“Prior to B-21, monoline B-lenders were happy and comfortable confirming income with [pay stubs],” Joseph Park of JP Mortgage Services told MortgageBrokerNews.ca. “But now they want to match the invoices with deposit activity.”
According to Park, one of the advantages of using a B-lender in the past was because of the quick turnaround, but now they are taking as long with the underwriting as A-lenders.
And it’s a new trend, according to one player, as regulators are more closely monitoring lender activity.
According to Principle 4: FRMI’s Periodic Assessments of Lenders’ Underwriting Practices
of OSFI’s B-21 guidelines, “OSFI expects a FRMI to exercise a relatively higher level of examination and scrutiny in respect of underperforming lenders (e.g., those with proportionately higher levels of delinquencies and claims, on a risk-adjusted basis).”
Further, OSFI laid out more strict guidelines for verifying income in Principle 3: Mortgage Insurance Criteria and Insurance Coverage Requirements for Lenders
of the guidelines. In it, OSFI states:
In determining the reasonableness of the documentation used to support the income, sound practice suggests that:
- The income amount is verified by an independent source;
- The verification source is difficult to falsify;
- The verification source directly addresses the amount of the declared income; and
- The income verification information and documentation does not contradict other information provided by the borrower in the underwriting process.
“I would say some of the lenders started doing this in January of this year,” Ranjit Dhillon of Centum Mortgage Smart Inc. told MortgageBrokerNews.ca. “When we get feedback from lenders, they tell us they’ve been audited by OSFI and that’s why they have to ask for the bank statements.”
As a result, Dhillon says alternative deals now take four times longer than they did in the past because of the increased back-and-forth that is required between himself, the client, and the lenders.
“On the prime side, there are a lot of expectations when it comes to documents,” Dhillon said. “Now what’s happening is the rules have changed and I accept that the rules have changed and they are tightening but when you are charging someone 4.19 per cent and one per cent fees on a 75 per cent LTV and appraisals and other fees at that point in time lenders on the sub-prime side need to be more lenient with the documentation.”
Lenders on the B-side are now asking for bank statements to verify income, a requirement that brokers say is slowing down the deal process.