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Alternative mortgage market expected to double
LORI MCLEOD
Globe and Mail Update
WOODBRIDGE, Ont. — Despite the subprime mess in the United States, Canada's alternative mortgage market is expected to more than double in the next five years, according to industry representatives.
The value of the country's entire mortgage market will be about $800-billion in 2007, according to data presented at a conference Thursday in Woodbridge, Ont., hosted by the Canadian Association of Accredited Mortgage Professionals (CAAMP).
About $24-billion, or 3 per cent, of that amount will be comprised of subprime mortgages, or loans to home buyers that don't qualify for traditional bank mortgages. That's expected to rise to $70-billion, or almost 9 per cent of the total, in the next five years.
“I think that's a conservative estimate, and doesn't seem unreasonable given it is still well below the 20 per cent in the U.S.,” said Rick Valade, president of Wells Fargo Financial Corporation Canada, in a speech at the conference.
Strong real estate prices and a lack of high-risk products has distinguished the Canadian and U.S. mortgage markets, said Ivan Wahl, chief executive officer of Xceed Mortgage Corp.
“Mortgage is spelled the same way. That's where the similarities stop. The toxic waste that is south of the border does not exist in Canada,” Mr. Wahl said in his speech.
In Canada there are few defaults on alternative mortgages, which are taken out by about one in five home buyers, according to CAAMP. Customers for these mortgages include new immigrants who haven't had time to establish a credit history here, and small business owners that don't qualify at the banks.
It's a stark contrast to the subprime market in the U.S., where high-risk products proliferated that aren't widely offered or even allowed in Canada, Mr. Wahl said.
Examples include “teaser” mortgages that offer low initial rates, then re-price at a markedly higher level, and “ninja” mortgages made to individuals with “no income, no job, and no assets.”
At the conference, CAAMP chairman Paul Grewal also called on the federal government to help resolve the liquidity crisis he said is now hurting the ability of some qualified Canadians to purchase homes.
The Bank of Canada and Finance Minister Jim Flaherty should become actively involved in solving the problem, Mr. Grewal said.
“We think they need to be present at the table and participating in finding a solution to this liquidity issue that's affecting some of the lenders in this marketplace, but more importantly Canadians that are looking for home finance,” Mr. Grewal said.
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