Brokers cautioned on private lenders

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One broker is cautioning colleagues on private lenders, which are gaining popularity among borrowers shut out from banks by the new mortgage rules.

“In the last two months we have seen a sudden increase of clients interested in private and syndicate lenders,” said James Loewen, broker at Loewen Group in Burlington, Ont. “Sometimes there’s a sense of urgency or rush, but brokers need to be careful in picking a reputable private lender in order to protect their clients.”

He’s urging brokers to practice the necessary due diligence and look closely into the background of potential lenders before referring their clients.

Many are already applying that kind of scrutiny, especially as property values in some markets edge downward and seasoned investors become more selective.

“A colleague reported doing eight to nine private lending deals in the last week and said they we’re likely doubling down on such transactions in the next few weeks,” said Loewen. “But he’s also being careful because private lenders do not go under the same scrutiny and guidelines as banks.”

Clients also need to be reminded that such investors are lending their money to borrowers who have typically been rejected by banks and may overlook issues such as poor credit, bankruptcy and zoning issues. Still, the focus on property value comes at a price in terms of more restrictive terms and higher borrowing costs.

Every investor is different in the amount of money they are able to provide, the rates they charge as well as the options and combinations of benefits and terms they offer a borrower, said Loewen.

Interest rates that borrowers pay on private mortgages are also typically higher than what a bank would charge. The length of such mortgages, are typically one to three years.

“Just as they do in dealing with banks,” Loewen said. “The task of the broker is to find the private lender that offers the best terms for the client and make sure their interest is protected.”


  • Paolo Di Petta | on 2012-11-06 5:34:30 AM

    As someone who represents a good number of private lenders, I find this article to be quite sensational.

    Private lenders aren't out there to kill the borrower - they're there to offer a solution when no one else can. They rates and terms are relative to the risk - that's their business model.

    More importantly, though their rates are higher than institutions, they often take deals that no one else will. In the end, they just want their investment to work out - their goal is to ensure repayability by offering a fair deal for the circumstance.

    More importantly, many just want to help people get back on their feet, and often like to see exit strategies that involve institutions.

  • Dale Koeller on 2012-11-06 5:39:42 AM

    As mortgage brokers, it is always our job to work in the best interest of the clients, and brokering to private lending is no different - except with the variety and smaller company sizes in private lending doing your due diligence can be more difficult.
    Securities regulations on private lenders are in place in many provinces: ensure you deal with an entity that is compliant, which can be evidence of their commitment in the business and their professionalism. Talk to brokers who have used that private lender in the past, ask how their clients were treated in negotiation, signing and closing. How were they treated upon renewal? How were they treated if problems or delinquency occurred?
    A good private lender should be able to give you referrals of brokers they deal with, find one you know and trust to talk to.
    Don’t let due diligence stand in your way of dealing with a private lender: if you just send them away they may end up being more poorly served than if you took the time to find them a reputable company or private individual to deal with.
    Remember that private lenders serve a need in the market place, and if they can help your client get in better shape so you can refinance them into a lower rate mortgage in the future you’ve done both your client and your book of business a favour.

  • John Ribalkin on 2012-11-06 5:40:50 AM

    I have been an agent for individual private lenders longer than some of you have been alive... and the caution to all is that you had better understand the risk tolerance of the lender(especially an individual private(maybe a senior) investor)before you ever even give that investor confidential information of a consumer who is requiring funds. Also fully understand PIPEDA rules.If you don't and the proper disclaimors are not done..and even if they are done.. you may be opening a "can or worms" . Please also insure that your E and O insurance covers you to act for a Private Investor.

  • Ron Butler on 2012-11-06 6:21:29 AM

    There are some good comments here, definitely something for brokers to think about when placing private lending.

    In Ontario we must decide who we represent in each mortgage transaction. When working with private lenders we always indicate we are only representing the private lender in our disclosure.

    The reason we do that is simple: when dealing with institutions the terms and future ourcomes are very straight forward, in the case of private lending the outcome on renewal is much less certain so we want the borrower to know that we are only representing the lender's side in the transaction and the borrower's own independent lawyer must carefully explain and warn the borrower about possible future outcomes.

