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Confederation Life and RBC

No money down mortgages were eventually banned

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Unformatted text preview: anies, now able to merge and offer a diversity of products, saw opportunity. •  Low interest rates encouraged home ownership. Readily available credit made it easy for people to buy homes. U.S. Sub- prime Mortgage Crisis •  People who previously could not afford a home of their own rushed to do so. •  This influx of consumers, driven by easy credit, drove up housing prices. •  Others, seeing the value of their homes going up, saw this as a buffer to debt and started to spend money in other areas, buoyed by an inflated financial worth. U.S. Sub- prime Mortgage Crisis •  Banks contributed to this frenzy by not properly assessing risks associated with some of these mortgages, not doing their due diligence on the inflated housing prices or the ability of the borrower to pay back the mortgage should the rates change. •  A proper regulatory regime could have prevented such risky behaviour. Most decision makers did not recognize the risk that was being placed on financial markets because of this lack of oversight. U.S. Sub- prime Mortgage Crisis •  This was in part based on the assump)on that home prices would not fall drama)cally. •  But prices did fall. Soon people found themselves owing to the bank more money than their house was worth. •  It made more financial sense for them to walk away from their investment than to con)nue to pay. •  This lea the banks and other lenders holding a large number of undervalued assets, which accounted for large financial losses to the banks. •  Basically the bank’s had bet that housing prices would...
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