They’re the kind of subprime deals many Ontario brokers have overlooked, said a 35-year veteran of the industry, but brokers willing to connect individual borrowers with individual private investors are positioning themselves for long-term revenue growth.
“I’m not trying to sell the idea to brokers,” said Arnold Molder, president of The Mortgage Centre - Tridac Corporation Ltd., “but it’s an opportunity presented to brokers by the province’s Mortgage Brokers Act and has the potential to grow revenue streams for those brokers who are committed to being in the business for the long-term. Also, it often will allow a broker to place clients in a private lending deal with a lower interest rate based on the risk involved with the deal.”
Molder, also manager of one of the province’s 60-plus mortgage investment corporations (MICs), is among the first to point to the niche area as potential win for brokers struggling to expand their businesses as the industry faces a slowdown in A deals. The work is specifically focused on servicing clients in the subprime sphere, but by developing connections with individual private lenders willing to fund those mortgages and not by taking that business to the MICs and syndicate lenders.
Facilitating those transactions represents a win-win situation for brokers and borrowers, but also private investors – effectively required, under Ontario’s Mortgage Brokerages, Lenders and Administrators Act, 2006, to use a mortgage broker to arrange their deals.
Individual brokers grappling to secure refis, and first and second mortgages for clients now unable to qualify for prime loans may also find it easier to arrange short-term deals with more favourable rates than traditionally available through private lenders and institutional subprime lenders.
“Most brokers have deals of this nature increasingly presented to them as it becomes harder for some to qualify,” Molder told MortgageBrokerNews.ca. “Understanding the profile of the borrower and the deal, and then aligning them with the right private lender is the key.”
A host of factors, say analysts, is set to deepen the pool of borrowers forced to seek private lending opportunities, from a generational shift in the number of self-employed – challenged to prove income – to the expanding divorce rate, which has led to a spike in the number of Canadians with isolated credit blemishes or debt run-ups.
“As brokers, we’ve got to find solutions to help these types of clients,” Albert Collu, president and CEO of Argentum Mortgage and Finance, told a group of about 50 brokers at Toronto workshop this spring.
Brokers already account for some 80 per cent of Alt-A/subprime mortgage originations, although only a fraction of the country’s 12,000 mortgage professionals are actively courting the business.
“You know, brokers have to change their mindset about non-prime clients,” said Collu “They tell themselves that ‘the rates are higher than I’m used to selling’ or ‘I don’t like to charge fees.’”
While building a list of individual investors may take time, said Molder, arranging those short-term deals usually opens the door to additional brokering work.
“As a broker, you’re getting a fee in arranging the private lending deal,” he said, “but you’re likely also helping to arrange a new mortgage for the client at the end of that private loan. There are also the referrals from those clients.”