirement age before they could pay it off. You don't want to have any part of that kind of debt over your head when you're not working. That very long time frame also increases the risk of missing a payment, and if you need 40 years to pay off a mortgage, then you really don't have the means to buy a house. That's why people get together with friends or family to purchase a house. Done properly, it's less risky in every way. But Stephen Harper and his government felt our banks were solid enough and our housing market in good enough shape that we could forget the lessons of the past and the ones unfolding south of the border and follow the capitalist instinct. Don't forget 40-year mortgages means a ton more interest for the banks.

And then the the mortgage bucks really hit the fan down south, and Harper reversed himself. Suddenly, he understood why previous leaders had set up our mortgage system the way it was, and the government stopped insuring 40-year mortgages and zero-down mortgages. Thirty-five years is not that much better, and it's worrying that Harper was so ideologically set on the market as king that he was unable to see what was happening under his very nose and thought following the US way was a good idea. And this is the man, this is the right-wing government everyone says knows how to manage money the best of all the parties? If he can't get mortgages right, what else is he failing to see?

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