RE:RE:RE:RE:HOME PRICES DON'T MATTER TO HCG'S BUSINESSHCG borrowers are typically business owners and new immigrants. So yes, they will sell their other assets first before defaulting. Defaulting on a full recourse loan is the last thing any logical borrower would consider.
Losing 20% since April but it is still up YOY. Actually the liqudity crisis shielded HCG on the April peak.
Uninsured mortgage is also regulated by OSFI. Is that not part of the banking system? You are too naive if you think the government will just let the uninsured mortgage market crash. We all saw the contagion effect of HCG's liquidity crisis. B-20 is unlikely to be fully effected as it was presented. They will probably choose small parts of it and see how whether they can manage the housing correction from that.
Tater78 wrote: Sure, these buyers are sitting on tons of assets and that's why they go to HCG for their mortgages.
The asset they have is a house, and its lost 20% of it's value in the GTA since April. It will lose more going forward.
B-20 will go into effect because insured originations have collapsed, and uninsured have ramped thanks to the bundling. OSFI is concerned about the banking system collapsing. They aren't accountable for anything else.
WBuffett1 wrote: Of course they can refinance with a lower LTV if they inject more equity. Canadians will sell their other assets to inject equity before they choose to default on their mortgages because of full recourse mortgage laws. Do you think the full B-20 will get passed if it leads to widespread defaults? The government is trying to manage the housing correction not a housing crash.
At the end of the day, its about demand and supply. Demand for Canadian resi is still (too) strong and thats why the government needs to artificially lower the demand and manage the housing correction. If borrowers cannot afford to inject equity, they can sell the real estate at a demand heavy market. If housing prices fall too much, the government can always remove foreign buyer restrictions to prop up demand.
You have no idea what you are talking about. HCG is the one that bundled those loans. They are fully aware of their borrowers' risk profile. A lot of borrowers took second lien loans not because they cannot afford the down payment, its because they want to take advantage of the lower interest rate enviornment.
You can treat the premium you paid as sunk cost because HCG's SP will recover sooner or later.
Tater78 wrote: How can they refinance with a lower LTV when the V is dropping faster than the L??? I don't think you understand how this works. Add on B-20 and the difficulty of rolling loans is going to really hurt.
Bundled loans hurt HCG by raising the risk profile of their book in a way that they are unaware of. If someone needs a bundled loan to buy a house and at the end of their 1 or 2 year mortgage they are underwater, they can't roll the loan. HCG gets stuck trying to sell homes in a dead market. And if the 2 lien lender gets wiped, he can't lend another DP. And so there are less buyers, and on and on.
I don't generally short single names and HCG is no different. I'm long puts, the strike is well above current SP and i've got lots of time left.
WBuffett1 wrote: For the six millionth time, HCG is not a real estate developer. They don't need home prices to be sky high to be profitable.
A housing correction de-risks HCG's balance sheet over the medium/long run. HCG itself would want home prices to come down so their borrowers would get mortgages that they can afford.
Yes, in the short run, a housing correction would raise HCG's average LTV but it would be manageable given the average LTV of 60% and they will be refinanced with lower LTV when they mature.
Also, bundled loans do not raise the risk profile for HCG because they get first lien. If borrowers default, the second lien guys will get wiped out first before HCG gets hurt (if at all).
Don't listen to Tater78 and his short and distort tactics. Its obvious that his short trade is now underwater and he is still paying 15% interest from borrowing the stock to short. He is financially motivated to spread fear and lies in the market.