Quote:
Originally Posted by Truenorth00
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We are basically operating in a Japan zombie bank situation, except with home mortgages and the federal government via CHMC is on the hook for losses. ~30% of mortgages are in negative amortization and the period is above 30 years for them. People are sliding backwards nearly a decade of amortization in the span of a year.
There is probably
intense political pressure to not realize these losses coming from the federal government. If banks don't realize the losses, CHMC doesn't have to pay out. What a poison pill for a government if CHMC has to eat huge losses and divert tax dollars to keep banks upright. It'll be our version of the 2008-09 US meltdown, but saddled with huge COVID debt already. The walk in the snow looks rather more pleasant than the
fireworks burning next to the pile of ammonium nitrate.
The last hope is that housing prices continue on upwards unto infinity so that the asset can be unloaded to the next person at the inflated price, covering the principal and accrued interest. Policy from government seems to be oriented to this tactic. The current homeowners aren't going to be homeowners for long - they're losing it all regardless. It'll just be a few years until it happens even if interest rates go to near-zero, because that's where most took on the original mortgage and now they're behind.
Maybe capital-rich people will buy the asset and turn them into rooming houses or rent them back to their former owners.
The fact that we got here says about how dumb the last decade has been. Had the incoming Liberal government of 2015 banned variable mortgages, tightened lending standards, increased the amount of downpayment required and limited CHMC's mandate more, the train wouldn't have picked up the speed it did.
Here we are. The derailment will be fun. At least inflation will get stomped out of the economy when this happens.