Increase in foreclosure rates increases buying opportunities

There may be an upside to Canada's emerging subprime-mortgage problem as lenders increasingly move in to foreclose on overextended homeowners: New-found investment opportunities for real-estate speculators.

And it's not just the narrow but ballooning pool of subprime-mortgage foreclosures, but the overall boom in the foreclosure business that could get investors in a buying mood and desperate homeowners more willing to sell fast.

"A lot more properties will be sitting for longer and some of the properties are going to be vacant for sure," said Kap Hiroti, who tracks foreclosure proceedings in British Columbia and operates Foreclosurelist.ca, which links sellers with potential buyers.

Although nationwide data are scare, foreclosure rates are soaring in Alberta and British Columbia. And about half of those affected received mortgages they couldn't really afford from lenders who were willing to finance people with lousy credit histories - borrowers who would be considered too risky by mainstream lenders such as the big banks and credit unions.

The rate of foreclosure proceedings has doubled in Alberta in the past two years to about 5,300 in 2008-09 and subprime lenders made up 56 per cent of foreclosures last year. In B.C., subprime lenders were responsible for 42 per cent of foreclosures last year.

The mortgage crisis in the United States saw a growing mountain of foreclosures thanks in large measure to subprime lenders, who held a whopping 22 per cent of the market.

Canada, officials crowed, had much more stringent financial rules, with subprime lenders making up just 7 per cent of the market.

Federal Finance Minister Jim Flaherty pointed out this weekend that the government has already taken steps to tighten regulations around lending, such as limiting mortgages to 35 years and requiring a 5-per-cent down payment. He shrugged off the latest subprime data as no cause for concern.

"We knew we had some of these mortgages," he told CTV Newsnet. "They are mortgages that were made to people generally who were not credit-worthy. But we did not have in Canada the kind of exotic subprime mortgages - bubble payments, low payments for 12 months and then your payments tripled - those kinds of mortgages that caused a great deal of trouble in the United States. That's not the situation in Canada."

One economist estimated that 85,000 Canadians in 2006 had subprime loans and added that subprime was becoming the fastest growing segment of the mortgage market.

Glen Mabbott easily picked up several foreclosed properties in the U.S. south and plans to flip them for a profit. But when the Calgary real-estate investor turned his attention to the Canadian market he barely got a nibble after sending out 100 letters to owners in the early stages of the foreclosure process.

"The were still wanting market price, so we just finally quit," Mr. Mabbott said.

But Mr. Hiroti said that the attitude of sellers will likely change with real-estate prices sliding amid a recession.

Gone are the days of bidding wars for properties. Using a realtor means real-estate fees eat into the amount of money recouped. That's why homeowners may increasingly opt for a private sale in the early stage of the foreclosure process, he said.

"It'll get to the point where people will be walking away from their properties."

(prepared by Dawn Walton/Globe & Mail)