Reports of the death of BFS may have been greatly exaggerated, with brokers increasingly turning to second mortgages to service those clients left stranded by retreating A players.
“Oh, yes, I think fears about the end of that business have been exaggerated,”said Rick Caron, an agent with Verico The Mortgage Professionals in Gananoque, Ont. “Self-employed are always going to find money, but what’s happening is that brokers are having to get more creative with those deals.”
Increasingly, that means arranging a prime-rate mortgage with an A lender willing to go as high as 65 per cent LTV for a stated-income client. Caron and others are then arranging a second mortgage for as much as 15 per cent of the value of the mortgage with alternative lender offering B rates, or, if push comes to shove, a private lender demanding slightly higher rates.
Those second loans are for terms of one or two years, the industry veteran told MortgageBrokerNews.ca., but are essential for brokers looking to fill the funding gap left by the industry move away from BFS lending.
As early as February, a slew of broker channel lenders announced that they would end or significant restrict their stated-income programs. The collective move following the CMHC decision to ration bulk insurance. It also threatened to remove the high-ratio borrowing options for BFS clients.
That hasn’t yet happened, said Caron, suggesting BFS business remains a key segment of the broker market.
Still, his more creative solution may not be for every self-employed. The interest rates attached to those second mortgages means clients need to have strong exit strategies that will allow them to retire that debt.
“They’re a short-term thing,” said Caron.