[Flash Walken]

Originally Posted by Peanut

I thought a huge part of the American housing bubble was their ridiculous lending practices and all the sub-prime mortgages. Which has been stated again and again that Canadian banks have never been as aggressive on the lending front (not saying they're not agressive, just not as agressive as the U.S.) and the sub-prime market here is extremely small.

Just look at this from the original article:

Finally, craziness. Yup, not sure how to better categorize what I’m about to say. Here’s the situation, as told to me by Seth Daniels of JKD Capital, one of the most astute Canada-watchers I know. Daniels told me that there is now a booming private mortgage market in which ordinary citizens are borrowing from their home equity lines to lend money to desperate borrowers. Specifically, he noted “a homeowner acts as a subprime lender by drawing his home equity line at ~3%, and lends it to a subprime borrower at 8-12% for one year.”

I honestly didn’t believe him when he first mentioned this to me, but I then confirmed it myself. In fact, if you’re a Canadian and interested, here’s a sales pitch from one vendor. It’s only a matter of time before this shadow mortgage banking market slows, and the ramifications are likely to be enormous as defaults skyrocket, housing prices plummet, and consumer spending rapidly slows.