Broker frustrated by tightened lending

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Monoline lenders in Alberta are becoming more strict with income qualification in the wake of the plummeting oil industry.

“Lenders in Alberta don’t want to use the full two year average for income (anymore) and they often only want to use 25 per cent of bonus or overtime income (for qualifying),” Jean-Guy Turcotte of Dominion Lending Centres Regional Mortgage Group, a broker based in Red Deer Alberta told MortgageBrokerNews.ca. “More of the monolines have been cutting back on income allowances.”

As a result, Turcotte admitted he has had to send more deals to the big banks, which have been less conservative with underwriting in the wake of falling oil prices.

“And it’s the investors pulling the strings, not the underwriters,” Turcotte said.

It’s understandable that mortgage lenders are becoming more conservative.

Between January 1 and May 7 of this year, Alberta employers notified the province of plans to terminate 9,342 jobs, according to Global News.

And according to Jason Gilmore, a StatsCan analyst, 13,000 jobs were axed in the province’s energy sector between September 2014 and January 2015.

Add that to the fact that at least one mortgage default insurer believes delinquencies are expected to spike in Alberta.

“Our expectation is we’ll start to see [mortgage delinquencies] potentially in the second half of this year, so third quarter, fourth quarter it will start to pick up,” Stuart Levings, chief risk officer with Genworth MI recently told Business News Network.

However, not all Alberta-based brokers are noticing the same trend.

“I haven’t noticed any changes like that,” Calgary-based Matt Leggett of CanWise Financial told MortgageBrokerNews.ca. “All the non-bank lenders I have dealt with still consider bonuses and two year average income.”
 
  • John W on 2015-05-28 11:35:02 AM

    He makes a key point here. It is the investors driving the bus. They get whatever they want and don't have to answer to anyone. Not a good situation for us. We don't have the opportunity to reason with them.

  • Jo on 2015-05-28 11:42:26 AM

    It's an uphill battle all the time now.
    Lenders that no longer want to lend, insurer's that refuse to take any risk, underwriters whose job it now seems is to find a way to decline a deal rather than find ways to make the deal work. Regulations on mortgage financing gets tighter every day while high interest credit card companies are left alone to gouge customers as they see fit. Every lender has their own twists on policies and differ on what types of deals they do or what documents they will accept. Its becoming more than frustrating, its becoming a damn joke.

  • RANJIT DHILLON Centum on 2015-05-28 11:47:08 AM

    I think the lenders are very particular about the documentation now a days, it make sense to have rules of verification of Incomes but sometimes they are unreasonable and that is where the broker frustration comes in.
    In 2015, I have been looking at spending 3 to 4 times the time I use to spend on a deal in 2011. the frustrating part is that when the lender has given us guidelines about documentation and then they ask for much more on A Plus deals,
    The Lenders should understand a experienced and professional broker is competing with the banks who would do a deal in a jiffy.

  • HILBOJ2 on 2015-05-28 12:02:34 PM

    Glad this is being brought up!
    The investor's are not only pulling the strings they are overriding the lender commitments days prior to possession! This has become a huge issue with novice institutional mortgage investors.
    My only theory is that some monolines, in an effort to gain new funding, pitch a 'pre-funding audit' feature but this feature is nothing more then a poison pill, inserting additional conditions or ask for additional documents.
    It's creating horrible experiences for our clients and huge stress for our agents.
    Until these mono's rejig their pre-funding audit's so they coincide with underwriting and doc review **before COF day** I'll can tell I will not submit another file to them.

  • kac on 2015-05-28 12:15:01 PM

    seems these days my go to FI is a chartered bank not even in the broker channel which seems the only ones able to make common sense decisions. The monoline investors should possibly try applying for financing to the companies they provide the funds to and see if their approach is a bit over the edge.

  • Mike R on 2015-05-28 12:16:56 PM

    look at it from the investor side of the equation. If lending money from your pocket and you see a sector with declining income trends, only stands to reason that policy should change. The oil industry won't stay down forever, Alberta still plays an important role in Canada's economy. Once things pick up monolines will change their rules again for the good and everybody will be happy again. In the meantime send your deal to the banks....

