Broker: high-ratio BFS in peril

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There’s growing indication the new year will usher in the loss of high-ratio mortgages for self-employeds, worries one frustrated broker, suggesting that would limit both the professional and personal ambitions of mortgage professionals.

“We had already seen Scotia move to limit those mortgages to five-year terms, and recently one of the few monolines offering those mortgages told me that they were no longer considering them for the rest of the year and next year only on a case-by-case basis,” Michael Marini, a mortgage agent with Dominion Lending Centres Funds in Toronto, told “Even then, the application would have to be with them for a minimum of five days.”

While a handful of lenders are still willing to do those loans at a premium -- usually a minimum of .15 per cent -- even fewer are now prepared to offer self-employeds comparable rates to those salaried borrowers are accessing.

Marini and others are pointing the finger at default insurers suggesting their appetite for high-ratio BFS deals has effectively disappeared, something possibly owing to concerns around exposure to fraud and a possible market correction and economic downturn.

That explains the higher down payment requirements and insurance costs, but even with those buffer, fewer and fewer lenders appear willing or able to offer prime rates to BFS – including mortgage brokers themselves.

Marini is among those concerned that lenders are simply finding it hard to get those loans insured. The reluctance has everything to do with more conservative underwriting by the sole default insurer now serving that niche market, argue some brokers.

The loss of that type of loan would effectively leave BFS clients with little choice but to go conventional. It’s something few have wanted to do in order to capitalize on low interest rates and invest their money into growing their businesses.

Marini’s concerns mirror those of other brokers from across the country who are now seeing the pendulum swing back from the dark days of 2007/8 when broker channel lenders had all but closed their doors to non-income qualifying mortgages. But while banks and mono-lines are increasingly willing to fund those deals at prime rates, they are still demanding default insurer backing.

That’s where brokers are hitting a snag, said broker Vittorio Oliverio with Centum Professional Mortgage Group. He works the entrepreneurial-rich Alberta market where the business-for-self market is viewed as a key growth area for brokers looking to grow originations in a slowing market. The statistics back them up with more than 22 per cent of Canadians now self-employed, among them mortgage brokers.

“The change means that many of us will be challenged to get a mortgage as well,” said Marini, fearful 2012 will see it become nearly impossible for self-employeds to win high-ratio mortgages at the rates of their salaried counterparts.

  • Broker - SW Ont on 2011-12-22 5:28:16 AM

    It is what it is ! Move forward !! If you have a way (or your accountant) has a way to dick around with the CRA $'s - keepin the income low - then pay the price !!! It is what is is .. claim what you make, pay the freight and get a mortygage like the rest of the public and most of us . The days for the investors to buy the self employed crap has slowed down for 5 years now - why are you just worrying about this now ??? Pay as you play !!!!

  • Anonymous on 2011-12-22 6:09:32 AM

    I'm wondering if you can explain what is meant by the term "non-income qualifying mortgages".

  • Ron on 2011-12-22 6:34:50 AM

    With BFS representing 22% of the workforce, lenders/insurers should look at various categories, not broad brush us all, and especially the length of time in the business. They do not need to use a big broom when they can be more selective only.

  • Lorne Rackel on 2011-12-22 9:25:28 AM

    The lending industry for many years has consistently identified self employed individuals as higher risk lending verus employed individuals. This is nothing new. We will still have options but they maybe limited.

  • Jeremy on 2011-12-22 9:45:38 AM

    The Government changes of the past helped the banks with retention and did very little for the consumer. Taking away choice does not benefit the consumer. So, I guess this is the banks way of helping the Government increase its tax revenue.

    Short-sided, for sure!

    For those employed who think the "self-employed" have it better, stop complaining and become self-employed! You have control over the choices you make!

  • James on 2011-12-23 11:27:56 AM

    As an independent we still offer more options than the banks. The time of private lending will soon be upon us. Learn to underwrite a deal properly and you can even save your clients money. Quit chasing rate.

  • Jim - Ontario Broker on 2011-12-24 3:09:54 AM

    Based on the fact that I do work with a lot of Self Emplyed professionals compared to salaried the only distinction is that there is the ability or willingness to show what self employed person trully make because of the huge tax implications. This in one way not fair to the self employed professional because if you are trying to compare self employed to salaried I have seen better credit from the self employed professional then my salried clients. The point is the self employed person because they can not prove a lot of personal income or because of the advice of their account choose not to then they have to keep the best credit they can. If this is the case that the insurers are going to make it tougher for these persons to get a high ratio mortgage then a lot of the mortgage agents and broker and also real estate sales agents and brokers will be going to find it tough to get a mortgage because of any new rules that come in place. It seems that if the industry and income stated is a good incdication of what that professional would earn if they were salaried then there should no issues but he issue that can be seen is when the self employed persons start stating amounts that are way off what a person would make if they were working for someone in the industry. The best thing to remember is if you are dealing with self employed persons and they say they make a certain income way above what a person who was salaried in their field. This is trully just padding the income level just to make the deal work. I think the insurers should understand that if the lender is willing to take the risk then the the insurers should not make it tough for self employed persons not to get a mortgage when they are within reasons with respect to declaring the income they are making.

  • Mark Fidgett on 2011-12-24 5:49:46 AM

    I'd love to see some stats. Are Self employed individuals defaulting in such numbers that they should be the ones who bare the brunt of the world's economy. The fact that my self employed clients have fared very well, makes me wonder if there's something we should know about?

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