A private lender relying on a lease-to-own model is reporting a 400-per-cent increase in “refi buy-backs” this year over last as more and more brokers send business its way and more and more Canadian families hit an economic rough patch.
“That 400-per-cent growth in the value of funded deals is significant and yet it hasn’t been because of the mortgage rule changes,” said Guy Lew, president of Home Owner Soon Inc., a private lender headquartered in the GTA, but doing business across the country. “The two biggest drivers have and continue to be that we are gaining name recognition and a following with brokers, but also that the economy continues to present a challenge to many Canadian families. The truth is so many of us are only a paycheque away from losing our homes.”
Lew and his team of six BDMs, scattered from coast to coast, are actively promoting their rent-to-own model as an alternative to eviction, relying on brokers to hawk their wares – a requirement set down in legislative changes both in Ontario and other regulated provinces.
The strategy is paying off, said Lew, pointing to growing broker buy-in for his refi buy-back – accounting for 80 per cent of his business. Under the terms of that agreement, brokers access 100 basis points in finder’s fees for referring clients, who, in turn, agree to sell their homes for “fair market value” to one of Lew’s private investors.
They then lease back that residence for an amount largely in line with the appraisal’s rental value assessment, he said, with 20 per cent of that rent directed into a down-payment account, which is then applied to the buy-back, often after a three-year term. The homeowner – now renter – also agrees to pay commitment, activation and credit rebuilding fees along with a security deposit, equal or greater than 10 per cent of the home’s appraised value.
Those costs add up and have raised concerns with some brokers who’ve advised clients to sell their home and move rather than enter into rent-to-own deals. Still, the strategy allow clients to avoid uprooting themselves and their families, said Lew, at the same time Home Owner Soon focuses on helping rebuild credit – all with an eye to positioning the client to access A lending at the end of the term.
“Our default rate of about 10 per cent speaks to the success of our program,” he told MortgageBrokerNews.ca, suggesting higher security deposit requirements translate into higher down payments, which, ultimately, make his rehabilitated clients more attractive to A-lenders.