Historical article note: This article was originally published on 2018-01-01. Rates, policies, home prices, statistics, product names and qualification standards reflect the environment at that time and may have changed. This archive is for historical record and general education only. It is not mortgage approval, investment, legal or tax advice.

I have always wanted to write some practical knowledge about Canadian mortgage loans, which can accumulate experience and common sense. Starting in 2018, open a WeChat public platform and slowly accumulate. In this first article, I want to talk about the nature of mortgage loans, whether they are inherently good or inherently evil, and challenge myself.

The supporting role of housing loans in the real estate market is self-evident. After housing prices rise, there are always people who accuse "others" of irresponsible borrowing and pushing up housing prices. They not only turn themselves into housing slaves and reduce consumption levels, but also drag down the development of the country's real economy. This argument that mortgages are inherently evil is quite popular among people who don’t have a house or a mortgage. The "evil behavior" of mortgage loans is mainly reflected in: before people have time to buy a house, housing prices are pushed up by mortgage loans; if all the down payment is used to buy a house, who is still investing in stocks? . . . It has been observed that those who say housing loans are evil are people who have not benefited from the real estate market. These people are right, but people who have benefited from the real estate market do not think so. Who is right and who is wrong?

After the U.S. subprime mortgage crisis, scholars have done a lot of statistical analysis and proved that it was the excessive issuance of mortgage loans that pushed up housing prices, rather than the development of the housing loan business driven by rising housing prices. The simplest example is Detroit. After the high-tech stock bubble burst in 2000, investors realized that the financial fraud and monetary illusion in the stock market had reached a level that ordinary investors could not recognize with the naked eye. Therefore, buying a house became the best choice for self-occupation and investment. From 2000 to 2008, U.S. housing prices continued to rise, stimulated by four factors: 1. Financial institutions issued excessive loans regardless of the quality of mortgage assets in the primary market, and then immediately used MBS (mortgage backed) in the secondary market to Security mortgage asset-backed securities) are sold to investors because they do not need to hold these mortgages. Lenders in the primary market have completely lost their sense of responsibility in controlling loan quality; 2. The political clamor that "every American has the right to get a loan to buy a house" floods the United States In the political arena, helping low-income people realize the American Dream has become a campaign manifesto, and the government has openly and covertly encouraged lending institutions to relax their approval standards; 3. Borrowers with very weak financial strength choose ARMs (adjustable adjustable rate mortgages) with very low monthly payments in the first year under low interest rates. rate mortgage), after the preferential period, the mortgage loan and the real estate are held in the form of refinance, and the housing supply relies entirely on the rising housing prices instead of the borrower's stable income; 4. The secondary mortgage loan market is full of fraud and very poor quality housing loans. For example, Detroit's housing loan MBS has also been highly rated as a bond with investment value by rating agencies and is marketed around the world. After watching the movie "The Big Short" and reading "Irrational Exuberance" or "Animal Spirits" by Robert Shiller, it is not difficult to find that the word "subprime mortgage crisis" is the most perfect word to describe the 2008 global financial crisis. When the real estate bubble burst, families with weak financial strength suffered the greatest marginal losses. Those families that were foreclosed lost almost 100% of their home equity. Years of savings for down payments were wiped out. Some families fell from the middle class back to abject poverty. The subprime mortgage crisis caused 6 million people in the United States to lose their homes, 8 million people to lose their jobs, and losses in the stock market, real estate, and pensions to exceed 5 trillion. This is the greatest housing loan abuse ever seen in human history. This unique case of mortgage fraud illustrates how animal spirits can cause economic instability, plunder the wealth of the poor, and cause unprecedented disasters around the world.

So far, many people have cited the U.S. subprime mortgage crisis to insinuate the Canadian mortgage and real estate market. Can this really be applied? First of all, there are no ARM loan products in Canada, and the monthly mortgage payment is the same from the first day to the last day of the contract period. Secondly, the Canadian government does not regard the homeownership rate as a political achievement. On the contrary, the B20 policy implemented on January 1, 2018 reflects that the federal government has raised the stress test level in order to make mortgage loans increasingly unattainable for low-income people. Third, the Canadian government has a monopoly on the secondary mortgage market and has set extremely strict standards for converting mortgages into bonds. Fourth, when people with low incomes want to obtain mortgages, although there is cooperation from private loans or corrupt loan officers, shadow banking and fake documents are semi-underground after all and are unlikely to cause major harm. To sum up, Canada’s mortgage market is very stable. According to statistics from the Canadian Bankers Association, the latest loan default rate at the end of August 2017 was 0.24%, while the United States was 1.24% during the same period. In January 2010, the U.S. mortgage default rate reached a record high of 9%. At that time, Canada's mortgage default rate was only 0.45%. The most noteworthy thing is that Canadians have total assets of 12 trillion Canadian dollars and total debt of 2 trillion dollars. Every 10,000 yuan of debt supports 60,000 yuan of assets. In Canada, mortgage loans are inherently good. This is thanks to the prudent policies of banks and the wisdom of the Canadian government: poor people can receive benefits, but when it comes to buying a house, they only encourage self-reliance.

Mortgage must be a scarce resource and should be given to those who are able to repay it. Mortgage loans are financial leverage and are in the hands of banks. The standard for granting them is based on who has the highest income. If the secret to buying a home is location, location, location, then the secret to getting approved for a mortgage is income, income, income. Many Chinese feel that Canada's income tax is too high and try their best to avoid taxes. As a result, they cannot get enough mortgage loans. The amount of a single loan is 5.5 times the annual income. If you underreport your income by 10,000, you will borrow 55,000 less. This is the meaning of leverage. When we immigrate to a capitalist country and have no capital in our hands, we can only contribute surplus value. Loans, including mortgages, are virtual capital. Only if you can borrow a loan can you purchase capital assets and have the opportunity to change your capital. The essence of mortgage loans is to despise the poor and love the rich. The work of banks is to provide icing on the cake, not to provide help in times of need. How quickly can you accumulate 50,000 net assets after treating yourself as a labor force and contributing surplus value? Or is it faster to borrow 10,000 in debt to support 60,000 in total assets? Don't let poverty limit your imagination. By understanding the nature of mortgage loans, we can break away from what others say and see clearly what we want and how to get it.

In 2018, the real estate market will be reshuffled. Whoever understands the essence of mortgage loans first will be the first to take advantage.

I wish all readers a happy new year, may all your wishes come true, and be in good health.

Red Rain January 1, 2018 in Toronto.