Brokers react to FirstLine BFS cut
By
Vernon Clement Jones
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31/01/2012 5:00:00 PM
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14
comments
Brokers who pooh-poohed concerns that stated-income lending was headed the way of the dodo bird are eating their words, with FirstLine sending its own segment of that business into extinction, effective Feb. 1.
“Hello everyone, FirstLine will no longer accept new applications for stated income programs effective end of today also max loan amount is $1 million,” reads an email penned by one of the lender’s BDMs and sent to brokers Tuesday afternoon. “if you have any deals you need to send please do so by the end of today, FYI Brand-to-Brand is NOT affected.”
Many other FirstLine programs are: New Immigrant programs, non-Immigrant programs, equity programs (flex), Access low-doc programs, CMHC self-employed simplified program, Genworth Alt-A program, Canada Guaranty low-doc programs, Canada Guaranty Lifestyle Advantage and self-employed program.
It’s an extensive list and will likely affect brokers both professionally and personally, considering many themselves rely on BFS lending programs.
The FirstLine move comes on the heels of the release of documents suggesting the Office of the Superintendent of Financial Institutions is increasingly worried about BFS underwriting practices at the country's big banks.
Mortgages often granted to the self-employed and recent immigrants "have some similarities to non-prime loans in the U.S. retail lending market," and banks and other lenders are becoming "increasingly liberal" with mortgages and home-equity credit lines that don't require individuals to prove income, according to a 152-page OSFI document obtained by Bloomberg News.
It’s likely OSFI has already brought that increased scrutiny to bear in auditing the country’s banks, said James Robinson, an agent with The Mortgage Centre Mortgage Watch Inc., pointing to recent pull backs in BFS programs at other lenders.
“It’s a sign that the government is auditing the banks and asking them to come up with something to reduce the risk on this line of business,” he told MortgageBrokerNews.ca “It appears that FirstLine has said that it is out. It may be slow and gradual, but I think we’re seeing a return to the 1980s when there was a greater distinction between A and B lending.”
That’s likely to accrue to the benefit of the few lenders still prepared to lend stated-income, albeit with a significant premium attached.The appetite for conventional mortgages among small lenders is also expected to take a hit given their access to CMHC portfolio insurance is itself expected to diminish as the Crown corp. approaches the end of its $600b fund.
Michael Marini was one of the first brokers to sound the alarm about the disappearing BFS high-ratio lending.
“The change means that many of us will be challenged to get a mortgage as well,” said the agent with Dominion Lending Centres Funds in Toronto last December.
Latest Comments
Total:
14
comment(s)
Christina Horvath on
01 Feb 2012 12:40 PM
The sad part of this is that much of Canada's economic growth depends upon small business and new immigrants. We need these participants in our economy yet our government and bureaucracy are not in this case rewarding these parts of our economy.
Ike on
01 Feb 2012 01:22 PM
boohooohoo I say - claim your income and pay taxes like the rest of us and this won't be an issue...
Cori on
01 Feb 2012 01:25 PM
I wonder what their justification is? Are there actual statistics that suggest that BFS borrowers are in great default or foreclosure than income qualified borrowers?
Ron Butler on
01 Feb 2012 02:07 PM
I think one of the the most important take aways from this announcement is that CIBC branches will continue to offer ALL of these products to their customers.
While OFSI's talks with the lenders they regulate are 100% real and all banks and trusts are feeling the pressure the facts are they are all dealing with the issue in their own way.
CIBC chose to apply the changes to brokers ONLY at this stage. It remains to be seen how other banks and trusts will react.
As far as stats on defaults with stated income versus "normal" income, I think we can safely assume stated income will at least be slightly worse than "normal".
Paul Mangion on
01 Feb 2012 04:25 PM
It's funny that Firstline is the first to do so. I understand why brokers supported them in the past as they did quite a bit to promote the broker channel but I dont understand why brokers continue to support them now.
James in Whitby on
01 Feb 2012 04:31 PM
Bye bye Firstline, nice to have known you ... NOT. Fight me for my client at renewal, give preferential treatment to the chosen few and then slap them in the face for their support by automatically giving status to EVERYONE, be uncompetitive for about the last 12 months ... need I continue? BROKERS: support non-bank lenders NOW or we are all out of the business!
Maria on
01 Feb 2012 04:33 PM
Bravo to Mr. Ron Butler as his comment is, to me at least, the most well informed one... Does anyone realize all the latest "decisions/strategies" by lenders & government authorities & regulatory offices(provincial & federal)alike are really about "rendering extinct" the profession of mortgage broker and its information strength towards the general pucblic... Thus stopping any potential stronger increase of their market share...
Nowhere nearing the proposed real reasons of protecting against "higher debt ratios", "fragility of consumer's budgets" or any other "excuses" that are being presented... Such disguise may have been acceptable once but the public is a more informed one and hopefully they will react and "scare" the political powers into being more careful...
The almighty "bank profits" & "their very powerful lobbying" is the deciding power here but maybe something can be done by the REGULAR PEOPLE lobbying... we are after all the biggest in number of votes, aren't we ?
Maria on
01 Feb 2012 04:55 PM
...
Sharon on
01 Feb 2012 05:33 PM
Wow this is a sad day when so many people work so hard to make a living and probably have numerous employees who can get approved because they are t4'd but the business owner cannot. I don't believe that is good decision making!!
Sharon on
01 Feb 2012 05:53 PM
I would like to know the stats on default ratio's on these stated income people, I bet that they are low. One thing that has always bothered me is that people who work for self-employed people can qualify based on T4'd income but the employer cant qualify.
Paul in Ottawa on
01 Feb 2012 11:12 PM
If income is provable there should be no issue. IF the applicants are honest about what they earn and what expenses are actually incurred there should be no issue. Too often the privilege to use "stated income" is to short the rest of us on the use of our tax paid services like hospitals, schools, roads and still get a mortgage. At the same time we don't want overstate income either, that shorts the lenders and in the long run we pay too. Show me the money in line 150 and maybe we have a deal. Just like a T4 applicant.
TorontoBroker on
02 Feb 2012 10:21 AM
At least Firstline had the courtesy to announce its policy change. Street Capital has not made any formal announcements yet it has been systematically declining any and all applications submitted under their Street Equity program (even those applications sitting in their pipeline prior to Firstline's announcement). They have been using their underwriters to send back decline notices together with notification they no longer offer an Equity Program, and further suggest the declined applications be resubmitted for consideration under CMHC's stated income program.
It's funny how so many of these "Broker friendly" non-bank lenders resort to these mickey mouse/back alley tactics when the going gets a little rough. This is my opinion is a more heinous than anything the banks have ever done.
Collingwood Mortgage Broker on
02 Feb 2012 12:43 PM
With secured jobs being lost and the increase of small business in all communities it is amazing that they are targeting this sector again. The BFS rules for obtaining a mortgage are a lot higher than the average person. The way the government is going with their changes no one will be able to purchase a home. Why don't they start targeting the credit card companies for a change who can give credit to whomever they choose without qualifying them at all. I think if they bothered to look at the defaults in mortgages you will see that the majority of them are from the employed person who is "guaranteed" an income. Far from it in this economy.
Bruce on
02 Feb 2012 02:08 PM
Hey, Ike...that was a very profound statement! NOT! (Quote “boohooohoo I say - claim your income and pay taxes like the rest of us and this won't be an issue...) This is what you call a well thought out plan, take all the risks of being self-employed with no guarantees of income or pension plans. That is the kind of statement made by a ‘Bank Employee’ with guaranteed income and gold plated pension plans.