Billion Dollar Fund Manager Comes Out Of Retirement To Bet Against Canadian Real Estate
https://betterdwelling.com/city/toronto/marc-cohodes-short-canadian-real-estate/#_
Foreign Money Laundering
“You have a story that people laugh at, a college aged girl buys a $31 million dollar place to live in, she didn’t earn that money herself. She said it was her father’s, when they asked what her father does she said she doesn’t know.” While he didn’t specify the specific story he was referring too, he does appear to be referencing Tianyu Zhou, a “student” at UBC that was able to purchase a $31.1 million mansion in Vancouver’s Point Grey. As a student, Zhou was able to obtain a $9 million dollar mortgage from CIBC. Interestingly enough, her LinkedIn says she worked at the UBC cafeteria in her first year – a gig typically reserved for low income students.
“It’s international money laundering coming into Canada…regulations are very lax”, he further explained. “China has capital controls on their money, and Canada does not have respect for a nation that has capital controls”. Bloomberg estimates that US$500 billion in capital has been moved out of China by mostly individuals, with a significant portion of it landing in Canada. Much of that has been moved into the Toronto and Vancouver housing markets.
Non-Prime Lenders
“I think it’s horrifically bad, there shouldn’t be private lenders.”
–Mark Cohodes
If you’re a Canadian that has your mortgage with one of the Big 5 banks, you most likely don’t realize that we have a bustling sub-prime lending industry that exists with almost zero regulations. A few have interest rates as high as 15%, with a 15% fee for renewal after the first year (because what’s an extra $150,000 on a million dollar loan right?). Some go so far as to lend you your down payment, so you can skirt the federal regulation of minimum down payments. Or as Marc says, “As long as you can borrow more, you can keep the Ponzi going”.
Home Capital Group (HCG) is where Marc is betting the implosion of this industry will begin. Despite not being a household name, HCG has built a mortgage portfolio that’s around 1/5th the size of BMO, impressive considering BMO had a 160 year head start. Shortly after Marc began shorting HCG, an anonymous letter to the board of directors explained irregularities in their numbers, which forced the board to launch an investigation. The board revealed around $1 billion in fraudulent loans, that they traced back to 45 brokers. They stopped doing business with the brokers, and that $1 billion was quietly adjusted to $1.9B.
“Home Capital Group has admitted to $1.9B in fraudulently underwritten mortgages last year alone,” he explained. “FSCO, who regulates the brokers, hasn’t punished the brokers. The problem is when there’s criminal behaviour going on—and originating fraudulent mortgages is criminal behaviour… you’re allowing one class of individual to benefit another. If you allow it to go on, what’s the deterrent?”
Find that a bit confusing? Marc broke it down for us, “if I went to your town and robbed a bank and broke the law…and you caught me and know who I am. My punishment is ‘you need to leave town tomorrow, I won’t name you but you can’t do this around here no more’, what urges me to stop? Me and my whole crew should be put in jail, there should be an investigation by the RCMP on exactly what happened, and who was involved.”
It’s hard to argue with that, most of us would say yes, there should be an investigation and someone should serve time. He goes on to say: “Were these mortgages insured by the CMHC?”. The 45 brokers have not been named to the regulator, and HCG has said that taxpayers are on the hook for the fraudulent loans, as they are mostly insured by the Canadian Mortgage and Housing Corporation.
抢楼花时你知道还有多少房子等着建吗？