On The Front Line....Gaining Some Insight Into the US Woes

Tom and I returned late last night from some meetings in Florida.

It was definitely eye opening to see and hear what is going on with the US economy from the front lines.  I had trouble believing the amount of negative amortization loans that some people had seen in the past.

For anyone that needs to understand why the Canadian mortgage industry is not in the same shape as the US one, this is a perfect example.

Some people seeking out a mortgage before the financial crisis hit the US would sign on to a mortgage a an unbelievably low teaser rate.  Let's use 1 % as an example, even thought the lending rate at the time was 5%.

So what happens to the other 4% as each month passes?

It gets added on to the principle of the mortgage!  So in reality your mortgage gets LARGER instead of smaller!

This continues until the principal owing on your mortgage is anywhere from 110% to 115% of what you originally borrowed.  At which time the rate will jump up to 5%.  (There are other details in each specific case but this is a broad example to give you an idea of how such things were working)

How does that sound for a mortgage?  Are you interested?

I certainly hope not.

People got away from the basic fundamentals of real estate, one being that large negative cash flow is a bad thing no matter which way you look at it.  And that applies to your own home or an investment property.

There were a lot of other eye opening lessons we learned from our meetings.  There is no better way to get an understanding of the situation than being 'on the streets'.  We will be sharing all of these with our Income For Life members.

But it wasn't all work.  We did manage to make time to drive 600 HP NASCAR race cars.  Yup, you read that right?

I have some pictures to share with you once I catch up on the backlog of things on the 'To Do' list.

Canada is one of the few countries that are still expecting growth throughout this year and next.

Maybe all the regulatory hoops we had to jump through to get a mortgage on this side of the border weren't so bad after all.

- Nick Karadza

P.S. I have removed a small portion of the article that deals directly with the politics of the upcomng election (this is not a political blog).  If you are intrested in the political portion please visit the link above.

We don't give ourselves credit
Canadians should be proud of financial stability
Kelly McParland, National Post
Published: 10/9/2008 12:00:00 AM

If ever there was an innately Canadian response to a crisis, the national reaction to the credit crunch must be it.

Thus far Canada appears to be in better shape than other Western economies caught up in the backwash of the U. S. meltdown. Far from taking comfort from the fact -- perhaps even exhibiting a little national pride -- Canadians seem intent on punishing the government for not being panicked enough. Look at what's going on elsewhere:

The United States itself has all but nationalized much of its mortgage market, crafted a bailout of mammoth proportions, watched the financial titans of Wall Street crumble and a string of banks collapse or be swallowed by competitors. Britain yesterday launched a partial nationalization of its banking sector; Spain created an $80-billion bailout fund; European finance ministers tried (and failed) to organize a co-ordinated response; France imposed restrictions on executive pay; and Iceland, facing bankrupcty, pleaded with Russia for an emergency loan.

Compare that with Canada. There is no talk of a banking bailout, and no suggestion one is needed. Canadian banks say they remain well capitalized, and -- as reported in yesterday's Financial Post -- have been approached by the U. S. Federal Reserve to help in its rescue operations.

It is highly unlikely any Canadian bank will go under. There is no prospect of nationalization -- even Jack Layton and his NDP haven't suggested such a thing.

Far from facing ruin, Canada's banks are seeking out bargains in the United States, hoping to use the crisis to expand their own operations south of the border.

On Monday, the Bank of Nova Scotia took advantage of a bargain closer to home, spending $2.3-billion to buy a big chunk of CI Financial Income Fund, one of the country's biggest mutual fund firms.

There is no real estate crisis, no subprime mess, none of the Bay Street bigwigs has gone out of business.

This is not to suggest Canada is Happyland and the future is nothing but roses. There will be a hefty, and as yet incalculable, price to pay for the economic disaster in the United States. Americans may already be in a recession, and Canada can't hope to escape its effects. It could be long and painful, exacerbated by the spread of the contagion to Europe and Asia, and the apparent inability of legislators in any of those regions to get a grip on it. There could also be considerable fallout from the sharp decline in stock prices if the inevitable recovery is too long in coming.

But it is to say Canada appears to have made better preparations for these difficulties than most of our allies or colleagues in the G8. The purpose of regulatory systems and backup plans is to prevent a crisis from becoming a disaster, and Canada's appear to be working.

On Tuesday, the International Monetary Fund projected Canada will lead industrialized countries in economic growth next year, though at a paltry 1.2%. Royal Bank of Canada agrees, reporting that Canada's economy "remains firm" and projecting growth of 0.9% this year and 1.5% next year. Canada remains in surplus and all the federal parties say they can keep it that way.

It would seem logical that we would signal an appreciation of that by seeking to continue along the same lines. But instead, Ottawa is being assailed by charges the status quo isn't good enough, that what we need is a grand plan, some kind of rescue mission, mainly -- it appears -- because everyone else has one.

(political portion of article removed)

It's very Canadian: We can't accept that we've done a better job at staving off disaster than other countries have. Maybe we've been a little bit smarter, a little bit better prepared. Nah, couldn't be. If they're in crisis, we must be in one, too. Give us a bailout now -- we'll figure out what to do with it later.

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