Quote:
Originally Posted by Potty
Less than 20% down is considered a high ratio mortgage.
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Right, that's what I first thought as that's typically what's meant by a high ratio mortgage.
This then doesn't make sense though:
"41.8% of mortgages insured by CMHC in 2008 were to rental or high-ratio homeowners."
CMHC doesn't insure mortgages that are low ratio, so 100% of homewoner mortgages insured by CMHC should be high-ratio mortgages, that's the whole point of CMHC insurance! Is every high-ratio mortgage considered sub-prime?
The actual field in the report says "Per cent of rental and high ratio homeowners units approved to address less-served markets and/or to support specific government priorities". That's not talking about increasing the percentage of high ratio mortgages they insure because that percentage is 100% right? It's talking about how many out of those mortgages fall under less-served markets category or fall under the supporting specific government priorities category.
So in 2007 296,000 mortgages were approved to address less served markets and/or to support specific government priorities. In 2008, 384,000 mortgages were approved for the same reason.
But unless "Less-served markets and government priorities" is specifically defined and explained, I don't see any reason to jump to the conclusion that it's a "massive sub-prime mortgage scheme".
Quote:
Originally Posted by Potty
That's a huge percentage of homeowners that would be under water on their mortgage if prices declined. That table is directly out of the CMHC 2008 annual report.
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You can't really say that though, at least based on this information. The percentages in that table don't represent high ratio mortgages, just how many were for less served markets and government priorities. 900k mortgages in 2008 were high ratio, and out of that we don't know how many are 25yr vs 40yr, 5% down vs 15% down, etc. And we don't know how many 900k mortgages represents out of all mortgages given (a good chunk I suspect).
Plus even if a high ratio mortgage is given with 5% down (10% now I guess), and prices go down 10%, that just means on a piece of paper somewhere there's a potential loss. The person still qualified with a debt/service ratio of 40%, their payments haven't changed, the banks not going to take it away because it's worth $15,000 less than their mortgage is... All it does is reduce their flexibility, people are less inclined to sell and move if they can't sell for what they paid, but other than that what's the real downside?