As the big banks get choosier about who they'll lend money to in this hot housing market, people with questionable credit are benefiting from Canada's once-small but now booming subprime mortgage industry.
The Canadian Real Estate Association released figures Monday showing Canadian home sales rose 2.5 per cent in March, and the average Canadian home sold for $369,677 last month.
That was actually a slight decline from the level of a year ago, but it comes on the heels of almost uninterrupted strong gains over the previous two years.
Fuelling that boom is a growing pile of mortgage debt, an increasing amount of which isn’t coming from Canada’s major lenders. That’s largely because of recent developments at the Canada Mortgage and Housing Corporation.
The CMHC is the Crown corporation mandated to oversee Canada’s housing industry. The vast majority of Canadian mortgages show up on its books, because CMHC insures the mortgages approved by banks.
In 2010 and again in 2011, hoping to slow down a red-hot housing market, the Department of Finance tinkered with the rules surrounding who can qualify for CMHC-insured mortgages. Moves to shorten the maximum length of the mortgage and raise the minimum percentage a borrower must have as a down payment combined to make CMHC insurance harder to come by.
“The banks don’t want to take on anything that’s not insured by CMHC," Toronto mortgage broker Marcus Tzaferis of Morcan Direct says. “So that’s pushing borrowers farther and farther out of the mainstream to find financing.”
Industry experts suggest the big banks are currently rejecting as much as 20 per cent of mortgage applications because they don’t qualify for CMHC insurance.
Proportionately, Canada’s subprime market is about the size today as the U.S. market was in roughly 2004 or so, Tal notes. After 20 years on the fringe of the housing market, by 2007, about a third of U.S. mortgages were subprime.