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Originally Posted by arsenal
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The Canadian banks didn't need a bail out like they did in the US because the backstop(insurance) for canadian mortgages come from the Government (CHMC). In the US AIG was the "BACKSTOP" for their mortgages and the gov had to give public money to the backstop, when the housing market dropped and they were on the hook for more then they could pay back.
There is NO mistaking there has been a canadian BAILOUT to the tune of 75 billion so far. The canadian government is able to spin this like crazy. CHMC is "buying back" the mortgages they insured anyway from canadaian banks, to free up money for the banks to loan. This is complete spin.
First, any mortgage that has CMHC insurance had a MAX downpayment of 20-25 percent, depending on when it was taken out. I'd argue that most of thoes mortgages were easy less then 10 and more likely 5%. Either way, assume they were all at 10% downpayment, and now with the housing market accross the country having realized MINIMUM 10% losses in most areas, the bank is holding billions of negative position mortgages. That means that when the bank goes to get a loan, the other lender says "humm... you owe more then you have assets to cover" Just like anyone else they have a hard time borrowing money, and are "tapped out".
The solution.. Why not swing a deal with the insurance company to "buy" back the houses they are gonna have to take back anyway at some point, at least now people are still paying the mortgage on thier negative position home. Better then taking back empty house, in the future which they are gonna be required to do anyway. Bank gets their insurance money now, gets rid of their negative position assests, and the Canadian government has a much larger appitite to hold onto negative assests then the banks do.
However you want to spin this, this is COMPLETELY a bail out. Only because it's the gov and not a private company like AIG like in the US, they were on the hook for the houses anyway, at least this way you can argue it was a "proactive" move to help out canadian borrowers and the public gets Assets back in return... As opposed to taking on 75 billion worth of mortages whos homes were less then the ammount owing..