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Crashing Canadian Mortgage Lender Bailed-Out By 321,000 Retired Ontario Healthcare Workers
With Canada's housing bubble popping amid the collapse of the country's largest mortgage lender, it was no surprise that a bailout had been orchestrated, and now we know the source of the $1.5 billion 'loan' - 321,000 retired healthcare workers in Ontario.
As we noted yesterday, the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice.
As part of this inevitable outcome, one which presages the company's eventual disintegration and likely liquidation, Bloomberg reported that the non-binding rescue loan with an unnamed counterparty will be secured by a portfolio of mortgage loans originated by Home Trust, the Toronto-based firm said in a statement Wednesday. Home Capital shares dropped by 61% in Toronto to the lowest since 2003, dragging down other home lenders.
And now we know the source.
As Bloomberg reports, the Healthcare of Ontario Pension Plan (HOOPP) is the lender behind Home Capital Group's C$2 billion loan ($1.5 billion) to shore up liquidity, citing people familiar with the matter.
The Toronto-based pension plan is said to have given the struggling Canadian mortgage lender the loan to shore up liquidity as it faces a run on deposits amid a probe by the provincial securities regulator. Home Capital has retained RBC Capital Markets and BMO Capital Markets to advise on “strategic options” after it secured the loan, according to a statement Thursday. Home Capital didn’t identify the lender.
HOOPP, which represents more than 321,000 healthcare workers in Ontario, was not immediately available to comment. HOOPP President and Chief Executive Officer Jim Keohane sits on Home Capital’s board and is a shareholder. Home Capital’s external spokesman Boyd Erman declined to comment.
The one-year credit line has a 10 percent interest rate on outstanding balances and a 2.5 percent rate on undrawn amounts, the Toronto-based lender said. The finalized agreement follows an announcement early Wednesday that Home Capital had reached a non-binding agreement in principle with an institutional investor for the loan.
And in case you are one of the 321,000 retirees who are nervous about your pension managers' actions, don't worry: The loan is secured by a pool of mortgages originated by Home Trust, and as everyone knows, in Canada home prices never go down.
http://www.zerohedge.com/news/2017-04-27/crashing-canadian-mortgage-lender-bailed-out-321000-retired-ontario-healthcare-worke
Condo Flippers In Miami-Dade Left Twisting In The Wind
Ballooning Condo Glut ensnares preconstruction speculators.
Miami-Dade’s spectacular condo flipping mania is in turmoil, with sales plunging, inventory-for-sale soaring, and new supply flooding the market. It’s not like Miami hasn’t been through this before.
In February, existing home sales of all types fell 10% year-over-year, to 1,835 homes. These sales “do not include Miami’s multi-billion dollar new construction condo market,” the Miami Association of Realtors clarified in its report on March 23.
And this new construction market that is not included has become distressed.
Sales of single-family homes fell 10% in February, to 881 houses. The report blamed the shortage of properties “in popular price points.” Prices have been rising sharply, and at the price points where people could actually buy a house – below $250,000 – few sellers were playing ball. Hence a stalling market. Sales of high-priced units rose, but they weren’t enough to pull out the totals.
Condo sales fell 10% as well, to 954 units. This time, the report didn’t blame the lack of supply. Instead: “Existing condo sales are competing with a robust new construction market.” At the same time, inventory of existing condos for sale, not including new units, rose 10% to 15,289. At the current sales rate, supply soared 29% to 14 months.
This chart by StatFunding shows the plunge in sales and the surge in condos listed for sale. I circled the last five Februaries on the sales line (red). From February 2014 to February 2017, condo sales have plunged 25%. Andrew Stearns, StatFunding’s founder and CEO, calls the resale inventory – the dark green line that has soared 90% since early 2013 – “scary”:
Even this “scary” inventory understates the total number of condos for sale. It only includes units listed for sale on the Multiple Listing Service (MLS). But developers normally don’t list their new units on the MLS, and thus they’re not included in the above chart.
This is the distressed market that preconstruction condo flippers are facing.
Preconstruction condo flippers make a highly leveraged bet. They buy the condo from the developer during the construction phase. The initial deposit is small. Additional payments are required as construction progresses. But in a booming market, lenders are eager to lend. Then, often around the time the building is completed, flippers try to unload the condo at a profit. This bet has been hot in the condo construction boom around the country. But in Miami, the bet is now collapsing.
During good times, developers sell all their units either to end-users or to flippers within a few months of completion. But now, developers are getting stuck with unsold units, which, as Stearns points out, marked the “inflection points of previous condo cycles.”
The 12 large developments completed between late 2015 and late 2016 have added 2,743 condos to the market. Developers still own 433 of them (15.8%).
In addition, preconstruction flippers are also trying to unload their units. In those 12 developments alone, 451 condos, or 16.4% of the total, have been listed for sale on the MLS.
Here is the granular detail as of March 22 per StatFunding (sources: MLS, Miami-Dade Recorder; completion date in parenthesis):
Echo Aventura, 190 units (8/2015). Developer sits on 13 units (7%) and took out a bridge loan secured by those units. 36 units have appeared on the MLS.
Crimson, 90 units (12/2015). Developer is stuck with 30 units (34%!) and has sold only 1 unit since December 2016. 12 units listed for sale on MLS.
Peloro Miami Beach, 114 units (3/2016). Developer has sold all but 2 units. This includes 3 units sold via bulk sale this year. But 38 units – 33% of the total! – are listed on the MLS for resale.
CityCenter Reach, 390 units (4/2016). Developer is stuck with 46 units (12%). Meanwhile, 47 units have appeared on the MLS for resale.
