The real issue right now isn’t what happened; it’s what can’t happen going forward. All this has caused the entire finance industry to pucker tighter than ducks ass (thus the title).
Canada’s finance industry has been watching, and tightening accordingly. Given that fact that, sorry, we’re Canadian, it’s been correspondingly tighter, more conservative and more annoying. In the last three weeks I’ve been attempting to get a mortgage done for a property in Edmonton. I’ve watched the options dwindle, just in the last three months, from 100% LTV, interest only at prime minus 0.4% to 70% LTV at prime, P&I payments.
There was a good warning post on myREINspace warning about lines of credit being pulled. I know a number of REIN members took action and drew on their LOC, moving it to high interest savings accounts or something else that is highly liquid and very stable.
This isn’t the first time this has happened. Last year when the asset backed commercial paper (ABCP) shit hit the fan, a number of b-lenders and private lenders just stopped lending. Several investors I know and work with use money from this space extensively, and they had to essentially shut down the aspects of their business. (That said, they’re almost all very experienced investors and business people, and were able to carry on with other areas.)
What’s going to happen over the next six months?
- The fed is going to pass the bailout before 8p.m. on Sunday. That’s when Japan’s stock exchange opens, and the draft that is out now (2pm EST Sunday) will be passed in something closely resembling the form it is in now.
- Barring major intervention from the Bank of Canada, our mortgage and credit markets are going to tighten considerably. In some cases it’ll be ‘if’ you can get a mortgage for your investment properties, not ‘what’ mortgage. Unless CHMC and the BofC get their butts in gear, it’ll likely mean no more insured mortgages for investment properties. That said, REIN members do continue to enjoy some preferred treatment from several institutions, primarily because of the amount of training we go through, and there will be continuation of existing products, or the creation of new products for us.
- Things will suck for 2-3 months until we see some positive signs from the market, in terms of stability, confidence, and absorption of the toxic assets.
What are the variables?
- How the Fed is going to use the abilities granted to them, and how quickly the House and Congress will move things along beyond the $250 billion made immediately available.
- How the Bank of Canada and the Canadian Government will react with respect to rates and other monetary policies.
- The state of world markets. Not in terms of reaction this coming week, but where they’ll be in a month.
You’d better believe I’m going to be at the next REIN meeting to hear Don and Peter Kinch .