  • mono line lender on 2015-05-28 12:33:43 PM

    The debate around the lending austerity being applied now to geography and specific industries is not new. In the 90s the same thing happened in Ontario with the failure of the manufacturing sector and the resulting failure of the provincial economy. The lender boneyard is scattered with the corpses of those who ignored regional and or industry risk. I would submit that oil being devalued in half in the last 10 months in Alberta is a significant risk. Stewart Levings is correct we will see increased delinquency in the second half of this year. The real issue is that the regional economy, the national economy lacks diversity. That one ain't solved here. Here is a real risk for the lender broker community....
    lenders who take a laissez faire approach to risk today may not be here tomorrow. That means less choice for the broker and his client. Suddenly the core of the broker value proposition is devalued and everyone suffers. I can tell you lenders do not wake in the morning dreaming of ways to frustrate you and your client. Investors take the risk, lenders are paid to mitigate those risks and so it goes. I appreciate these are tougher times, and things like prefunding audits, increased underwriting etc aren't the way we'd all like it.... it costs us far more money to oversee risk today. I'd rather say yes than no too. But the risks today are real and the investor and lender stands alone when it goes pear shaped. As for HILBOJ2s thought that these measures are an attempt for us to "pitch" to funding suitors allow me to share: Their dance card is very busy. Funding isn't pitched, it's selected by the investor. The lenders who do the best job of anticipating all risk and maintain a clean portfolio get a spin around the floor. Perhaps withholding business will serve your short term agenda but to revisit my earlier point. Less lenders. Less choice. Less brokers. Less.
    One last thought, in some parts of the world the solution to risk management was to have the originator share in the investor/lender risk.
    Maybe something to consider?

  • kac on 2015-05-28 12:45:28 PM

    it is understood that in various areas at different times there will be tightening due to market conditions,point being more about in any area there is a set of conditions put forward from the monolines, we will utilize this rent and if the credit score is this we will approve the mortgage etc and very rarely is this the case where with the banks the approval process is less stringent.

  • mono line lender on 2015-05-28 12:53:12 PM

    The "common sense" at chartered banks is often also referred to as "big balance sheet".
    Banks are also a great place to send the clients you dislike....cause you'll never see them again.
    I crack myself up.
    Have a great day all.

  • Hal on 2015-05-28 1:26:42 PM

    If the current situation was in play 10 years ago, as an industry we never would have been able to get the market share that we have now.

    We may be able to maintain our market share now, but even that will be tough.

  • HILBOJ2 on 2015-05-28 2:51:51 PM

    mono line lender.....by 'common sense' we are referring to balance sheet lenders honouring commitment and when they state "file complete" or "income accepted" they mean just that.

    If your mono company commits to an approval or u/w decision regardless of investor review (assuming no fraud), then you are doing 'good' business and deserve our deals.

  • Kent Farnsworth on 2015-05-29 10:58:23 AM

    I hate to say it, but cry me a river lol. It's been like this is Atlantic Canada, more specifically NB now for years. At least it's probably only temporary for AB.

  • Ron Butler on 2015-05-29 12:09:45 PM

    Everyone should carefully read mono line lender, every word in that post is factual. One VP put it to me this simply: "there will be no underwriting exceptions in Alberta........... none" This too shall pass although it may take a couple years. Everything is changing about this business and we might as well get used to it.

    I will agree with one broker point, last minute changes or extraordinarily tough pre-funding audit attack a day or two before a purchase closing needs to be mitigated. At the end of the day we MUST, all of us, lenders, investors, insurers, ALL OF US must respect the fact the clients are human beings with moving trucks booked, kids who need a bed to sleep in, and a life to lead and they do NOT deserve to be terrorized two days before a purchase closing. Pre-funding audit needs to completed FAST not last minute.

  • mono line lender on 2015-05-29 1:35:38 PM

    Thanks Ron I've always said you're the smartest guy we have.
    We lenders never forget the client is at the end of all our processes. But to be fair we are in this together, if we get docs two days before closing we should say no, but invariably we capitulate because there is a family with a moving van.
    Another misconception that needs to be disabused: Investors do not pre fund audit. We do. For all the reasons discussed. The process at times is protracted by volume, sometimes by human error by us and by brokers but it is never because an investor second guesses our judgement. That's what my pop used to call "having a dog and barking yourself", sorta defeats the purpose. We commit to prudent underwriting we are audit by all stakeholders to assure we comply. That's how it works.
    Be efficient get the docs in early and well and we will see to it your client doesn't get affected.

  • Ron Butler on 2015-05-29 2:03:21 PM

    Thanks for the kind words mono line, trust me on this particular Friday month-end I am not feeling so smart. We do all have to work together, you are dead right on that. One the problems we have today in the Lower Mainland and GTA is wildly short closing timeframes on purchases, I have seen 5 purchase in just last week all with less than 30 day closings all at or near a million, it puts a certain amount of pressure on: less than 20 business days. This frenetic pace has to be a harbinger of something none of us will enjoy in another year or two but that's a whole other post.

  • mono line lender on 2015-05-29 2:12:49 PM

    Yup, a little crazy around here today as well. A campaign to kill held offers by realtors would take a little pressure off you, me, appraisers and the MIs as well. Another harbinger: our ATF cycle has shortened 6 days in the past 5 months. Don't see that changing anytime soon.
    You and I have seen the mad boom followed by the decade long bust and echo. I guess all this gray hair isn't just because I'm old.

  • Maleek on 2015-05-29 8:51:44 PM

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