Subprime mess comes to home to BC

Port Alberni's Matt Pirillo and his family are victims of an epidemic of foreclosures taking place in B.C.

"We got our foreclosure letter dropped on our doorstep on Christmas Eve -- Merry Christmas," he said yesterday while packing up his home in the 2700-block 5th Ave.

The Pirillos are among hundreds of B.C. property owners who have been caught by slumping real-estate prices and high-interest, subprime mortgages.

They bought their five-bedroom house five years ago for $114,000, but Pirillo owes Accredited Home Lenders, a U.S.-based subprime lender, $140,000 after borrowing against their house equity.

Their mortgage called for interest payments of 8.25 per cent, but when it came to renew recently, the company wouldn't renew at any price because the bottom had fallen out of the housing market.

"My mortgage lenders evaporated. We couldn't find anybody to lend us money," said Pirillo.

In default, he put the house on the market but was unable to unload it for $215,000. It is currently listed at $169,000.

Pirillo, 40, figures all but $20,000 of his $90,000 equity will be lost.

His family is not wealthy; he is on disability pay and his wife works as a waitress to support their two children.

"It's tough times. We'll have to start all over again," he said.

Foreclosure researcher Kap Hiroti said hundreds of B.C. properties are being sold to pay for subprime loans that are in default.

Hiroti said there have been more than 1,800 foreclosures in B.C. in the last 12 months. His figures show 42 per cent of them have subprime mortgages of the type that caused a financial meltdown in the U.S.

"Forty-two per cent of the foreclosures is pretty considerable when subprimes make up only seven per cent of the entire mortgage market," said Hiroti, owner of Foreclosurelist.ca.

"Foreclosures in B.C. in 2008 were more than double those in 2007," he said.

"In 2006, we were finding 10 new foreclosures a week. Now we're finding 20 to 30 per week." Hiroti said high interest rates --three percentage points or more above those charged by Canadian chartered banks -- are one of the reasons that subprime loans are in default.

Vancouver lawyer Andrew Bury, who specializes in foreclosures, said he is handling "hundreds" of cases.

"Foreclosures are up dramatically. We're being run off our feet," said Bury, who is with the national law firm of Gowling Lafleur Henderson LLP.

"Real-estate prices have dropped dramatically. It's like a table full of glasses. The table is being shaken and the marginal players are falling off," he said.

"Many people in B.C. were using their houses as piggy banks, just like in the U.S. They wanted to go to Hawaii or get a flat-screen TV, so they took out a mortgage on the equity of their houses," he said. "When the market dropped, they ended up with massive negative equity. It is playing out all over the province.

"Process-servers tell me they've found another empty house. People are walking away and saying the heck with it," Bury said.

Langley realtor Don Tebbutt said he has handled 20 foreclosures already this year. His yearly average is six or seven.

"I'm seeing failed economic planning. With the stress of the economy, there has been split-ups. There are also job losses and illnesses," said Tebbutt, who is with Royal LePage.

(prepared by Kent Spencer/Vancouver Province)



Subprime background

Subprime mortgage companies eschewed the conservative approach of Canada's chartered banks by lending money at high-interest rates during the housing boom.

The loans were usually given to people with poor credit histories who couldn't get funds elsewhere.

The rate of interest charged was often three or more percentage points above the rates charged by major banks.

Some subprime loans in B.C. charged up to 13-per-cent interest, leading to a collapse when housing prices fell.

Subprime companies included the Home Trust Company, Xceed Mortgage Corporation, Resmor Trust Company and Canadian Western Trust.

Currently, a one-year, fixed-rate charter bank mortgage can be had for 3.5 per cent.