Since the introduction of the new B20 regulations, a lot has changed for … the better, says Lester Shore, vice-president of Optimum Mortgage.
B20 is now a fact of life for brokers, and there is a lot more due diligence being done, as lenders expect a lot more information from a client than ever before.
The underwriting guidelines for Residential Mortgages that OSFI, the regulator of all Canadian Financial Institutions, imposed on all regulated lenders and CMHC, have been in place for a year now. These underwriting guidelines were created at the insistence of the Financial Stability Board, the financial oversight organization of all G20 nations. The creation of these guidelines is a direct result of the financial crisis caused by poor American mortgage lending practices.
The result of compliance with B20? Better quality borrowers being brought to lenders by mortgage brokers, and delinquency rates as low as they have ever been.
It is essential brokers get a good overview of the situation: the components of B20 in general terms and what it means to lenders; what it means to them, the brokers; and, then, how we at Optimum Mortgage are responding.
What Does this Mean to Brokers?
In terms of “A” business - not a lot has changed. As I suspect is the practice now, brokers must know their client, know their client’s financial circumstances and be satisfied that their client has the ability to repay.
For HELOC “A” clients, LTV on the HELOC portion of the advance has been limited to 65 per cent. Brokers can still provide their clients with an 80 per cent LTV option by combining the HELOC portion with a fixed or variable portion if the HELOC product allows, such is the case with our HELOC product Homeworks.
For clients that we call alternative lending clients, including “B”, NIQ and Stated Income clients, brokers have had to provide a little more information. The biggest challenge has been business-for-self (BFS) clients who do not have traditional income confirmation documents.
What Does this Mean to Optimum Mortgage?
Well in summary, not much has changed. Our previous underwriting policy was generally compliant with B20 regulations. We are primarily an alternative lender, which is we are a BFS and “bruised credit” mortgage lender. We have always conducted due diligence to determine the borrower’s ability to make repayments. We also offer “A” residential mortgages and have very competitive