Credit Suisse scandal reinforces lending reticence

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A guilty plea entered by a former Credit Suisse Group AG trader relating to the alleged inflation of U.S. subprime mortgage bond prices only reinforces reluctance among Canadian lenders, and that is unwarranted, says one broker.
“The more the media circulates these stories, or any articles related to those facing charges in the mortgage bond market, it reinforces the reticence to invest among future investors,” says Kelly Wardle, a broker with Pro Link Mortgages. “Most Canadians don’t know the difference between what happened in the U.S. and here.”
The disappearance of several major subprime lenders between 2007 and 2009 contributed to the decline of available options, adds Wardle.
“Since 2007 we have seen a huge number of lenders in Canada leave the lending marketplace completely, or cease to offer mortgage products that specialized in subprime and stated income mortgages,” he says. “As information started becoming available as a result of the lending inconsistencies in the U.S. – which was a result of inappropriate underwriting due diligence and misstated property valuations – Canadian lenders and investors took immediate notice.”
Wardle cites the disappearance of Wells Fargo from the Canadian market, and how Xceed, First National, ResMor Trust and GE Capital each extricated backed away from subprime lending.
“Lenders are very careful now in their underwriting – they want to ensure that the customer can succeed,” says Wardle. “That is a good thing – but the silly policies that were coming from the U.S. in 2007 simply made the border disappear in the minds of most people – and didn’t reflect the Canadian market. We lost two-thirds of the subprime lenders from 2007-2009, and that hurt people with bad credit and the self-employed who were looking to obtain a first mortgage.” 
Kareem Serageldin, the Swiss bank's former global head of structured credit, pleaded guilty to conspiracy to falsify books and records at a hearing in Manhattan federal court recently. He faces up to five years in prison, according to the U.S. Justice Department.
"I made a terrible mistake and I deeply regret my conduct," Serageldin, 39, told the court.
Prosecutors had accused the British citizen of artificially boosting the prices of subprime mortgage-backed bonds between August 2007 and February 2008, when housing and credit conditions were rapidly deteriorating.
Overall, the price manipulation by Serageldin and others contributed to Credit Suisse's taking a $2.65 billion write-down in its 2007 year-end results, according to prosecutors. Credit Suisse has not been accused of wrongdoing.

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  • Trevor on 2013-04-17 8:52:44 AM

    and the Credit Suisse guy may get 5 years .... really? Wow - thats a real deterrent (sarcasm).Criminals get more for stealing a car. He should get 25 years.

  • Blair Anderson on 2013-04-17 9:28:02 AM

    Serageldin isn't the first, and shouldn't be the last perpetrator dragged into court. There's a long list of fraudsters to go after.

  • Rick Lunny on 2013-04-17 1:52:11 PM

    I believe most people involved in the Alt-A/Sub-Prime business in Canada at the time ( and I was one) will agree the reason that sub prime lenders pulled out of the market was liquidity, caused by the global financial crisis. This created either an inability to get financing for mortgages in Canada or liquidity issues at their U.S. parents.

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