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September 5, 2017

Are banks set to fail again?

In 2008/9 Canadian banks were in dire financial trouble and in need of an injection of over $114,000,000,000.00 of funds from the Federal Government – mostly from CMHC buying up risky mortgage loans.

The problem was entirely related to reckless and overzealous lending policies.  Those policies never changed at the time of the original draft of this blog or at the time of the update.

The central bank has said (in 2013) that Canada’s housing market was over-valued by at least 30% and some other reports have suggested as much as 60%.

That means that the average Canadian house price of $420,000.00 should be adjusted, for lending purposes, to $264,000.00.  Additionally, since banks can only mortgage to 80% of loan to value without CMHC insurance, for the average Canadian $420,000.00 purchase, banks should only be putting out a maximum of $211,000.00 in mortgage money.

If the banks were acting in response to the information they have available, consumers simply not afford to buy houses even at low interest rates?