As times toughen, and credit tightens, an increasing number of Canadians are finding themselves in difficult financial situations.
And with sub-prime lenders virtually on the ‘endangered species’ list in Canada, those Canadians who have damaged credit, or who can’t afford their mortgage payments, have fewer options than they did a year ago.
For this reason, mortgage brokers who are aware of the available options for the financially challenged, and who have strong referral relationships and value-added services to offer this type of clientele, have an advantage over those who aren’t prepared.
After all, a run of bad luck can happen to anyone. If you’re the person who helps someone get back on their feet, you’ve just won yourself a client for life.
Since the government’s decision to increase the mandatory Beacon score on insured mortgages to 600, chances are, more unqualified clients will soon be approaching you for loans.
To deal with these situations, many mortgage brokers/agents are already offering some form of counselling service for clients who are just a hair shy of qualifying for a mortgage. These programs usually offer simple steps clients can take to raise their Beacon scores – such as watching the balance on their credit cards and limiting the amount of credit they apply for.
But what happens when the situation is more urgent – say, if the client is already a homeowner and can’t afford their mortgage payments?
This is the situation Michelle Watson, a mortgage agent with TMG The Mortgage Group in the Greater Toronto Area, found herself in when a client came to her, unable to keep up with the payments on a rental property that she owned.
The rental property was in an area of Toronto that was decreasing in value, and she hadn’t been able to rent it out for the past few months. Since she was already paying the expenses on her principal residence, the extended vacancy on her rental property was too much for her to handle.
The first step Watson took was to contact the lender to see if it was possible for the mortgage insurer to manage the situation through a work-out program. Canada’s three insurers all offer this form of protection for homeowners – designed to help homeowners stay in their homes through difficult times.
Genworth in particular has taken great steps to beef up and increase awareness regarding its Homeowner Assistance Program. The company will work out an arrangement, either directly with the borrower or through the lender, that could involve partial mortgage payments, increasing amortization periods, an interest rate buy-down or the deferment of payments, among other things.
While Watson’s client was denied access to her insurer’s program because she had already fallen behind on her mortgage payments, Genworth vice president of loss mitigation Rob Kirby says this wouldn’t happen under Genworth’s program.
“We deal with every level of delinquency – whether it’s right at the time of a layoff or after someone has missed a few mortgage payments,” he says. “We actually just helped a family that was far into the legal process. That being said, it has to make sense.”
In order for a deal to ‘make sense’, a homeowner must be going through temporary financial difficulty or a significant life event. Individuals who are in a “chronic state of delinquency” will not be considered for the program, Kirby says.
The ‘B’ word
Due to the urgency of Watson’s client’s situation, Watson knew she had to act fast. Her client was facing the risk of having her wages garnished, and was suffering heart palpitations and severe stress at the thought of her secret being revealed.
While the term ‘bankruptcy’ wasn’t one her client wanted to hear, Watson knew she wouldn’t be of much use to this client on her own, and needed the assistance of a bankruptcy trustee.
“Because there wasn’t any equity in her home, and her credit was taking a hit, I had to point out that her financial picture was changing completely,” Watson says. “I showed her the options she had to hang onto her home and, realizing the rental property was a sinking ship, she agreed to talk to a bankruptcy trustee.”
There was only one little problem – Watson didn’t know a bankruptcy trustee.
So she hit the phonebook and interviewed receptionist after receptionist, to find out which trustee would suit her client best. Her main evaluation criteria? She wanted a bankruptcy trustee that would allow her to sit in on the first meeting with her client.
“Most of them didn’t say ‘yes’ or ‘no’ explicitly,” she says of the trustees she called before coming across Antonia Miller. “This trustee was not threatened by the fact another professional was in the room. She didn’t try to shut me out – she engaged me in the situation.”
Recognizing her client’s fragile emotional state, Watson wanted to sit in on the first meeting to put her at ease – and she has continued to do so for every client she has sent to Miller since that initial contact. Watson sees it as a value-added service.
“In these meetings, I interpret the language for the client,” she says. “I also provide the latest copy of the client’s credit information, mortgage information and I arrange for an appraisal on their home. In these situations, the client is usually very stressed. I keep the process moving along.”
Miller appreciates Watson’s efforts – she also embraces the fact that Watson provides the necessary information, rather than making Miller hunt it down. She now refers clients Watson’s way as well.
“I refinance loans for her clients,” Watson says. “I also know she’ll call me back into the picture when the client is ready to buy a house.”
While in an ideal world every broker/ agent would be involved in every step of a client’s financial recovery, in reality, many don’t have the time or the expertise to do so.
That’s why Donna Lewczuck, a mortgage agent with Mortgage Intelligence in Burlington, Ontario, forwards her credit-challenged clients to financial coach and senior advisor Eric Putnam of BDO New Beginnings.
“Most of the time, clients already have a mortgage when they come to me. They want to increase their cash flow, but they don’t have a lot of equity in the house,” she says. “I send them to Eric and he sets them up. He puts them in a special savings program and then a year or two down the road I can help them.”
Lewczuck has been taking advantage of Putnam’s services a lot more since lenders have started tightening up on their guidelines. She finds it particularly difficult to find high LTVs for troubled clients.
“Normally, if there’s some equity in their home but their credit score is low I might be able to do something,” she says. “But if they need an LTV higher than 75%, even private lenders don’t want to deal with them anymore.”
Lewczuck adds that even equity-based lenders who claim not to consider Beacon scores will cut their LTVs significantly if a borrower’s Beacon is less than 540.
Putnam works to increase a client’s Beacon score and set them on a plan designed to help them achieve their financial goals. His services help a wide range of clients, including those looking to rebuild their credit after a bankruptcy, hoping to avoid a bankruptcy and who have a good job but require assistance in managing their cash flow.
The program starts with a no-obligation review of a client’s situation. Because it’s done over the phone, it’s available to clients across the country. The review is designed to learn about the client’s financial situation – he determines the available options, designs a plan and, if the client goes along with it, he arranges six follow-up appointments throughout the course of between six and 12 months.
“Traditionally, once a client goes through a bankruptcy or a consumer proposal, it’s difficult to get credit,” Putnam says. “This program allows them to build credit by acquiring an installment loan and a credit card for emergencies. At the same time, it allows them to put money towards their goals – whether it’s for closing costs or an RESP.”
Putnam likens his role to that of a personal trainer at a gym – while it’s possible for individuals to do this on their own, he offers support and guidance that enables them to stick to a routine and see results faster.
He believes the service he offers is invaluable to clients because it’s his specialty – while financial planners focus on investment products and mortgage brokers focus on mortgage products, BDO New Beginnings focuses on credit management, he says.
“The majority of brokers try their hand at credit building, but you can only specialize in so many areas,” Putnam says. CMP