Banks' ignorance opens opportunity for monolines

Banks' ignorance opens opportunity for monolines

Banks A leading Realtor and developer is frustrated by big banks’ ignorance about -- and unwillingness to provide lending for – an increasingly popular housing option; but perhaps monoline lenders can pick up the slack.
 
“There are certain Canadian banks that won’t fund condominiums below a certain size but there are a lot of B-lenders that will and so the biggest mistake that the A-lenders are making is not funding those,” Brad Lamb of Brad J. Lamb Realty told our sister publication, Canadian Real Estate Wealth. “They don’t actually know what they are doing.”
 
The condos Lamb is referring to are “Micro condos”, sub-400 square foot units that are gaining popularity in Canada after enjoying success in other over-populated markets such as Tokyo and New York City. And the problem, according to Lamb, is a complete lack of understanding on the lenders’ part.
 
“The problem is that the big five -- they don’t actually know what they are doing when it comes to the condo market,” Lamb said. “They are greatly mistaken and poorly informed of where they should be putting their money.”
 
Perhaps more frustrating, though, is that Lamb foresees a real need and desire for this sort of housing option.
 
“The funny thing is that they are prepared to lend money on the products that take the longest to sell and hardest to sell yet the properties that rent instantaneously and sell instantaneously are the ones that the most people can afford,” he said. “And what can most people afford? The smaller apartments and that is what everyone wants to (own).
 
“The banks should be lending on that stuff,” he added. “They are short-sighted and poorly informed about the market.”
 
Brad Lamb will be speaking at the 2014 Candian Real Estate Wealth Investor Forum, which will be held at the International Centre from March 22-23. Click here for more information.
 
 
21 Comments
  • Lior 2014-01-27 8:35:46 AM
    It is not just the banks who are not doing them. Meridian won't touch condos either unless it's 700 sqft minimum. National Bank does not have a minimum square footage requirement but they are stiff. Developers have to understand that just because they want to reap in high profit margins by selling increasingly smaller units to homeowners just so that they can keep charging an arm and a leg per square footage, they can expect lenders, not just the banks but the alternative channel as well, to underwrite with a magnifying lens. After all, should a market correction take place, it is difficult to imagine how much headroom there is to protect the lender's interests before the property is considered underwater. The same risk applies to private mortgage investors where the first lender is only willing to lend up to 60% or 65%.

    And FYI Brad a lot of alternative lenders are being quite picky with the Toronto condo market. This tightening of underwriting criteria does not just apply to the banks. They are limiting their exposure to that market by placing a cap on the numbers of doors they have in a particular building, minimum square footage requirements, no glass walled buildings, no rentals, and even when they do agree to lend, the rate of 5% with a 1% commitment fee for an investment property is proving to be the new benchmark, especially for applicants who are self-employed.
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  • Paolo Di Petta | dipettamortgage.com 2014-01-27 9:26:14 AM
    That's because the marketability of micro-condos is almost nil. Totally agree with Lior, Brad Lamb and the like are all getting too greedy, squeezing every penny they can out of the market by trimming unit sizes.

    Something's going to give, and when it does, it's going to get ugly.
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  • John Hamilton 2014-01-27 10:18:31 AM
    80% LTV 2nds below Bloor Street, & 85% LTV 2nds above Bloor Street, equity driven. Paramount Equity Solutions loves rental condos. Just saying :)
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