by David Thorpe, CEO of First Title Limited
It was refreshing to see another profession other than greedy bankers in the firing line for being over-paid although I was a little surprised it turned out to be air-traffic controllers (or ATC’s as they are known in the trade). A friend and colleague of mine spent many years in a former life as an ATC at Lester Pearson airport in Toronto and over the years, I have heard some pretty scary stories about what actually happens in the control tower – but only very occasionally. He describes the job as being 99.9% tedium with an added dash of sheer terror thrown in once in a while. He also says it didn’t particularly pay well and by the time you hit your mid 30’s it was really time to move on.
I was less surprised to see that it was Spanish ATC’s taking the flack. For those of you unfamiliar with the story it was reported last month that some Spanish ATC’s are earning almost £800,000 a year – ten times more than their Prime minister! I like Spain, I like the people and have spent a lot of time working and relaxing there. But some of the things that have happened in their property and mortgage world are truly appalling. Thousands of peoples lives have and are still being ruined as they try and make sense of planning consents being over turned and their homes being threatened with demolition. Many developments have simply ground to a halt. Spain accounted for some 30% of all new homes built since 2000 in the EU. There are currently more than one million unsold properties in Spain and no obvious supply of new buyers. Some of those people responsible for this mess worked directly or indirectly for the State and corruption continues to be uncovered. They will probably resurface as Spanish ATCs! This is not a new development though. It has only surfaced again because of the infamous Marbella planning fiasco when some 30,000 properties were deemed illegally built and has been magnified following the collapse of the global economy. What everyone is now trying to work out is how well equipped the Spanish banks are to deal with so many borrowers defaulting on their loans and in many cases the lack of any collateral security. The answer is still very unclear and the situation is likely to drag on for years to come. The Spanish government is at odds with its European counterparts on this issue and does not yet appear to have come to terms with the crisis that it is facing. It is estimated that the value of property already repossessed or swapped for debt by banks now exceeds €16 billion and is rising.
I have been watching the situation with a mixture of great sadness for all those affected coupled with huge relief. The sadness is easy to understand. The relief is with me wearing my business hat and the fact that my company was much smarter in the way it approached Spain second time around. This time we got it right In the early 1990’s I spent several years paying Spanish lawyers and banks large sums of money to “clean up” the title on some 2,500 properties we had title insured in prior years. There is no doubt about it, we had made mistakes in the way we had underwritten transactions and we had placed too much faith in relying on the way things had always been done in Spain. We had forgotten to stick to the basic principles of insurance and business in general that had served us so well in the past. I think it is fair to say that over the past decade some banks and not just Spanish banks have been guilty of similar behaviour.
This leads me nicely on to Canada. My Canadian friend and work colleague (the former under-paid ATC) tells me things couldn’t be any more different in Canada. The mortgage market certainly experienced a bit of a wobble during 2008 and everyone was concerned that 2009 would be a bad year but it wasn’t as bad as people had feared. It seems that the big Canadian lenders are by and large a fairly conservative bunch and they did not have anything like the same sort of exposure to the sub-prime melt-down experienced by US and UK mortgage lenders. According to the Canadian Association of Accredited Mortgage Professionals (CAAMP) as of October 2009, there was $952 billion of residential mortgage credit outstanding in Canada. This is about 60% higher than just five years ago and represents a growth rate of 10% per year. So are Canadians taking on too much debt? Well the rest of the story is fairly predictable. Yes there are concerns that an increase in interest rates will have an impact on borrower’s ability to make mortgage payments but anticipated increases in income should more than off-set this risk. The key threat identified by the Bank of Canada’s “Financial System Review” published towards the back end of last year is that increasing numbers of borrowers would be defaulting on their mortgage payments and this could have negative consequences for all Canadian financial institutions. But the final conclusion reached by the Bank of Canada is that most Canadian borrowers are acting sensibly and the vast majority are not taking on undue risks and they are also prepared for the possibility or rising interest rates. I’d like to think that most borrowers in the UK also act sensibly and fully appreciate the consequences of entering into long term financial commitments. I know our mortgage lenders do!
David Thorpe has a regular column in the Mortgage Finance Gazette reporting on International affairs. This article appears in the March edition of the magazine.