  • Jennifer Rossides, Mortgage Broker/Owner on 2012-11-06 6:35:03 AM

    Not all private lenders are created equally and you must ensure these lenders are registered with the FSCO for your clients protection.
    Private lenders are an excellent avenue for clients - they are there when no one else is - just because a bank declines someone that need does not go away so it is your job as an agent to explore all the options for your client.

    As far as high fees and rates go - have you ever done the math on the insurer fees..... you may be surprised.

  • Regina Farrar on 2012-11-06 6:41:13 AM

    Also, private lenders need to be aware that the Mortgage Act does not always protect them as there is no one who enforces the Act, which can lead into a costly legal battle when applying to the Superior Courts.

  • Gale Tracey AMP, Lead Planner, Mortgage Architects on 2012-11-06 6:49:27 AM

    In British Columbia we have the strictest guidelines through FICOM to follow. On Oct 23 we attended the first MIC Lending Expo by the newly formed BCMMA -BC Mic Mortgage Association. The majority have been in the business for 10-20 years and are not your Private lender lending your money from their SDRSP, therefore you do not have to worry about funding issues or other problems that could arise from dealing with a private lender. Of course there are some Private Lenders that are sophisticated and offer very good service. The event was a sold out and everyone was very impressed by the professionalism of these MIC lenders coming together as a unified group to emphasize the advantage they can offer to our clients in the new climate we are facing with the new mortgage rules. They are offering a hopefully short term solution to our clients dilemma especially BFS or challenged credit so we can clean them up and refinance them in the future as A business. The key is to know what their policies are and to "Tell them the whole story" in order to serve our clients best interest and get them the best rate and pricing to help them overcome their problem. We look forward to the 2nd Annual MIC Lending Expo!

  • Terry 1 on 2012-11-06 7:36:25 AM

    I deal with a very reputable private lender that is registered to do mortgages in my province. This is very important. Many, many Brokers deal with all sorts of private guys out there that are not at all in the business of doing mortgages. My private guys and I look at the whole picture with a plan, a short term escape, myslef taking responsibility of coaching the client on how to fix there credit. Yes, there are many that it seems will be in a private mortgage for no less than 5 years, but that's the nature of the beast. There are also many clients that miss the boat from approval by one of our very few sub prime lenders, that give the us no other choice. If the clients insist on a purchase and have the very large down payment or have tons of equity for a refi, we have no other choice. Besides, do take a look at the insurere fees. That is such a cash cow, what is so right about that, simply because the Gov't puts their stamp of approval on it?

  • Dean Koeller on 2012-11-07 9:51:11 AM

    It is great that as an industry we are raising these issues. I think it is easy for mortgage brokers that do not deal with private mortgage lenders very often to feel intimidated with the process and the due diligence. But I would argue that Private lending will continue to be an essential tool in the type of products Mortgage Brokers will need to have to be successful. There are some very reputable private lenders that can assist brokers and clients in both profitable and interesting real estate transactions that can benefit both the clients capacity to purchase and finance real estate and to the brokers bottom line.
    There are some operators that can give the industry a bad name but we need to be careful not to paint the industry with the same brush. Some things to consider when deciding to match a client up with a private lender, what are the fees today, tomorrow and at renewal? Who actually is going to own the mortgage? How is the mortgage being funded? What is the track record on closing and setting unreasonable conditions?
    In Alberta, we have set up a Private Mortgage Lenders Forum as a means of establishing the reputable operators from those that may not want to operate at the same standard. To learn more contact the Alberta Mortgage Brokers Association (AMBA) @

  • LW on 2013-08-08 10:00:21 AM

    I am a homeowner and have had the unfortunate experience of dealing with a mortgage broker on obtaining a 2nd mortgage. It's funny how brokers say they are working for the 'client' when unfortunately, they are clearly working for the private lender. The fees on a $35K 2nd mortgage was approximately $6-6500 which is non-negotiable. As well, I was responsible for an appraisal which was an additional $450 and I wasn't even allowed to have a copy. This is a money grab. How can lenders honestly get away with these fees. Who is protecting the client (borrower) especially if they are in a financially strapped situation. How does the government allow these types of charges. When will this be governed.

