Good segment on the Housing Market last night on CBC. Worth a watch. Here is the direct link.
Main supports to this bubble have been the usual suspects of artificially suppressed interest rates and government (taxpayer) underwriting of lender risk through Canada Mortgage and Housing Corporation. Canadian lenders use the EMILI automated application program to qualify buyers on line.
Informal surveys of current practices reveal that an estimated 90% of all mortgage applications in Canada over the past few years have been done through this on line system and generally with no physical appraisal, no tax returns to verify income (only pay stubs) and no verbal confirmation of employment. At the same time mortgage broker/dealers incented by commission have the capacity to tweak square footage, house amenities, property taxes, even income/assets/debt servicing to get the deal done. And although lenders do get the odd CMHC audit, in most cases CMHC never sees supporting documentation. All of this suggests that the amount of mortgage “abuse” and fraud in Canada over the past few years may well be higher than was experienced in the US housing market leading up to its bubble bursting. This is a major negative for Canadian consumers, our economy and we tax payers who have unwittingly underwritten upcoming losses through CMHC.