Are the big banks punishing certain broker clients?

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While the industry continues to chime in about the interest rate cut and its impact on all sorts of homebuyers, investor clients are finding themselves left out in the cold by the banks.

“Apparently, [the banks] believe the highest mortgage default rates are made by investors,” said Cindy Wennerstrom, an investor and president of Oro Properties.

“The banks only want to deal with the typical borrower – the first time or regular home purchaser. These deals are easier and less risky, according to the banks.”

For instance, Wennerstrom is currently having a difficult time getting a mortgage on a principle residence, despite the fact that she has a solid cash-flowing real estate portfolio.

“The problem is stated income,” she said. “The banks hate that. It's best to ensure you maintain and establish a good relationship at the branch level as you grow your portfolio.”

This is one way to try to avoid the exorbitant fees that alternative lenders, such as Equitable and Home Trust, charge – Wennerstrom was just offered 5.25 per cent plus 1.5 per cent lending fee.

“When you look at the cost to borrow as a self-employed real estate investor who cannot get funding from a regular bank, the Equitable and Home Trust products are not too bad,” she added. 

“They certainly are leaps and bounds higher than traditional financing, but when you’re purchasing an investment, as long as the numbers work (i.e. you can adequately cash flow with the higher interest), then this is considered a cost of doing business.

“These lenders take on greater risk by lending to investors with bigger portfolios and in turn they ask for a greater percentage rate and lending fee to ensure their profit. To them, we are more of an investment than a mortgage.”

So what is an investor with a strong portfolio to do when it is so difficult to get a reasonable mortgage?

Wennerstrom suggests looking to credit unions, which tend to have lending rates comparable to the big banks, though they do ask for a higher down payment. “Establishing a good relationship with them will definitely help you to be able to continue building your real estate investment portfolio,” she said.

Other suggestions include purchasing the properties using your own or borrowed line-of-credit money, and forming a joint-venture partnership with someone who is full-time employed and does not have a lot of investment properties.

“Put their name on the mortgage and stay off the title to avoid complicating the deal,” advised Wennerstrom. “Draw up a joint-venture agreement between the two of you and register it against the title of the property after closing via your lawyer.”

The big banks, including RBC and TD, declined to comment.
 
  • Alain Payette on 2015-02-27 12:21:32 PM

    Must also know that after around 12 doors that are financed with the credit unions they will send you to their commercial dpt.Some fees and revisions yearly will start.

  • Mike on 2015-02-27 12:38:31 PM

    "Put their name on the mortgage and stay off the title to avoid complicating the deal,” advised Wennerstrom. “Draw up a joint-venture agreement between the two of you and register it against the title of the property after closing via your lawyer.”

    Looks like fraud to me. Sounds like a straw borrower. Did you disclose this to the bank? I think perhaps Mortgage Broker News might not write articles advocating the use of fraud. We are trying to clean up the industry. Perhaps Cindy might try declaring all her income, not capitalizing repairs that should be capital improvements and her properties may debt service properly. Unless of course she is too highly leveraged then I think the banks have a reason to be cautious. Look back in history. In the 80's and 90's investor owners struggled alot. People don't remember the bad times because we have had so many years of increases in value.

  • Mortgage Delivery Guy on 2015-02-27 2:06:50 PM

    There is nothing wrong with Joint Ventures in principle. In fact it is quite common among real estate investors.
    Appropriate disclosure to lender & mutually agreed upon JV terms is the key to prudent real estate investment.

  • Bob on 2015-03-01 12:41:02 PM

    All of the above, or pay down your principal mortgage with the cash flow and setup a Non Arms length mortgage on that and pay the interest to yourself.

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