New Concerns about Liberal Lending Practices, Proof of Income
Alarm bells are sounding again, as watchdogs are drawing parallels between the US subprime crisis, and what they feel are some risky lending practice that are emerging, particularly when it comes to the self-employed and new immigrants.
The Office of the Superintendent of Financial Institutions is zeroing in on equity lines of credit and mortgages where they feel that lenders are becoming “increasingly liberal”, in respect to proof of income.
While these loans represent only a fraction of the total market (some put it around 5%), the spectre of shaking lending practices, and how they triggered the US crisis- from which they have yet to recover is very much still prevalent in the minds of many.
The feeling, generally speaking, is that the lending practice in this country is far more stringent that that displayed in the US. The rules are well monitored by the Federal Government, who continues to keep a close eye on lenders, and has not ruled out further intervention if required.
Although household debt levels continue to hover around very high levels, the predominant feeling is that for the bulk of these debt holders, the debt is generally being well managed, and that only a fraction of debt holders are vulnerable in the case of an increase in interest rates and/or a slight decline of equity in homes.
What has brought new focus to this particular issue is that there has been a demographic shift of sorts in this country; Stats Can’s latest job numbers suggest that there is a steady upward trend for Canadian towards self-employment.
Furthermore, there are an increasing number of immigrants coming to this country- particularly in centres like Toronto, Vancouver and Montreal, where unique challenges in helping grant them passage to home ownership are becoming more commonplace.
With this shift in borrower profile, it suggests that perhaps there needs to be a new level of unity when it comes to due diligence and common safe lending practice when it comes to these new segments.
There are many differences between Canada and the US, not just in lender restriction, but in borrowing behaviour as well. There are far fewer delinquencies in Canada, for instance, than in the US.