An opportunity for monolines?

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When it comes to second mortgages, there aren’t enough viable options in the broker – and bank – space, argues one player who is calling on his lender partners to distinguish themselves by focusing on this segment.

“I think there should be better options for second mortgages; there should be more avenues for clients with good credit to obtain second mortgages from A-lenders,” Steve Gilmour, a broker with Dominion Lending Centres Alliance, told “Most of the time these products are costly and I would like something with a competitive interest rate; people with good credit shouldn’t have to pay exorbitant amounts of interest.”

Gilmour says clients who require a second mortgage often have to turn to the private segment and face high interest rates and argues high qualified clients are being let down by lenders.

So should lenders offer lower rate second mortgages?

Not so fast, says another leading player.

“No, (monolines) are not built for that kind of risk; some already engage in B-lending so they already have some exposure to risk,” a broker, who spoke with on condition of anonymity, said. “Why would they getting into that space? Second mortgages are highly risky and the regulator wouldn’t approve it.”

The broker argues that the most clients who require second mortgages are risks; those with credit issues or who are highly leveraged.

“I don’t run into prime clients who require second mortgages a lot,” the broker said. “Usually it’s people with financial issues.”
  • OkanaganBroker on 2015-10-19 10:58:10 AM

    If they are an A client needing a 2nd mortgage, I simply take them back to their existing lender, get paid on the new money...?? Obviously we are talking non A clients ??

  • Kristin Woolard on 2015-10-19 11:16:59 AM

    I do run into A+ clients requiring - or more accurately - wanting a second mortgage. These are prime, sophisticated clients and the request is to leverage their equity as an investment tool. More often than not I set them up with a HELOC with a credit union and they invest and pay off as needed. More selection of stand alone second mortgages would be beneficial.

  • Gerald D on 2015-10-19 11:24:23 AM

    Mortgage financing is like painting. 1st mortgages and monolines are like house painters. 2nd mortgages are more like canvas painters. There is so much more to understand about the client, and I don't think the volume business will ever really fit it.

  • Ad Lakhanpal,Mortgage Broker on 2015-10-19 1:08:20 PM

    There is definitely a need for a second mortgage product in the "A" space to go to 80% LTV behind a first mortgage from another "A" lender.
    People with good credit and income can also require money for good reasons and should not have to pay the high rates of the private mortgages or bear the expense of refinancing their entire first mortgage.

    If a person can qualify to a refinance of their mortgage to 80% LTV with an "A" lender,I see no reason why he should not be allowed to have a first and second combo as long as he qualifies.

  • Paul Therien - CENTUM on 2015-10-20 12:44:57 PM

    From my days in the lender world I am curious about something. Most A lenders today have clauses that stipulate no second mortgage charges without written consent from the lender. Has that changed?

  • Ron Butler on 2015-10-20 5:39:50 PM

    @ Paul , good question: that clause exists with several lenders but the reality is this: there is no real barrier stopping a second mortgage EXCEPT: those lenders with the clause will not produce an information statement to confirm mortgage balances and payment history so it is much harder to complete a second mortgage transaction.

    The lender with that clause theoretically has the right to call the mortgage if the second mortgage is registered but I have never heard of it happening, if the lender calls the mortgage and seeks remedy from the courts no magistrate will support the remedy action so I don't think we will ever see it happen.

    No bank wants to be in front of a judge explaining that the mortgagor never missed a payment but they are foreclosing because he got a second mortgage.

  • Paul Therien - CENTUM on 2015-10-21 12:30:52 PM

    So Ron, is the then, logically, the reason why we see some lenders move towards registering collateral charges? In my mind - and not saying good or bad, just a comment - that makes it very logical for them.

    Securing a second charge on title is often done because the client is maxed out under A lending guidelines.

    They may not foreclose, but I have seen situations in the past where a first mortgage holder has refused to renew a mortgage on the grounds that a second charge was registered on title shortly after the first, and that it was not disclosed. Thus they were in breach of their mortgage agreement.

    Just a comment is all. I think that in any situation brokers need to ensure that they are always looking out for the best interest of their clients and they need to be aware that sometime short term gain, is not worth it.

  • Ron Butler on 2015-10-21 1:19:42 PM

    Paul, your reasoning is sound and logical but in actual practise the global collateral concept is mainly used just to trap the client and prevent other lenders from engaging with what the incumbent bank views as THEIR client.

    Every single day I see files with global collateral charges where the actual mortgage balance is less than 50% Loan to Value yet the charge is 100% of the original value. What if the client wanted to add a SLOC for renovations? They are forced back to the incumbent bank. What if they want to take advantage of another bank's featured special on SLOCs, they cannot access that special.

    The case you site is valid but lets face facts; if a second mortgage is registered a day after the first mortgage is registered this is typically broker skullduggery so the lender has a right to object. But that is likely 1% of cases or less, 99% of the time clients are impeded from having greater choice by a Global Charge or any clause that prevents registering in second position.

    I am not advocating for second mortgages but I want to advocate for consumer choice, if the client with a low LTV wants to add an SLOC in second position with a lender other than their incumbent lender they should not be prevented from doing so by a restrictive charge.

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