In mid-August Canadian markets shuddered when Coven-tree Capital Group, which packages and sells debt to investors, announced it couldn’t find buyers for some commercial paper debt. Xceed Mortgage Corp., which has placed $1.3 billion of its mortgages through the now troubled agent, saw its stock price plunge by 40 per cent. Only two months earlier, Xceed had announced a 43 per cent rise in second quarter profits. But now, the company was warning investors of a “negative impact onXceed’s profitability and cash flows,” and the world had another object lesson in how fast trauma can spread through financial markets.
As a leading Canadian subprime lender, with $2.5 billion worth of mortgages, Xceed loans to homebuyers with either poor credit histories and those with small or no down payments. But CFO John Ayanoglou doesn’t want his firm lumped in with the mess that is the U.S. subprime business. “Aggressive” practices like interest-only loans or negative amortizing were never introduced in the “much more conservative” Canadian market, explains Ayanoglou.
Still, damage spreading across national boundaries, and hitting consumers that had never heard of subprime mortgages, much less signed up for one. Already, American buyers with good fiscal records are finding mortgages hard to obtain, and the crisis is beginning to slide over to affect personal debt as well. Credit card companies, increasingly wary of consumer debt, are tightening their requirements and putting the squeeze on customers. One Oregon business owner saw his rate nearly double on one card while the credit limit was slashed on another. There is one bright spot for consumers, however: banks are mercifully scaling back their seemingly unstoppable “pre-approved” direct-mail offers that clutter up so many mailboxes. M
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