Dear Mr. Morneau – Please Don’t Let Us Lose Money on Home Capital

May 29th, 2017 · 3 Comments · Mortgages, Rental Property

In this article I mock the Financial Inquirer’s weekend piece written by a US Hedge Fund guy and a Canadian who manages an Taylor Asset Management. It deserves to be mocked, and I’m honestly sick of these talking heads that prop up Home Capital Group. They should all be forced to buy shares. Guys seriously, would you buy some of this for your mom’s retirement fund?

Due to our irrational optimism, we got our employer to buy shares in the Canadian Stinky Mortgage Pile AKA Home Capital Group. Fortunately we bought most of our shares on sale. We are writing to plead with Finance Minister Bill Morneau to act to save our bonuses. We now realize there is no hope for the company because of all the shady accounting and mortgage fraud as pointed out by US short seller Marc Cohodes. He is right, but we don’t want to admit that this entire situation mirrors the USA financial meltdown.

Let’s begin by examining these similarities, which was precipitated by an irrational national obsession with the value of real estate, followed by an “the ends justifies the means” attitude on the part of borrowers and lenders alike. Because no one remembered that falling house prices could exist, anyone could qualify for a mortgage, and because everyone believed that real estate was a sure bet, no one was very concerned about it.

Defaults didn’t exist at this time because if you got into trouble you could just put your house on the market, have a bidding war, and make a sweet profit.

In this environment, lax underwriting standards and cheap mortgage debt combined with HELOC’s encourage Canadians Americans to borrow their fucking faces off, past the point of all reason.  Nobody noticed because they were all caught in the same mania and anyone who failed to display the same delusion was promptly laughed at, shunned and ostracized.

Canada was one of the few industrialized nations in 2008 and 2010 that had a mortgage bubble but refused to allow any reason to disturb our collective agreement that everything was fine. Except of course the 16% drop in real estate in 3 months, but that was nothing after the $114 billion in liquidity support and $69 Billion in loans CMHC purchased during the time. After this event the Canadian Banks continued their exceptional underwriting standards.

Nearly all Canadian provinces have recourse mortgages which means not that much when it comes to people making endless payments on a house that is worth much less than they paid for it.

As Canadian mortgage regulation has become more stringent, and buyers more and more irrational, many buyer have turned to B lenders including but certainly not limited to Home Capital Group. There is a fantastic and vibrant shadow economy of lenders that advertise on almost every street corner with their signs, on craigslist and kijiji, and through mortgage broker networks. If you want a house someone will almost certainly finance it. There is even a healthy secondary private market for mortgages in default which are bought at par by shady lenders who “help” borrowers by getting them to sign new mortgage with predatory terms and fees. But let’s not think about that. In response to the new regulations borrowers and lenders alike have found ways to get their freak on or buy a house which ever you prefer.

For the banks and Home Capital Group is is very easy to sell your mortgages to another entity that will obscure your default rate. Of course if the mortgage is insured by CMHC we’ll pretend it isn’t happening for a whole fucking year. But don’t let that fact disturb your narrative.


Yet the facts are the open invitation to the nasty dirty short sellers (especially that awful chicken farmer Marc Cohodes) who have examined the situation, done the research, and used their money to bet against the insanity of the Canadian Housing Market. They don’t even have to be smart, it’s the Big Short 2. Our collective delusion and house frenzy and fear of economic collapse doesn’t change a thing. When a Big 5 bank thinks it’s smart or necessary to advertise international student mortgages with no income checking, don’t you think we all need to stop the madness? Why the hell would an international student need a house? What the hell is the matter with you CIBC? Are you on Maple Syrup again?

To be clear, Home Capital Group, should just be put out of it’s misery. It’s over and you’ve already shored up Equitable Bank. Yes I saw what you did there. I’m sorry but Canadians are going to have to take a very bitter medicine, and if the government hadn’t kicked the can down the road during the USA financial crisis, we wouldn’t even be here. Now we’re at a place where Canada’s house prices are higher than the USA’s even with our funny money. It’s not a question of can you, it’s a question of should you. The dangers of continuing are worse than the dangers of stopping the madness.

House prices need to adjust to a reasonable level, we’re just on a cycle of endless increase of debt, fueled by more debt and most of that debt is on houses.

I work for landlords, I see the level of speculative behavior. No one makes money on rent, everyone is speculating on price increases. That is all. The landlord business is no more and instead we just have an endless stream of speculators. It’s truly awful and while I never imagined missing the cheap bastard landlords of yesteryear, at least they acknowledged the value of a great tenant, and knew they had to change the smoke alarm batteries once per year.

While I’m terrified of the fallout, I’m more terrified of what happens if the bubble isn’t pricked and we all just keep pretending this is sane and normal. Oh and can you build some rental buildings please? Not you personally, but we need some rental buildings that aren’t condos. That may soften the blow for our construction sector, which will be devastated when the condo market blows up.

Bye Home Bye


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3 Comments so far ↓

  • Allison Jean Munn Barber

    Don’t be terrified. You have advised people well, and if they failed to heed…I am excited. We just now got a new government; Green NDP coalition. Things are going to change Bigly.

  • prett

    Hi there,

    I cane across this page while searching for the answer for my question regarding the rental property. I have rented an apartment in Guelph ON. I did application and provided last month and 1st month check in advance and 15 days prorated certified check. I was shown the different unit but when i applied tgey said that unit is gone we have other available in this building.I was in need of place as of new job so i did application andmy application got approved. They gave me keys and got signed the posssiosion document and said we will call you to sign the lease once we got it. I moved to the unit with basic stuff not all .When i entered that unit what i found there is no exaust fan in bathroom and no exaust filter in kitchen.No Ac provided and for heat there is no separate control per unit. and it’s really noisy . can can hear my both side neighbors’s all talk in easily and clear. when they open any tap it sounds like they are in my apartment. when they even they eat something i can hear bowl/ plate and spoon hitting sound clearly. and after shutting all tge doors and windows tightly i hear sounds from outside the like traffic on road, people talking , blowing wind etc. I tried to reach apartment superintendent and he said i can’t do anything. othere people are also living tgey never complained. then i tried to reach the application department that lady is not taking my call and replying my messages . i haven’t seen such kind of inhumanity. I am full time working person and i have migraines proplem i can’t bear tht much disturbance. Can please advice me if i can move out as i haven’t signed any lease yet. I just moved in with signed possession paper.
    please reply i am really suffering.This building is too noisy even if a tiny thing fall on floor it sounds too loud with which i wake up in midnights . floor had before carpet on it they ripped it and didn’t replace with any floor.Flooring at moment is hard tile kind of base that we usually have underneath the carpet.(not wooden floor).