Le Parc Brickell, 128 units (6/2016). The developer has listed the 9 units that haven’t sold yet on the MLS, in addition to 23 units listed on the MLS by condo flippers, for a total of 32 units – 25% of the total!
Centro, 352 units (7/2016). Developer sits on 34 units and has not sold any in 2017. Meanwhile, 56 units (16% of total) are listed on MLS.
Bond, 328 units (8/2016). Developer still has 23 units, including 12 that an affiliate of the developer purchased in bulk in March. And 72 units (22%) have been listed for sale on MLS.
Grove Grand Bay, 98 units (8/2016). Developer owns 7 units; 31 units (32%!) have been listed on MLS.
CityCenter Rise, 390 units (9/2016). Developer still sits on 212 units (54%). According to Stearns, “developer closings have slowed to a trickle, and it appears the initial sell-through is nearly complete.” Already, 24 units are listed on MLS.
SLS Brickell, 450 units (11/2016). Developer is down to 8 units, four months after completion. “This is what a successful sell-through looks like,” Stearns says. Condo flippers have listed 55 units for sale.
Casa Brickell, 81 units (11/2016). Developer sits on 22 units (27%); 8 units (10%) have already appeared on MLS.
Porsche Design, 132 units (12/2016). Developer still has 27 units (20%). “Initial sell-through closings are slowing,” and only 4 developer units sold in March, Stearns says. But 40 units (30% of total) have been listed for resale on MLS.
This sort of data begs the question: How many people actually live in units they own in these buildings?
For developers, the equation is getting dicey. Stearns:
Stuck with unsold units, some developers have not repaid their construction loans, others have taken out bridge loans to carry unsold units. The developer is responsible for taxes, maintenance fees, and insurance for unsold units, and unsold units are probably negative carry for the developer.
Developers may resort to mark-down liquidation or bulk sales of unsold condos as the cycle progresses….
Part of the problem? The market teems with foreign buyers. But the Treasury Department’s Financial Crimes Enforcement Network has figured out that there is a large amount of money laundering in housing. It has started making noises. And cash deals are plunging in Miami-Dade. In February they were down 17.5% year-over-year to 580 condo deals, or 61% of all condos sold. Other money-laundering hotspots too are being targeted, and answers are starting to emerge.
http://www.zerohedge.com/news/2017-03-26/condo-flippers-miami-dade-left-twisting-wind
SLP just posted another record sales quarter yesterday 
Everybody complains that the PE is too high... It's been too high for 20 years. SLP continues to go for around 30 times earnings and earnings keep going up. As long as the PE is 30 guess what that does to the price of the stock.
NY Fed President Dudley Thinks A New Housing Bubble Is A Perfect Cure For Soft Retail Sales
In general, most people would agree that the housing collapse of 2008/2009 was a negative event in U.S. history. A combination of misinformed regulations from Washington D.C., low interest rates, poor underwriting standards that allowed for, among other things, the idiotic "cash out" mortgage, and an insatiable demand for securitizations drove one of the biggest asset bubbles in history which almost brought down the entire global financial system.
But, at least one person, namely New York Fed President Bill Dudley, thinks that a repeat of the 2008 mortgage crisis is exactly the cure for America's stagnant retail sales. Speaking at the National Retail Federation's annual convention in New York, which was undoubtedly full of perplexed retailers wondering why their store traffic remained so weak amid Obama's stunning "economic recovery", Dudley intimated that the cure for weak retail sales was a return to 2006 practices in which debt thirsty Americans repeatedly withdrew every dollar of equity in their homes to fund their trips to the mall.
“The good news is that, while the current expansion is quite old in chronological terms, it is still relatively young in terms of the health of household finances,” Dudley said in a speech to the National Retail Federation.
“Whatever the timing, a return to a reasonable pattern of home equity extraction would be a positive development for retailers, and would provide a boost to economic growth,” Dudley said.
Homeowners may have overlearned the lessons from the housing boom and bust, the New York Fed President said.
Even though home values have risen over 40% since 2012, housing debt has stayed virtually flat, he said.
“The previous behavior of using housing debt to finance other kinds of consumption seems to have completely disappeared,” and people are leaving the wealth generated by rising home prices “locked up” in their homes, he said.
Sure, just forget that the last cycle resulted in millions of personal bankruptcies, short sales and ruined personal credit scores...we're sure this time will work out much differently.
Dudley continued by noting that at the "height of the boom, annual consumption was being supplemented by around $400 billion in cash flow from debt, much of it collateralized by housing." Apparently he is convinced that levering up your personal life to such an extreme level that you couldn't possibly survive even a modest economic blip, all so you can buy just 3 more pairs UGGs from the mall on that brand new credit card with a $500 limit, is a brilliant idea.
In order to be able to assess the evolution of household finances more precisely, we worked with Equifax—a major credit bureau—to create a new database that tracks the credit files of a random sample of households over time. From this consumer credit panel data, we conclude that between 2004 and 2006, households were increasing their cash flow by over $200 billion a year by borrowing against their housing equity collateral. They supplemented that with another $185 billion through non-mortgage borrowing. So, at the height of the boom, annual consumption was being supplemented by around $400 billion in cash flow from debt, much of it collateralized by housing.
Finally, a perplexed Dudley asks "why has household behavior with respect to housing debt apparently changed so much?" Could it be that Americans actually learned a lesson from their financial ruin just 8 years ago...a lesson the Fed certainly wishes they would promptly forget? Unpossible.
http://www.zerohedge.com/news/2017-01-17/dudley-housing
My last rental purchase was made on Oct. 8, 2012. It was a mid to upper priced condo in an exceptionally high quality area. Every once in a while a local realtor quotes the price range in this neighborhood and I see that my purchase hit the low mark for this recent price cycle. I which I had bought more
