From the ramshackle, plywood deck on Brad Goodyear's rural Vancouver Island home, most people see piles of trash, a mattress, abandoned appliances and heaps of salmon fishing nets.
Mortgage lenders, however, have looked at the same property and, until recently, seen nothing but cash.
But after two decades of continually borrowing up - plowing through mortgages from Royal Bank, private lenders and credit unions, until settling on two subprime lenders - the 46-year-old fisherman has landed in a foreclosure proceeding.
Records show that at least nine different lenders have given mortgages to Mr. Goodyear and his wife Tracy since they bought the Ladysmith property in 1986, producing a constant flow of new loans, which were sometimes paid off with newer loans, until financial institutions shut the window a few months ago.
"I didn't really have to show anything to borrow," Mr. Goodyear said of his two remaining mortgages, both in default and totalling about $340,000. "I didn't have to show them my tax returns. I just said 'This is how much I make.' I think I made 11,000 bucks."
Mr. Goodyear is not alone. A Globe and Mail investigation into more than 10,000 foreclosure proceedings has uncovered a burgeoning subprime mortgage problem that many, including Prime Minister Stephen Harper, have insisted does not exist in Canada.
Data obtained from both the governments of British Columbia and Alberta, as well as from two private companies that specialize in tracking foreclosure proceedings, show that lenders are foreclosing on the homes of overextended borrowers at an alarming pace. Even more startling is that more than half the foreclosures in 2008 were initiated by a mish-mash of subprime lenders who targeted riskier borrowers with tarnished credit histories. The numbers tell a story of thousands of homeowners who borrowed more than they could afford from lenders who lent too readily.
Inventories of unsold homes are building in Canadian cities - and the ripple effect hits everyone, depressing the value of houses owned by people who haven't overextended themselves.
Unlike the United States, where foreclosure statistics are routinely published because they are a key barometer of economic health, detailed numbers in Canada are hard to come by. Alberta and British Columbia are two provinces where private companies collect the data from the courts, where it costs about $10 to view a single file. In Ontario, mortgages in default are usually resolved through a process known as power-of-sale, which has effectively removed the issue from the courts and shielded the scope of the problem.
Since the subprime mortgage meltdown in the United States, Canadian leaders have assured the public that a similar tidal wave of foreclosures can't hit here. They have cited the prudence and market dominance of Canada's five most prominent banks, the conservatism of Canadian consumers and the tiny, 7-per-cent market share of subprime lenders, which is much lower than their 22-per-cent market share in the United States. Just four days ago in a speech, Prime Minister Harper said: "We have avoided the extreme of the unregulated, or barely regulated, financial and mortgage industries that has caused such grief around the world."
However, The Globe's investigation shows that while Canada's real estate sector hasn't suffered as much as its counterpart in the United States, the Prime Minister and others have grossly underestimated the impact of that small portion of subprime lenders. Until recently, companies who touted their low standards with slogans such as "We Say Yes When The Banks Say No!" and "No Income Verification" proliferated here.
"We have a subprime problem in Canada. Lenders dramatically reduced their lending standards in the past five years," said Andrew Bury, British Columbia's foremost expert in foreclosure law, who has been practising for 29 years. Mr. Bury, who practises with Gowling Lafleur Henderson LLP, said that since August he has had to extend his work day to 15 hours to cope with a caseload that has tripled. Vancouver courts are so overwhelmed with the flood of foreclosure applications that it now takes six weeks to process a written order compared with one day six months ago, he said.
"The subprime lenders trashed the market. They were doing loans that no one else would do and people were shaking their heads saying, 'What are these guys doing?' " The data also revealed that scores of wealthy individuals dabbled in subprime lending at a time when many believed the real estate market was on a never-ending ride. Doctors, lawyers, stockbrokers and former bankers offered high-interest-rate mortgages to debt-laden homeowners, many of whom are now facing foreclosure proceedings. In one instance, a holding company for a Vancouver entrepreneur and philanthropist, Abdul Ladha, issued a $150,000 mortgage to a couple at an interest rate of 40 per cent. The mortgage agreement included a clause to ensure that additional fees and commissions should never add up to an effective interest rate of 60 per cent - the "Criminal Rate," as defined in the Criminal Code of Canada. (One of the borrowers, Vid Wadhwani, said in a brief interview that it was "a rate that I was willing to accept, given that it was supposed to be short-term in nature." He also said the 2007 foreclosure application did not proceed and that the matter was resolved.) Last year, private investors gave a Vancouver businessman and former lawyer $4.5-million in adjustable rate mortgages that resulted in payments of $89,000 a month, or an interest rate of more than 25 per cent. The investors have initiated foreclosure proceedings against his West Vancouver home.Report Typo/Error
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