Strategic defaults plaguing Alberta housing—analysts

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The federal government has placed the Albertan real estate sector in its sights after the recent upsurge in so-called strategic defaults, which have actually weakened the market according to observers.
 
Last observed in the 1980s when mortgage rates hovered around 20 per cent, strategic defaults—also known as “jingle mail”—involve escaping from an in-the-red mortgage by sending the keys back to the funding bank. These actions are usually done out of desperation by those who are saddled with unmanageable high-end properties while coping with job loss and astronomical debts.
 
According to experts, this development is responsible for the spike in loan losses among Canadian banks, and is showing no signs of stopping as of the moment.
 
“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. 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,” Real Estate Investment Network senior analyst Don Campbell told CBC News.
 
Experts noted that this is a uniquely Albertan phenomenon, as the area is the only province in Canada that offers non-recourse residential mortgages on a wide scale. This mortgage type allows defaulters to lose their homes but walk away without any personal liability, which would otherwise merit a court seizure of assets elsewhere.
 
In the ‘80s, nearly 500,000 residents left their Albertan estates for greener pastures without hurting their credit ratings—a situation that experts fear might make a repeat performance.
 
“These non-recourse mortgages could create incentives for some homeowners facing an income shock to pursue a strategic default and thus place further downward pressure on prices,” a Finance Department report warned.
  • Dale Koeller on 2016-02-10 10:53:35 AM

    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.

    Mortgage arrears in Alberta is up over last year, and last year was at record lows. Alberta mortgage arrears was 0.28% at date of last report in October, compared to Canada's 0.27%.

    Please balance your articles with facts, not fear.

    Dale Koeller
    Lender in the Alberta Market

  • Willing to eat my hat on 2016-02-10 5:26:53 PM

    Wind usually blows west to east across Canada... But it may be different this time. When those ol' Mortgage Default Blues hit the lower mainland of BC, they will be flying away & recourse or not defaults will rise & values will drop...if you don't believe me, mark this day on your with a reminder to look at Vancouver prices a year from today.

  • Dale Koeller on 2016-02-14 4:41:15 PM

    Definition of prevalent: widespread in a particular area at a particular time.

    Note: the practice of strategic defaults is by far prevalent in the Alberta market. While there is downward pressure and fear of an increase in mortgage defaults, we have yet to see any evidence of widespread defaults, quit claims or strategic defaults.

    Dale
    Alberta mortgage lender

  • Kevin R on 2016-02-14 10:49:37 PM

    CBC needs to do a little research before they sensationalize things back to the 80's. Big difference in lending since the 80's. They forget that all the mono-line lenders insure their conventional advanced mortgages & just because the borrowers dont pay the premiums doesnt mean there is no default insurance of which there would indeed be covenant. This is very misleading.

  • nick on 2016-02-15 7:20:31 AM

    what a joke of a system. Why would insurers get involved in alberta in the first place. Anytime there is a turn in the market someone with minimum down says adios and moves on without recourse. Did not know that was the case or i would have purchased a few homes there as well. Why not.

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