Return of the zombies... Mortgage backed securities almost blew up the global market in 2009 after shady mortgage originators packaged liar loans, securitized them, and distributed "rock solid" real estate backed securities to investors around the world.
Apparently, Capital Direct, a Canadian originator of mortgage backed securities is now trying to pawn off high risk, high interest mortgages tied to the Alberta, British Columbia and Toronto real estate market.
The advertisement in the newspaper (above) details an annualized 7.64% return in 1 year. Although, the loan to value ratio is healthy at 53.1 - the composition of the security in question is high questionable. Interest rates are at historic lows and residential mortgages from banks are widely advertised at 2.35%.
Which means, either the security is being subsidized by Capital Direct for the first year over a multi-year holding - so they can get rid of a bad mortgage.
Or -
The debtor is very high risk and paying an interest rate effectively 3 times the market rate.
The rise of securitization prior to the financial crisis in the United States functioned as a primary means of allowing over valued real estate markets to access global capital markets and moved risk away from mortgage issuers to global investors.
It would appear that Capital Direct is looking to push risky assets on unsophisticated investors. It will be very telling and likely will bode poorly for Canada's real estate market if this industry grows substantially in the short term.
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