Tuesday, June 13, 2017

Canadian non-standard mortgages: a state of play

Regular readers of this blog will be aware that Home Capital Group - a Canadian non-standard mortgage lender - is in financial trouble.

The gossip is that the regulators in Canada are also putting some pressure on lenders to improve underwriting standards. There is similar gossip in Australia, however Australia has not had the collapse or near collapse of any lenders.

Canada Mortgage & Finance Group (CFMG) is a broker in the Greater Toronto Area (GTA). The CEO of CFMG (Ameera Ameerullah) writes a blog on LinkedIn which I have been reading for some time.

She has recently posted about the state of play for even slightly non-standard mortgages in the Greater Toronto Area.

Below (and without further comment but with her permission) I reprint her latest post.



Private lending rates increased and lending fees increased with LTV being decreased! Clients are stuck and brokers are scrambling to find options for their clients. Clients are placed in a very bad situation as they are in position of being sued since they cannot come up with the extra capital to close on alternative mortgages.

THE GOVERNMENT has caused tremendous issue for clients and the brokers community. We need Home trust back in the market. Presently no one is qualifying with the banks due to increased CMHC premium, lending restrictions and lenders requirement...it's killing clients not helping them!

Clients been saving for their down payment and closing cost but now they cannot close on their purchase due to down payment requirement and lending restrictions. Qualifying rate and amortization cut back on insured deals is causing greater concern. Most B lenders are affected with what's happening with Home Capital. Both the residential and commercial market is affected.

Private first residential mortgage in the GTA is now at 8.99 to 9.99% RATE - 65% LTV to 75% LTV. You'll obtain 80% if you're lucky and be prepared to pay higher rate and fees. Fees are 3 to 4% on a first now on private - This is INSANE. In fact many private lenders are out of capital. Options are minimum! These changes only affects clients and everyone having a tough time to close. Brokers are scrambling now to find alternative option for their clients since Home Trust is not funding and many other lenders who depended on Home trust money are stuck as well. How can a broker get by when they have to place their clients in an expensive private mortgage? There's no room for us to charge a fee so pretty much we are all affected. Only the big banks are benefiting from the Government change and yet they themselves are loosing business as no one can fit their qualifying requirements. Banks are pressuring their BDM to originate business - how can they when the Government ridiculous change affects the entire mortgage industry? Originating business is easy but closing deals have become horrid and clients pocket is feeling it.

The Government really need to make some immediate change as they have in the past year because with this trend home buyers are being placed in more debt as cost of borrowing on private capital is expensive. These changes are hurting clients and will hurt the economy. AWFUL STATE THE INDUSTRY IS IN. If one doesn't have about $1600 - they cannot live in a decent one bedroom apartment even by renting. Clients that purchased from builders and are set to close are having a difficult time to close in allocating extra funds.

Brokers should start to voice their opinion as this is our industry and if you don't speak up then we are all doomed with our clients!


Pat said...

Thanks for another interesting post, John.

I recently listened to a segment from the radio show This American Life about regulators at the NY Fed, which highlights the problems with the culture in some of these places. (The story includes secret recordings from a woman who was fired for essentially carrying out her assigned duties.) You can listen to it here:

It made me wonder about our regulators back here in Australia — it seems it really doesn't pay to rock the boat if you work at APRA or ASIC. The fact that interest-only loans have been allowed to grow to the extent they have is damning in itself, in my view.

Anonymous said...

It's surprising to this Canadian that any clients are stuck because they agreed to buy a house but now can't get financing. It used to be standard mortgage lender/broker advice to get pre-approved before making an offer on a property. It was when I was a buyer a decade ago. May be a sign of how loose the market has become.

Anonymous said...


Have you ever looked at Canadian Western Bank?

A lot of lending to residential homebuilders, and subprime mortgages, and a heavy loan concentration in Alberta which is in recession due to low oil prices.

Unknown said...

This is comical. This what happens when the is a complete lack of regulation or over site. Realtors and Brokers here in Canada have become the equivalent of a shady used car salesman. Now they are complaining that the government isn't doing enough to allow it to continue. Lol. Who drops a deposit and then goes to look for financing. Secondary lending practices here in Canada are a disaster and I would bet my paycheck that it is a serious problem with our big 6 banks also. 3 days ago I bought a car. $45k loan approved by the largest bank in Canada in less than 10 minutes with zero income verification. WTF. Great for me but if practices like that are running through the mortgage lending we are in serious trouble. We are almost 10 years past the implosion of housing in the US with values ballooning more than 50% since 2012. Canada is in for a world of hurt. People here use their houses like banks and seem to feel like values will go up forever. The timing may make it even worse if something happens with the amount of baby boomers at or coming up on retirement age expecting their house to pay for retirement. I think we are in for a wild ride in the next few years.

