Different

Let’s end the week by murdering a myth. Tomorrow I will show you how to earn three times the rate of a GIC with little risk while paying 80% less tax. But right now it’s time to gut a sacred cow and hoist the entrails aloft. If that doesn’t turn you on, there’s always hockey.

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When important people like MSM reporters, Global TV anchorettes, bank economists and F tell you it’s different here (than in the US) because ‘we don’t have subprime mortgages’ they should be corrected. Of course we do. In spades. And they risk bringing us a similar result to that which leveled the American middle class.

We have liar loans (no income verification). We give people without any money fat mortgages (houses are now an entitlement). We have teaser interest rates (encourage people to borrow knowing full well loan costs will jump later). We securitize mortgages (hello, CHMC). We have minimal (5%) downpayments and we let people borrow those.

And like the Yanks in the heady days of 2005 before their bubble burst, we actively encourage people who have no savings, virtually no income and no assets – who actually require social assistance to find shelter -  to jump into massive debt and buy a piece of real estate at its most inflated price. If this sounds unCanadian and wildly irresponsible, it probably is. And it’s 100% certifiably sub-prime.

Recently I told you of government-funded programs in places like Skatch and Cowtown to help poor people buy houses they can’t afford. Dangerous as they are, they cannot hold a candle to the latest house horny scheme from one of the country’s largest credit unions and real estate pumpers, VanCity.

It’s called the ‘Springboard Homeownership Program’. If this is you, the bank beckons: “You currently live in non-profit housing and are on a low income with no savings. You are ready to make the commitment to own a home, but need a structured plan to help.” You will notice that to buy a home in Vancouver, one of the most unaffordable cities on the planet, you no longer need “money” or “savings.” You just require a plan.

Oh, and no downpayment. None.

Instead VanCity will lend these struggling folks an interest-free loan over 10 years big enough to equal 20% of the purchase price on the house they obviously can’t afford. On a $300,000 hovel, that would be a $60,000 borrowing costing $500 a month for the next decade. But that’s just the start. In addition, this vampire credit union will loan the other 80% in the form of a mortgage amortized over 25 years, with interest-only payments.

The loan is closed for 10 years, and the rate is 6.15%. Monthly payments would be about $1,100 (interest only), so combined with the downpayment loan, the total burden would be $1,600 – plus the usual costs of real estate ownership, including property tax, insurance, condo fees and maintenance.

So in 10 years, where are the victims who had low income, no savings, no credit rating and received a break by being in public housing before being enticed into this real estate deal? They’ve paid $20,000 in loan payments and $130,000 in mortgage interest, as well as closing costs – for an expenditure of  $156,000 (plus occupancy costs). And they still owe $240,000.

Does this sound like a way to give a hand-up to the less fortunate among us? What happens if interest rates in a decade have doubled? Or the value of the real estate declined? In fact, the hapless ‘owners’ can’t even sell their home before the decade is up in the event of job loss or sickness, without additional financial penalties.

People with no money, marginal employment, no creditworthiness, no savings and unable to afford market rents being offered $300,000 to buy a home they cannot afford. How is this different from welfare Oakies or Wal-Mart clerk boys in Orlando being handed sub-prime mortgages they’d never repay?

Oh, there is one reason it’s different here.

Our bankers saw the US collapse. We know better. We just don’t care.

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