Broker channel associations and lenders must lobby government on behalf of homeowners effectively orphaned by fleeing subprime lenders and blocked from switching to A lenders because of the new refi rules, said a mortgage professional grappling to keep those borrowers in their homes.
“Many of these borrowers have rehabilitated their credit,” said Michael Goss, an Mortgage Alliance agent working recession-weary Southwestern Ontario, “but because they do not have CMHC or Genworth default insurance, they can’t just switch to an A lender now that their mortgage with a departed lender is closing.
“Under the new mortgage rules they now have to qualify for a refinance, and that means the client has to meet the 85 per cent loan to value requirements introduced this year. That’s simply impossible for many of them.”
Goss is now calling on industry associations – both national and provincial – to actively campaign on behalf of the hundreds of borrowers placed in subprime deals before the collapse of that niche market in 2007.
“I believe brokers placed these clients in these deals in good faith, but I think the industry has a moral obligation to help these people by lobbying the federal government,” he said. “There will be a significant number of people who will lose their home because of that practice. I have worked with three cases in the last six to nine months and know of at least 20 in Sarnia, alone.”
Under the terms of many high-ratio subprime deals, clients were handed mortgages for as much as 107 per cent of the value of their homes. That sum invariably included lender-backed default insurance, which carried higher premiums and fees, but did not meet CMHC mortgage-backed securities standards.
It means subprime clients now looking to switch their mortgages to an A lender are required to have CMHC, Genworth or Canada Guaranty insurance. In keeping with mortgage rule changes introduced this spring, those homeowners must have a minimum of 15 per cent equity in the home in order to make that happen. It’s an almost impossible dream for clients given the initial size of their mortgages and the value declines experienced by many housing markets across the country.
Goss wants the federal government to make an exception to its new refinance mortgage rules, allowing A lenders to treat those subprime loans as switches and not refinances. That special treatment would remove the maximum 85 per cent LTV hurdle.
The government isn’t likely to make that move without industry pressure, said the seasoned mortgage professional.
Many brokers, in fact, support the idea of extending those channel clients some kind of assistance – as a way of keeping them in their homes.
“I agree that they need to be helped,” said Mark Goode, a high volume broker with Mortgage Architects in Orillia, Ont.
Still, many mortgage professionals are sceptical about what if any pressure can be exerted on Ottawa to bend it new refi rules. They point to the CMHC’s conservative underwriting guidelines around risk, the government’s willingness to let a free market dictate borrower outcomes and the possibility those foreclosures might help to cool what the finance minister has called an overheated market.