Brokers frustrated by new obstacle for self-employeds

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While lenders are showing renewed willingness to loosen their purse strings for the army of self-employed borrowers, default insurers are making it tougher to get those deals done, a very frustrated principal broker told

“The minute I start to get questions from CMHC or Genworth about a non-income qualifying mortgage application, I know that it’s going to be rejected,” said Vittorio Oliverio with Centum Professional Mortgage Group. “We have a lot of lenders satisfied with the borrower’s downpayment and ability to pay, but what we are finding is that the insurers are the ones that are rejecting those applications. They have guidelines and they should stick with them.”

The 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 equity deals at prime rates, they are still demanding default insurer backing.

That’s where brokers are hitting a snag, said Oliverio, who works the entrepreneurial-rich Alberta market. The Canadian Federation of Independent Business, in fact, identified his Lethbridge community as one of the country’s Top 10 “most entrepreneurial cities.” Seven other Alberta centres also made the cut.

Oliverio and other brokers across the country see the business-for-self market as a key growth area for an industry looking to grow originations in a slowing market. The statistics back them up with more than 22 per cent of Canadians now self-employed.

Many of those clients fit within CMHC guidelines for equity mortgages of 75 per cent loan to value. Winning that insurance is the difference between accessing today’s prime rates as opposed to those in the B market. But insurers have now retreated to more conservative standards, outside of their own guidelines, said Oliverio.

“They don’t appear to be allowing gifted down payments and they scrutinize the business’s cash flow and question income even though sales support that income,” he told, suggesting the hyper-scrutiny keeps clients from winning mortgage amounts appropriate to their income and down payment.

The increased difficulty in getting insurer approval appears to contradict the position of lenders.

“It used to be that 80 per cent of the deals were rejected by the Schedule A banks,” Bob Woods, of Assured Mortgages, told “But the banks are beginning to adopt a common sense approach rather than being reactionary as they were even a year ago. They are back in the business of dealing with self-employed.”

  • Can't Have it Both Ways on 2011-10-28 3:59:10 AM

    I think the insurer is taking the position that BFS can't have their cake and eat it too. BFS (including myself) tend to wanna pay the least amount of income tax. We report the lowest personal income as possible to (for lack of better word) avoid paying taxes. We could justify this in many ways: I'm small business contributing to econ, no benefits, take on risk, etc. How does an insurer verify BFS true income from this lack of commitment to income reporting. Revenue statement is insufficient because that could change drastically from year to year due to the business. The insurer is in effect left with no effecting auditing standard. What is the yard stick they should use for income?

  • Credit Guy on 2011-10-28 4:24:17 AM

    Amazing that lenders and insurers want to have some reasonable comfort that the borrower has the cash flow to repay the loan. What is the world coming to?

  • Zolta M. Padar MortgagePRO Ltd. on 2011-10-28 5:25:48 AM

    What is new. Banks are running for cover, Insurance cover it is, even at 65% LTV. The guidelines you have to follow is the insurer, most assured your request first their guidelines
    not of the lenders. Banks promise anything and everything to have brokers to submit files, so they can pick and choose. Brokers have to spend 3 times more to promote their business, get requests in and get 3 times less files funded due to lenders are tight with their approval. We have not submitting deals to many lenders any more as they have turned us down too often. What BDMs' are preaching and underwriters approve two different world by some lenders. We are already seeing and will see more and more people leaving the industry disappointed.

  • The other John on 2011-10-28 5:46:51 AM

    You acknowledge that you are a tax fraud by under reporting income that you make. Use any silly justification for it, it is still tax evasion. That’s fraud; it brings a criminal conviction if you are caught. Then you expect an insurer, who is the one left holding the bag should CRA catch you, to underwrite a crook. Bet if this happens they will come after you for falsifying the mortgage information.
    It is one of the more complexing transactions I have dealt with. But one better, I gave full disclosure to CMHC and Scotia Bank on my mortgage four years ago. The underwriter called to say I did not report enough income (My ACTUAL INCOME BEFORE DEDUCTIONS) to fit the deal and she was going to adjust the stated income upwards to make it fit
    We are really moving up the food chain here aren’t we? :)

  • Anonymous on 2011-10-28 6:01:48 AM

    I'm positive that CMHC is being manipulated from higher ups within the federal government. The government as a whole, has been aggressively trying to increase what non-corporate businesses pay in taxes in many ways. I firmly believe that they hope that business owners and self-employed Canadians will voluntarily pay more in income taxes if that's what it takes in order to own a home. Also, the federal government has openly said that they will take steps to cool housing prices accross the country. I'd bet on the fact that they are instructing CMHC to give out below true market evaluations in an effort to push housing prices down.

  • Jeremy on 2011-10-28 7:38:03 AM

    Guys, it's all about collecting more tax. If the BFS individual wants to qualify, he/she will now have to declare more income thus paying more tax.

    And what is the point of having cake if you can't eat it too. That is the most ridiculous analogy I have heard. It's like the early bird gets the worm...who the heck wants the worm? Think bigger!

    For what it's worth, there is nothing wrong with NIQ for those who reasonably state the income. In my opinion, the issue is with those idiots who state $80k on a gross of $50k, for example.

    Keep fighting the good fight. Have a great week everyone!

  • Won't give name to The Other John!! on 2011-10-28 7:42:28 AM

    In regards to The Other John comment on the fact that self-employed people are commiting fraud and tax evasion!! Let's see now. Self employed citizens such as myslef should not have to pay as much income tax as the employee. After all, our expenses are outrageous to advertise our business, long distance, office space, paper, business cards, photocopier, fax machines, cell phone, business website, E&O insurance, compensation, disability GST, if appicable, you name it. Shall I go on. Employees are covered for all of this by their employer, such as MYSELF!!!! So,it is simply wrong to suggest we are evading income tax. As an employee, you are paid by the very company that has to spend hundreds of thousands to advertise that business. And, most companies have pension plans for their employees. What does a self-employed person have for a pension? So how can you expect a self-employed individual to pay the same amount of income taxes and call us tax evaders? Besides, if it were not for that company, everyone would be out of a job. Have you ever had a garage sale, sold a used vehicle, bike or some item? Well, than you just committed tax evasion for not reporting that income.

  • Response to Jeremy on 2011-10-29 3:02:21 AM

    "And what is the point of having cake if you can't eat it too. That is the most ridiculous analogy I have heard."
    This analogy actually came from an insurer BDM.

  • Won't Give Name on 2011-10-29 10:53:19 AM

    So its ok to be a tax cheat because you are self-employed; with a consistent stream of income from sale of goods/services. So in essence, its ok to break the law because you are self-employed. Sale of personal use items is normally a 1 or 2 time thing (how many cars will you sell in your life) and CRA is smart enough not to waste time to go after people for that. Its the consistent obvious abuse (reasonableness of the writeoff claim) of the tax system that CRA is concerned with.

  • Angela Wong-Liao, Invis Inc on 2011-10-29 11:48:56 AM

    I have been in the financial industry for over 38 years, it is always difficult for self-employed individuals to obtain mortgages or loans because some of the BFS individuals have their net income so low that quite often it reflected only a small portion of their gross income, so that these BFS individuals pays minimum amount of taxes. I agree that we can write off some of our expenses if we are self-employed, however, it has to be reasonable in comparing to our actual gross income and all the write down should be legitimate and honest. In my opinion, we have a duty to our country paying taxes, so that our government can have enough revenue for social benefits, infrastructures and other programs that benefit Canada. Frankly, we do not want Canada to follow the foot steps of Greece who is in such an insolvent position that the country is bankrupt and subject to the mercy of IMF and other eurozone countries to support.

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