On May 27th of this year I wrote about Shadow Banking and the possible implications to the Vancouver and Canadian real estate market in general. On June 17, 2017 Sam Cooper of the Vancouver Sun wrote wrote a more in-depth exposé (well worth reading in full).
To refresh, shadow lenders include “include mortgage investment corporations, hedge funds and private lenders such as realtors, crowdfunding companies, real estate lawyers and mortgage brokers.” These are non-banking lenders “that increase the supply of credit in Canada’s financial system, without facing the regulatory oversight of banks. Critics say shadow banking is vulnerable to loose lending standards, mortgage fraud, money laundering, and collateral that is overly leveraged (also called re-hypothecated) — meaning debt backed by property assets is used over and over again by related lenders to issue more home loans, in ever riskier chains of debt.” Individuals who lend money to family members, friends and acquaintances also come under the “Shadow Banking” umbrella as they are unregulated.
Shadow Banking distorts the real estate market in such a profound manner given that the practice cannot be sustained indefinitely and when it does hit the “wall” the outcome will most definitely negatively impact real estate values. Sam Cooper also discusses the how in mainland China Ghost Collateral is such a prevalent practice which is fraught with fraud. We are all aware that the Vancouver housing market is literally tied to the hip of Chinese speculators so this is particularly important information you should educate yourself about.
If you are contemplating buying you would be prudent to qualify for a mortgage through the traditional banking system. At least there are measures in place to ensure that you can afford to borrow a certain amount based on your income and debt. You will also have some protection in the event that your mortgage is defaulted. No one really knows what measures Shadow Bankers will go to to collect the money they've lent out should someone default and I for one would not want to find out.
I know home prices just seem to continually increase without any sign of a slow down or a correction. However, I also I know is that everything is cyclical: house prices, the stock market, the economy, the seasons...it's just the nature of things. Nothing goes up forever. People have been studying cycles of all sorts for centuries. So be wise with your finances and who you deal with. The implications could dramatically impact both your financial circumstances as well as your personal well being
#Shadow #Banking #Ghost #Collatera #Realtor #realestate #realestatetips #RealEstateAdvice #realestateproperty #RealtorsOwnIt #realtors