My buddy came over for supper and the conversation came around his getting a second mortgage on his house. He pretty well renovated everything in his house. The house looks great since he moved in, and I mean marble and the works courtesy of pricey Home Depot(I always told him to shop around). As part of the contract, the usual inspection was made by a bank selected appraiser. He can borrow up to 105000.
Now I figured by Canadian mortgage rules, the loan amount can't be more than 80% of the appraised value. But I sensed something wrong. I've had second mortgages and owned 13 homes since the 60's and dealt with most all the banks. I have a good sense on value. I told him I had a gut feeling, but he should not take the whole amount but around 20000 less. This offer of 105k seemed to me way over what it should be. Bank appraising in the current times is something I'm not comfortable with. If I am right, the extra is actually an amount that should be covered in an unsecured loan, in other words what the owner should cough up first. It means that if the house is overvalued and the market gets wind of what's going on, he won't be able to recover the appraised amount, let alone even to pay off the real estate and lawyer. Either way the bank wins. They keep what is essentially a re-built house, and they get to tie the couple to a life long debt unless they bankrupt.
The real time TV home flip programs I feel are a sure indicator, with Canadian houses I figure are valued at no more than 289k now selling at almost a million after the flip. Yahoo news lately confirmed my suspicions that there is a concern in the mortgage market. The article says symptoms are remarkably patterned to the events that occured in the US before the housing fiasco.