Monte said...

John, do you understand the relationship between home capitals deposits and their liquidity. I've been watching the deposits for down everyday, but over the last few weeks liquidity has gone up.

Anonymous said...

Trouble taking this seriously when the english is so poorly written - fractured sentences, wanders on and off topic, struggles to make an argument.

It's written like some strange stream of consciousness explosion of stuff. And finally, "loosing" instead of "losing" really gets my goat.

I know I should look through for the message, however, my feeling is that if the author can't properly express themselves, then their business may be in all kinds of other mess too.

G. Sylvie Davies said...

Really interesting to contrast this with her June 1st 2017 blog post (on linkedin):

> On first mortgages, approximate rates are 3.75 to 4.99% and 9 to 11.99% on seconds ( depends on the overall deal). Lending fee depends on the deal but approximately 2.50% on a first and up to 4% on seconds. Again loan amount is up to 85% LTV.

Whereas in this June 8th post you've reposted here in your blog:

> Private first residential mortgage in the GTA [Greater Toronto Area] is now at 8.99 to 9.99% RATE - 65% LTV to 75% LTV. You'll obtain 80% if you're lucky and be prepared to pay higher rate and fees. Fees are 3 to 4% on a first now on private

G. Sylvie Davies said...

I'm astonished an insider would publish a blog post like that.

abee crombie said...

interesting post John

yes the private lending space is in a state of upheaval, but lets remember that this is for ppl who do not qualify under traditional underwriting. Do I really feel so bad for the guy who has 2 houses, 1.5M in mortgages (but also 1M in equity) but only 45K in verified income. These are the ppl using private lenders and their homes as piggy banks. He was playing with fire.

Anonymous said...

Berkshire to the rescue

Anonymous said...


Ameera Ameerullah said...

Clients who purchased pre construction properties obtained a pre approval mortgage and was ready to close upon completion based on the mortgage qualification requirements at the time.

No one drops a deposit then go shopping for a mortgage especially when it’s a purchase from a builder. We do not advise anyone to waive conditions without obtaining a mortgage approval. The clients who obtained pre approval mortgages and waived financing at the time were approved. Thereafter the mortgage guideline changes took effect which negatively impacted borrowers, and at that point they were stuck. Clients couldn’t come up with the additional down payment requirement or meet the new lending guidelines few years later when they were set to close on their pre construction property.

Many borrowers were stuck as well that received approval from Home Capital since their mortgage collapsed at the time. You may or may not know but many institutional mortgage lenders would co fund transactions with Hometrust so they depended on Home Capital, while some was watching the market and held off on lending. The lenders who kept floating was charging higher interest rates to borrowers. Hometrust bridges the gap for borrowers in the Alternative sector therefore when the new mortgage guidelines became effective, borrowers had no alternative options other than seeking private funds. Clients were in a difficult situation and could have lost their initial deposit to the builder or be sued for not closing. The government should have allowed existing pre approved borrowers to close on the old rules since they were pre qualified instead, the government changes did affect purchasers mentally and financially.

Rate changes all the time and it is subject to the lender - Instituonal rates are lower VS private lending rates. On June 1, 2017, I quoted an approximate first mortgage rate up to 4.99% ( this is institutional) and second up to 11.99% from private. Private lenders increased their rate during Home Capital crisis. Some private lenders was out of capital so the ones that continued to lend increased pricing. Pricing can be quoted today and change tomorrow from the banks or alternative lenders. This is very normal so don’t be surprised or astonished by rate change or LTV.

Another major change took effect January 2018 “the stress test”. The stress test is necessary but there should be some exceptions to the rule. Eg. Borrowers who are up for renewal should be able to move their mortgage to a new lender to obtain a better rate without the stress test provided they have made their payments on time throughout the existing term. Another eg. if a client wish to port their mortgage to another home without taking additional capital, then they should not be restricted by the stress test.

Being in the industry since 2001, I have seen many rigid and rapid changes over the most recent 5 years which we have adjusted to. The government should regulate unsecured debts such as credit cards with high interest rates. Unsecured debts carry a higher default rate vs our mortgage default rate in Canada.

On a positive note, Home Capital has been back and maintaining their mark as a lender who truly bridges the gap for borrowers, brokers and lenders. CEO and President, Yousry Bissada has done a great job and it is only the beginning.


Ameera Ameerullah, CEO
Canada Mortgage & Financial Group

portraitsondemand said...

Yes the lending room that is private can be at a situation of trauma, but please recall this is for ppl who usually do not qualify under underwriting debt consolidation loans north york. Can I experience bad for that guy with two homes, 1.5M in pools (but in addition 1M in equity) but just 45K in earnings that are verified.

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