Shadow Banking: A Threat To Toronto’s Housing Markets

The increase in home loans in and across the Metro Vancouver area is huge, while the growth of fraudulent mortgage and so-called “shadow banking” are on the rise, shows a Post media investigation.

The sudden increment of loans in The Metro Vancouver area is as a result of the Centrals Bank’s figures that shows the rapid growth since 2014 of large mortgages made to people with relatively low incomes.

This trend can cause great dangers to Vancouver’s real estate market because in the new lending standards for banks introduced in around November last December, the Bank of Canada states that these big mortgages can no longer be insured, and won’t be issued again by federally regulated lenders.

Borrowers, who try to purchase over a million dollars property in the Greater Vancouver market are increasingly taking out dangerous loans from shadow bankers in a fast-growing and poorly regulated financial markets.

According to the Bank of Canada’s June 2017 report, there is evidence of growing links between shadow banks and traditional banks, as people borrow large amounts from shadow lenders to use as down payments in order to qualify for low-interest loans federally regulated banks.

“Price increase in Vancouver and Toronto have an element of speculation to them,” said Stephen Poloz said a week ago while issuing the bank’s biannual financial system review. The review showed “riskier characteristics are increasingly evident” in new mortgages.

About a year ago, in December, the Bank of Canada reported an estimation of $1.1 trillion in debt that shadow lenders account for, making it half as much as the banking sector.

Ten years back, “these new players have become more important and have changed the face of the Canadian mortgage market…. (As) tightening bank regulation can lead to migration of activity from the traditional banking sector to the shadow banking sector,” Poloz said.

Now the question lies, ‘who are these shadow lenders’? Well, they are non-bank lenders that increase the supply of credit in Canada’s financial system, without facing the regulatory oversight of banks.

Hilliard Macbeth, Albert-based author and wealth manager, the growth of shadow banking and the Bank of Canada’s loan risk statistics in the Greater Vancouver area and Toronto herald a crisis.

“These properties in Vancouver are so expensive that you need people either laundering money or fraud or people borrowing such large amounts of money that should never be allowed, in order to keep it going, if everyone is reporting their incomes honestly In Vancouver, there is no way that housing prices can stay where they are,” said Macbeth.