"Its the same old double standard which we all know exists ... validation of debt servicing and other critical 'conditions precedent to advance' on broker origination (versus branch origination) is always held to a higher standard," one MortgageBroker.ca reader wrote. "Brokers should hope that OSFI actually implement thorough audits of branch-originated mortgage files."
A trend is developing south of the border; lenders are bending rules for wealthy clients who, technically, do not meet updated – and stricter – lending requirements, but that isn’t the case in Canada … at least for brokers.
“In my experience lenders really like to do their due diligence (regardless of how wealthy a client is),” Ivan Cermak of Verico
Manifest Mortgage Corp. told MortgageBrokerNews.ca. “As far as the most wealthy individuals, every ‘T’ must be crossed and ever “I” must be dotted but I still get the deals done.”
In January, the United States government introduced new qualification standards for mortgage lending, including “jumbo loans” – mortgage loans that exceed $417,000 in some areas and $652,000 in others.
According to the Wall Street Journal, lenders shied away from deals that didn’t meet the updated rules, but that is now changing – especially for wealthy clients.
“We see an under-served market of people who have excellent credit and strong income but have had a lot of debt,” Brian Simon, COO of Pennsylvania-based lender, New Penn Financial told the Wall Street Journal.
New Penn Financial has established a new “nonqualified jumbo mortgage” product that allows for a debt-to-income ratio up to 55 per cent. Under United States federal rules, borrowers can’t have a DTI in excess of 43 per cent.
However, lenders who skirt the rules put themselves at risk, according to the WSJ, because they are not protected from lawsuits filed by mortgage holders who default.
Such workarounds have not been established in Canada, say brokers – at least not in the broker channel.
“Branches seem to make more allowances than brokers,” Cermak said.
He echoes sentiments that are all-too familiar in the mortgage broker industry.
“I work with major banks and they challenge I find is that some clients I bring to them are denied a mortgage only to be approved when they go into a branch themselves,” Avijit Ghatak of Centum Home Loan Inc. told Mortgagebrokernews.ca in June. “Underwriting on the broker side is much tighter; our clients may get denied by the lenders but they get approved by the banks.”
After reading about a perceived double standard in the mortgage industry, one industry player has called for more oversight for one particular group of professionals.