This BNN segment is interesting and concerning.
The main takeaway here is that history repeats itself. Greed rules the financial industry. The main changes required are better and more stringent mortgage underwriting standards during mortgage or home refinancing stages. Why in the world would any financial institution approve a mortgage that is 500% of an applicants income? Yet here we are with about 11% of borrowers at this juncture.
The ones highest at risk, are low income earners and seniors.
Correct me if I am wrong, but did the US banks not try these sorts of underwriting practices in the past? You know, the type of thing that kinda resulted in the last financial crises and a Great Recession that the entire world is still trying to recover from?
Now there are calls for further regulation to possibly increase down payment amount required to purchase a home from 5% of purchase price to something higher.
This is not a solution in and of itself. In fact, 5% down payment mortgages can be very viable as long as the borrower has appropriate level of income and can service the debt.
The main issue with low down payment mortgages is that they require mortgage insurance. With CMHC, a government owned mortgage insurer being among the largest in the country, if the real estate market were to correct today, we the taxpayers would be on the hook for CMHC insured underwater mortgages, that is is those mortgages that are higher than the current market value of a property.
Of course, these concerns mainly apply to principle residences, peoples own homes and has much less relevance to investment real estate assets, where minimum 20% down payments are the norm for residential real estate investment 4 units or less.
More importantly, for real estate investors focused on positive cash flowing properties like myself, these types of concerns are much less relevant mainly because it is our tenants who indirectly pay our mortgages and all our carrying costs. Hence the mortgages we, as investors, take out on our properties are serviced almost entirely by our tenants.
