Thursday, December 11, 2008

Bank of Canada announces foreclosures may increase

The Bank of Canada just issued a press release (seee below) stating that the number of people that may default on their mortgages and loans will increase if the current financial crisis continues and deepens here in Canada.

Specifically the bank states "With household balance sheets under pressure from weak equity markets, softening house prices, slowing income growth, and record-high debt-to-income ratios, a severe economic downturn could result in a substantial increase in default rates on household debt"

The Bank of Canada calls them foreclosures, but I want to point out that here in Ontario the preferred method when a person defaults on their mortgage is Power of Sale (POS). In POS the bank sells the property under it's right contained in the mortgage that you gave them in return for them giving you the money. Remember that time, you needed the money to buy the house, so the bank gave you the money but in return you gave the bank the mortgage!

So, when you default on the mortgage, the bank will sell the property and try and recoup their losses, but if they are still out of pocket, they also retain the right to sue you for their losses. This is the main reason why so many people who lose their homes through power of sale also go bankrupt, because they still owe the debt until they are bankrupt.

You can read more about Power of Sale at this page:
http://www.mississauga4sale.com/POS

This is the press release just issued by the Bank of Canada:


Bank of Canada warns of possible mass home foreclosures if conditions worsen
2 hours ago
OTTAWA — The Bank of Canada is warning of severe economic turmoil, including the risk of many Canadians losing their homes, if the financial-market crisis worsens.
The central bank's December financial systems review says the "most likely outcome" is for markets and credit conditions in Canada to gradually improve as extraordinary measures by central banks and governments take hold.
But that outcome is by no means certain, it warns, saying uncertainties remain about how long it will take for credit markets to return to normal.
And if global financial conditions deteriorate, the bank warns the repercussions for Canada could be serious, including a deep and prolonged recession, slow income growth and severe trouble for Canadians already carrying heavy debt loads.
"With household balance sheets under pressure from weak equity markets, softening house prices, slowing income growth, and record-high debt-to-income ratios, a severe economic downturn could result in a substantial increase in default rates on household debt," the review states.
Canadian banks are among the best-capitalized in the world but would not emerge unscathed, the central bank's analysis concludes.
Much as has happened in the United States, the document says household debt woes could be a channel of contagion spreading through the banking system and cause even greater tightening in the availability of credit.
Banks are somewhat insulated by mortgage insurance, but the Bank of Canada says a severe economic downturn would nonetheless put pressure on their capital ratios.




For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

2 comments:

  1. That's some pretty scary news. Maybe that's why they're cutting down on mortgage rates now?

    It's goo to be warned of the dangers ahead, hopefully the worse-case-scenario won't happen.

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  2. Thanks for your comments.

    Yes, let's all hope that things don't get as bad as the US and that the upcoming recession here in Canada is short lived and shallow.

    Only time will tell!

    Have a nice weekend,
    Mark

    ReplyDelete