Quote:
Originally Posted by Cowboy89
The risk is underwritten by the taxpayer. Ultimately they will be on the hook if the real estate market declines. What enables a person to buy a home with 20 to 1 leverage in this country is ultimately the assumption of that risk that a crown corporation takes on. It's a risk that the banks by themselves won't make on a large scale (Which should not be easily dismissed).
Take your provided Q2 numbers on CMHC. With 9% of their loan protfolio being 90% or greater LTV then a national decline of 10% (much less than the 25% haircut the Americans took) puts roughly $50 billion of CMHC insured mortgages underwater. Now of course not all of those people are going to default, but the point stands that the CMHC's portfolio certainly has the potential to have to be bailed out.
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The taxpayer won't be on the hook until some outrageous real estate decline wipes out a ton of value and people start walking away from their houses en mass.
$50 billion of insured mortgages underwater doesn't put CMHC on the hook for $50 billion.
Underwater is meaningless. I've been underwater at some point. I didn't walk.
If I did walk, the bank would have taken back house, sold for a small loss and CMHC would be on the hook for the small loss. Not the full mortgage amount.