  • Hannif Highclass on 2014-05-05 8:43:02 PM

    Excellent - Well said! Unfortunately, Agents & Brokers & Scam'ers are advertising and professing to be private lenders - when in fact they are not. Unfortunately, borrowers and then some Agents get caught in the mess - getting their loan application into the hands of inexperienced & shady professionals. In the end it is the Borrower who suffers.
    Real Direct Lenders are FSCO registered not as "Mortgage Brokers but as "Mortgage Administrators"

    A Broker should always inquire if the Lender has this license and then deal with them
    Hannif Highclass

  • Hannif Highclass on 2014-05-05 9:47:15 PM

    Check the below out
    Lenders For Growth Ltd
    Rosemount Capital Funding Inc.
    FSCO Registered Lenders!

  • Bill97 on 2014-08-11 6:23:26 AM

    If you do not know what methods and models of trade can be applied, how to allocate assets, how to diversify, how the functions of the trading platform, I advise you Personal Broker

  • Daniel McKay on 2014-08-11 5:27:05 PM

    @LW "your financially strapped" position that you did not provide any details on I'm willing to bet made you a risky borrower and the mortgage was priced accordingly rate and fee wise. Nobody forced you to take the second mortgage, and I'm willing to bet it saved you from a much worse financial catastrophe or you would not have accepted it. Therefore you should be thankful and not critical of the process that I'm sure saved you from something financially far worse.

  • Dave on 2014-08-11 5:54:53 PM

    Gotta love when 2nd mortgage clients complain about the financing they signed off on....

  • zoomortgage on 2014-08-13 9:18:15 PM

    If you look back at all your private deals for 2nd Mortgages, your clients are grateful for helping them in there current situation. As time goes by 4 or 5 months down the road they seem to regret signing that deal. All in all you do the best for your client put them on a financial plan to get them back on track and hope they follow that plan. If they do they'll thank you all over again.

  • Paul Dhand on 2015-05-05 3:17:40 PM

    I recently closed a private mortgage with a private lender direct; can the private lender insist for a copy of the borrower's mortgage insurance/waiver ... can any of my professional colleagues share their thoughts.. thanks

  • Jerry Quigley on 2015-05-06 8:29:28 AM

    @Paul Dhand
    Yes, a lender should definitely require the borrower either obtain mortgage health insurance or require a waiver for same. Otherwise, if the borrower should die or have a debilitating illness or injury, the borrower or heir may be able to sue the mortgage lender so they do not have to pay. Without the waiver the lender is wide open.

  • Paul Dhand on 2015-05-06 9:10:12 AM

    Thanks Jerry

  • The Original Mortgage Chick on 2015-05-06 10:13:22 AM

    @LW - you definitely paid way too much in fees. As a broker who deals exclusively with private mortgages, the typical broker will charge 4-5% in fees, in tough cases it may be more. Just as with a bank mortgage, consumers should shop around for the best rate and fees. you should have also received a copy of your appraisal on request at closing. Desperate situations can impair a borrowers ability to make the best choice and they rely on us to present them with the best deal available. Sometimes the best solution is not expensive financing but to sell the property. Granting a mortgage to a client just because you can and have a private lender that will do the deal, is not always the best thing for the client. Private lending has many facets that bank lending doesn't. John Ribalkin makes very important points in his comment.

  • Ron Butler on 2015-05-06 10:17:59 AM

    Mortgage Chick........ very good, honest point sometimes the best solution is to sell the house. Note: in Ontario you can only release a copy of the appraisal to the borrower with the appraiser's permission which you basically never get.

  • Jerry Quigley on 2015-05-06 11:21:38 AM

    @Mortgage Chick - 4 or 5% on 2nds, yes, but usually 1% to 3% on 1sts, depending on size of the deal & how unqualified it is.

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