CIBC playing dangerous game by financing the flippers

By Amy Chen

Shuyang Ling and Xuhong Ying of West Vancouver bought the property at 1195 Sutton Place for $2.7 million last September and are now trying to flip it for $5.4 million.

They purchased the property with a little help from CIBC, which is emerging as the bank of choice for flippers.

It’s not entirely clear why so many who are playing the Metro Vancouver real estate market are turning to CIBC to bankroll them.

One reason could be that CIBC offers mortgages without income verification to business owners and without credit history to international student.

A student by the name of Ruixin Wang was able to buy a $1.46 million home with a CIBC mortgage, which was flipped a little over a year later.

Not everyone’s thrilled about CIBC lending to speculators, and prompted the credit rating agency DBRS to assess CIBC’s long term outlook as negative.

“CIBC’s residential mortgage book has doubled to $186 billion at the end of 1Q17 from $93.5 billion at YE2010, outpacing the growth rate of most peers,” DBRS noted. “DBRS views this with concern, given the unsustainable growth in house prices in selected markets, especially the GTA where any severe price correction would adversely impact the Bank’s profitability.”

What’s more alarming is that nearly half (49%) of all CIBC mortgages are uninsured, and the loan-to-value ratio of the uninsured mortgages is 64%.

All the major banks except CIBC have taken steps to cut back on risky mortgages.

And all signs are the bubble is bursting, with even the Canadian Real Estate Association (CREA) are sounding the alarm.

“Nationally, sales activity is forecast to decline by 5.3% to 506,900 units in 2017, which represents a drop of more than 20,000 transactions from CREA’s forecast published in June,” the CREA predicted. “Sales in British Columbia and Ontario are both now projected to decline by about 10% in 2017 compared to all-time records set in 2016.”

While Shuyang Ling and Xuhong Ying are trying to flip their house at double the price they bought it for, the prices of West Vancouver detached homes have dropped by 6.3% year-over-year.

CIBC, which reported adjusted third quarter earnings of $1.2 billion – up 9% from last year, does not seem overly concerned.

“Our late-stage delinquency rates across all of these portfolios continued to remain low and stable, with Vancouver and Toronto performing significantly better than our Canadian average,” Chief risk officer Laura Dottori-Attanasio said.

[Photo Credit: jmv]

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