Newsweek has published a short article about one subprime lender's assessment of the mortgage mess in the United States. While this article is targeted towards the situation south of the border, I believe that it still rings very true in Canada.

The most noteworthy part is that the lender, Richard Bitner, puts a large share of the blame on mortgage brokers and appraisers. I agree with his analysis in that he believed that brokers were often attempting to put bad deals in front of lenders. As a lawyer that represents private lenders in transactions, I see this from many brokers and alert my clients of these issues, even if the brokers don't like it. One that comes to mind involved a broker that attempted to have my client, a private lender, fund a borrower with a history of non-payment, on a condominium building in which the building did not have enough money to complete repairs it had determined as necessary. Brokers try these "tricks" on lenders quite frequently, and I agree with Bitner that this may be a large part of the problem.

Bitner also blames appraisers for over-valuing property. While I agree that many appraisers may lean a little more in favour of the borrower, I don't believe that they are way off base. Rather, I believe that the over-valuing of real estate may be driven more by real estate agents attempting to earn their commissions. When a condominium project begins selling condos at $1,000 per square foot and paying the agents 4% commission, the math shows how many real estate agents can earn more in a weekend than many lawyers can earn in a month.

But in my view, what really caused the breakdown in the US was simple: Greed and delusion. Greed from people seeking their commissions and delusion from buyers thinking they could afford something they can't.

I wonder on a regular basis if what hit the US will come into Canada. Many of the same signs are there, but is there some differentiating factor that changes everything?

        

 

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