Alberta lender reacts to ‘strategic default’ claim

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It’s no secret many Alberta housing markets have been hard-hit in the wake of falling oil prices, but claims that defaults are out of control are overblown, according to one local lender.

“Strategic defaults are not plaguing the Alberta market. We are in a downturn in this province, and there is downward price pressures in the market, particularly in higher end homes, however there is not a wholesale strategic default problem in Alberta at this time,” Dale Koeller, senior underwriter with Calvert Home Mortgage Investment Corporation wrote in the comments section of MortgageBrokerNews.ca.

“Mortgage arrears in Alberta are up over last year, and last year (were) at record lows,” Koeller continued. “Alberta mortgage arrears were 0.28% at date of last report in October, compared to Canada's 0.27%.”

Koeller’s comment was in response to a CBC report claiming the federal government is keeping an eye on the practice of strategic default rates in Alberta.

The practice, which was prevalent in the 1980s when mortgage rates hit astronomical levels, involved clients sending their keys back to their lenders in a bid to walk away from their unaffordable properties.

“We're slowly starting to see it in Grande Prairie and Fort Mac. People saying that we can't make a go of it and mail the keys to the bank,” Real Estate Investment Network senior analyst Don Campbell told CBC News. “In the big cities, not so much because the average sale prices haven't really dropped much, we haven't seen the pain yet. But Calgary is getting pretty tight.”

However, Koeller argues the fear of increased strategic default rates is overblown.

According to CREA’s most recent stats, prices in Alberta fell by 2.7% year-over-year to an average of $381,757 in January of this year.

The unemployment rate in oil country hit 7.4% in January - an increase of 2.8% year-over-year.
  • RossK on 2016-02-25 12:34:39 PM

    The average value of a home in Alberta was $293,793 in January and not even close to what the public is being told by CREB, CREA and CMHC.

    When a market value appraisal is being completed in Alberta today they are over 12% lower than they were a year ago for the same home. Obviously since an Appraisal is legally required to be true you are simply getting far more home for your money in 2016 than you did in 2015.

    Strategic Defaults in my opinion, since the real estate community, banks and governments have all used faulty data to encourage the prices paid, are not only a legally viable option in Alberta for those with 80% LTVs or higher today but in all fairness it's the AB governments own fault this option is even available.

    To explain how absurd those "experts" referenced in this article statements are...Right now as of Feb 25th CREB is telling Calgarians that home prices have actually risen 2.57% so far this month. http://www.creb.com/

    Now if you have want to buy some oil spill swamp land in Alberta...... Let the Con Game continue.

  • Kevin R on 2016-02-28 2:46:29 PM

    Unfortunately CBC didnt do their research very well either. They made out like people were walking away clean from properties leaving the Bank with the underwater mortgage similar to back in the 80's after Trudeau rolled out the NEP. I was the guy back in the 80's getting the keys mailed into. There is a big difference between then & today. First off, even with conventional mortgages, many lenders(monolines) Insure everything. So even if the borrowers didnt pay the premium, there is still covenant on these mortgages. So think twice about just walking away. Also, interest rates back then were between 14 & 18%. Look at what they are today. That tells you that even on the bottom end of the market, you dont need big Oil executive incomes to be able to afford a home & when this does turn around, real estate markets will rebound much quicker. Too bad MSM have to sensationalize everything.

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