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The winds of change: Y2ThisTimeIt'sDifferent

To say that there have been a lot of warning stories in the MSM this week would not, I repeat, NOT be an understatement. Here's an interesting one, thanks to Roger.

Of course, the highlights:

Tighter lending conditions around Canada's small but expanding subprime mortgage market could splash some cold water on Canada's housing sector in the months ahead.

Many of the mortgages... offered were to segments of the population, such as the self-employed and immigrants, that have been key drivers lately in the real estate market.

"If banks start holding back credit because they get nervous and ... credit-worthy borrowers can't access loans to make purchases, that could slow the economy,"

several subprime lenders are battening the hatches. Xceed raised its mortgage rates by 100 basis points in the past three weeks and Money Connect has also raised its mortgage rates. Money Connect CEO Maurice Forget said they've also withdrawn one type of product from the market aimed at self-employed people.

What could possibly be driving these mortgage lenders to change their products up here in Canada? After all, CMHC guarantees these types of loans against losses, don't they? That's what we hear up here whenever someone tells us we won't be like the US. You can read here for a little insight into the underlying trouble that will in fact spread northward, just as hit has hammered RE markets in Europe.

Meanwhile, there was more fallout from credit market turmoil. Investors hammered shares of Xceed Mortgage Corp. after the alternative mortgage lender suspended its dividend and warned that market upheaval could hurt its profitability for the rest of this year.

"At this time, we have no way of knowing how long the current market conditions will last," said Xceed chief executive Ivan Wahl. "For the duration of this period, it is going to be a difficult and challenging time for our industry, Xceed, and our investors."

On Aug. 13, Coventree disclosed it was having trouble rolling over its commercial paper while some lenders balked at its call for emergency funds.

Up here in Canada, where subprime lending is roughly an "expanding" 5% of the mortgage business, where it is expected that subprime should have no impact on the market whatsoever, it has suddenly become in vogue to blame subprime lending for the looming RE correction. But when you get someone saying that it is in fact subprime lending that has been a key driver in current market conditions, you kind of have to scratch your head a little.

What really got me though was that they're predicting that because of ABCPs now being worth less than the paper they occupy, credit-worthy borrowers won't get mortgages. I guess I'd better buy now before I'm kept out of the loans forever, then right :) ?

Think about how big a correction will be coming if subprime borrowers can't get mortgages and credit-worthy borrowers can't too. Only people with cash can buy. If this is true, and this happens, whoa is the homeowner who has to sell.

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