The Federal Reserve Bank of Cleveland has released a commentary explaining their theory on why the American housing market imploded while the Canadian market has remained strong.
A lack of sub-prime lending in Canada.
What is a subprime borrower exactly?
Wikipedia defines it as:
“Subprime borrowers show data on their credit reports associated with higher default rates, including limited debt experience, excessive debt, a history of missed payments, failures to pay debts, and recorded bankruptcies.” (http://en.wikipedia.org/wiki/Subprime_lending).
So here is my humble opinion and semi-rant; sub-prime borrowing was rampant in the United States prior to the market meltdown. I’ve read many stories about individuals who were approved for mortgage financing with very lax lending guidelines, including mortgage loans that were approved with very little documentation. In my business, I sometimes have clients who complain about the amount of paperwork they are being asked to produce.
My thoughts are this: yes, I sometimes have to ask you for more paperwork than you expected and from your end I know this can seem a little over the top sometimes. But, you know what? The bank is lending you a lot of money! The bank is required to do their due diligence and confirm your income, source of employment, down payment funds and closing costs. I don’t make up the paperwork requirements; they come directly from the underwriter on your file.
Aren’t we all glad that the Canadian housing market has remained healthy throughout this global financial crisis? Can you imagine what would happen to your property value if you had 4 or 5 houses that were abandoned/foreclosed on your street? I partially contribute this healthy Canadian housing market to the fact that the vast majority of Canadian mortgage lenders have remained responsible and maintained strict underwriting/documentation requirements.
Buying a home and getting approved for a mortgage is a big deal, one that requires responsible borrowing and lending. So, if you feel you are being asked for too much paperwork just take a look at our neighbours to the south and you’ll be glad that Canada’s mortgage lenders are lending responsibly and ensuring that you do, in fact, qualify for your mortgage!