The 2008 subprime mortgage crisis can be summed up in the clips below:
- The first one is the scene where Jared Vennett presents the opportunity to short housing bonds to Front Point partners (click here if the embedded clip is not showing up).
Now, what is a subprime mortgage? According to Investopedia, a subprime mortgage is a risky mortgage given at a higher rate and/or strings attached to clients whose credit scores are low. Expanding upon this, one may say that a subprime mortgage is a mortgage given to those who do not have a safe enough income source to develop money management habits and have the ability to pay bills on time and successfully service loans and other debts. Honestly, aside from personal flaws, most people tend to ruin their credit score due to a tough life. If you expand the subprime mortgage definition this way, you get to the writing on the wall I hope I am interpreting well.
Anyone who bought one or more properties in the last 5-10 years, and especially the last 2-4 years- unless they belong to the investor class- will be in danger of defaulting on their mortgage once their mortgage is renewed at a much, much higher rate. This will be sad and devastating, and also inevitable. Gradually then suddenly, good hard working Canadians with stable careers or small businesses who satisfied all the mortgage lenders' requirements and bought a home will become risky, subprime lenders involuntarily. Add to that my fear that suddenly the banks might treat them as such and you will see a lot of anger out there. Some people will lose homes, others will downsize, and some people will stay put but may have to act house poor, ditch an extra car and so on. All the while, the subprime market will balloon, the house prices will go down, and people will be paying a higher monthly mortgage for a home that is worth much less than before.
So remember, ultimately every mortgage rate is variable; I just do not know how I feel about that.
What do you think, dearest readers? Is this a realistic concern? Are there any other housing concerns you have been thinking about? Share if you like and I wish you a good weekend. :)