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Brokers embrace an old friend

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Mortgage Broker News | 16 Aug 2012, 02:00 PM Agree 0
Hello, old friend? That new LTV cap on refis will inevitably increase the number of A clients seeking private second mortgages, says one broker specialist. It will also increase the need for broker vigilance.
  • Paul Meredith, CityCan Financial | 17 Aug 2012, 03:25 AM Agree 0
    I have seen a big increase in 'A' clientele coming to me for private 2nds up to 90% LTV, and I expect to see more and more. Before this, it was just 'B' clientele.
  • Paolo Di Petta | dipettamortgage.com | 17 Aug 2012, 04:50 AM Agree 0
    I'm not sure about anyone else, but 2nd mortgages are (and always have been) a big part of my business. Competing with the "big 5" and their multi-million dollar ad budgets never seemed like a good strategy to me.

    That being said, a lot of people don't understand the private market very well (probably due to the myths and misrepresentation that are continually perpetuated). I've seen some advertising outrageous 90% LTV deals - either they're misleading their borrowers and lenders, or their lender is taking an unnecessarily high risk.

    Prudent lenders see the writing on the wall and are clamping down. The banks are doing it, and everyon is following closely behind. Gone are the days with rapid capital appreciation, where an 85% LTV 2nd will become a 75-80% LTV mortgage a few years later - in fact, I expect it will be just the opposite in coming years.

    Additionally, the time is coming where reality is going to set in. Borrowers won't be able to keep purchasing out of their means, and in response, home prices will have to normalize. I would be willing to argue that low rates, low down payments and long amortizations have played a big part in inflating the market over the past decade.

    What does that say for our market for 2nd's? (and 3rd's to some degree) - That specific market might be hot for the next little while, but if a broker/agent lacks experience, they're liable to get burned. It's a niche all it's own and requires much more experience, critical analysis, and a rather specialized set of skills when compared to a standard A-client bank deal.

    We're facing a rocky road ahead and there's definitely going to cause a bit of a shakeout - for brokers/agents, borrowers and lenders alike. If you love the industry, strap in for the ride - otherwise this is the last call.
  • Ron Butler | 18 Aug 2012, 03:13 AM Agree 0
    Thank you Paolo. A voice of sanity.

    Home Trust, who are very smart guys about this stuff; quietly moved refinance maximums from 80% to 75% in Ontario. We are trying to get all of our own investors out of everything over 80% in our office and our new target LTV is 70% for private mortgages.

    As Paolo said: fasten your seat belts, there is turbulence ahead.
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