Business for self deals are all about relationships

by |
Industry players are frustrated by the lack of options for self-employed clients but the best way to navigate this area, according to one broker, is to assemble a solid stable of a few lenders willing to go the extra mile.

“The attack on self-employed clients is really bothering me; you have to make a compelling case to the lender to prove they are good candidates,” Jake Abramowicz of Mortgage Edge told “When I have a self-employed client I go to three underwriters who have worked on these types of cases in the past and who are willing to do the work.”

Options for business for self clients – especially those who require a high ratio mortgage – are shrinking. Effective May 30, CMHC will no longer insure self-employed homebuyers who do not have third party income verification.

However, Canada’s other two insurers – Genworth and Canada Guaranty – have stated they will not be making changes to their respective self-employed programs.

“Upon review of the current Business for Self Program we will not be making any amendments to current product guidelines,” a Genworth letter to lenders sent in early May read. “There will be no amendment to the maximum number of Genworth-insured properties per borrower.”

Still, brokers have expressed exasperation at the limitations placed on self-employed clients.

“If you really look at how many people are self-employed in the country they really are the backbone of the economy,” Zoltan Padar told following the CMHC’s recent changes. “That’s a good product and it has been proven over time that the two (private) insurers can be very competitive.

“CMHC cutting their business for self program will be a lesson to businesses – some lenders only work with CMHC but if I’m a lender I would start supporting the other two immediately."

There are options for brokers with these types of clients, however. Especially for those professionals who are willing to build a rapport with certain lenders.

“It’s all about relationships with lenders, underwriters and BDMs,” Abramowicz said. “I have to work with who I have and who I know.”
  • Anthony C. on 2014-05-16 12:06:33 PM

    Zoltan clearly identifies the importance of BFS to the economic landscape in Canada. Reliable estimates indicate in excess of 2 million + adults in Canada owning or operating a BFS or generate income in a Contract or Consultant or 100% commission basis.

    Jake hits the nail on the head with emphasizing the importance of personal successes with B.F.S. files has always weighed heavily on a trusting relationship with a few select lenders/ underwriters, in addition to the relationships which they maintain with their Insurer counterparts...furthermore, its about how well one articulates the merits of the deal to their lender and whether we can support the typical conditions of financing associated with alternative lending.

    Now that our choices for B.F.S. are being reduced once again, its time for renewed focus on loyalty with our lenders who support the BFS products and ensure the deals we are submitting for funding are well qualified in advance of submission.

  • Ron Butler on 2014-05-16 12:33:10 PM

    I agree with Jake that there is a required level of expertise, relationships and knowledge necessary today to achieve success placing mortgages for self-employed clients.

    While I understand OFSI's desire to tighten rules and bolster the stability of the Canadian banking system at some point we should all acknowledge the basic unfairness of some of these changes. Small business people use the official rules of the income tax system ( I am not talking about cash businesses here) to minimize their taxable income and grow their businesses and employ millions of Canadians.
    They should not be highly penalized for that effort.

    I see deals every day that would have sailed through any lender 2 years ago at best rate and these folks are now driven to less attractive offers. These are deals that usually have 35% equity or more. Nothing has changed about the clients; the SYSTEM has changed. They all have great credit scores, they have superb mortgage payment records, they have ample proof of self employment, they are not gaming the system, they work to pay less tax based on existing tax law but they don't fit into the new rules "box".

    It's not fair. We should talk to our associations and to our MPs about hard working, honest people be discriminated against unfairly.

  • Daniel McKay on 2014-05-16 1:03:28 PM

    I don't think we would have much luck taking this up with our MPs. I firmly believe that these rule changes have a specific agenda to coerce self employed individuals and business owners to pay more taxes/show more income than they otherwise would.

  • Ron Butler on 2014-05-16 1:08:55 PM

    @ Daniel, I agree with you wholeheartedly. There does seem to be an agenda. But I am talking about business people who carefully obey the tax laws, just using what is given to them because they are creating businesses. Hopefully that is a rational argument a politician can listen to.

  • Risk Manager on 2014-05-19 6:22:41 PM

    @ Ron Butler...the issue is tax avoidance vs. tax evasion!

    Tax avoidance, as you mentioned, means declaring all business income and using legitimate expenses and deductions to reduce the taxable income. In my opinion, most lenders will allow legitimate addbacks to income to show proper debt servicing ratios!

    Tax evasion, on the other hand, involves failing to declare legitimate business income (cash) and/or deducting illegimate business expenses. With only occasional exception, individuals relying on stated-income programs are involved in tax evasion. Largely, they fail to declare all of their earned income on their tax returns. Individuals engaged in tax evasion practices are not "the backbone of the economy" as stated in the original article! In fact, they are a drain on every legitimate tax-paying citizen!

    The self-employed people who "carefully obey the tax laws" have nothing to fear from the new rules! Sadly, what they should fear most is the mortgage broker/(bank in-house) mortgage specialist who is either too lazy/inexperience/ and/or lacks the knowledge & understanding to properly present their situation to their lender(s)!

  • Walid Hammami on 2014-05-20 1:18:18 AM

    I believe BFS deals with low docs are gone forever. Here is a fact: BFS deals are riskier than other deals for obvious reasons. I hope no one here thinks Genworth or Canada Guaranty won't be changing their attitude towards BFS. They will, because no one of them will want higher exposure to riskier mortgages. They will get pickier than they are and guess what? It's completely normal.

  • Ron Butler on 2014-05-20 9:12:55 AM

    @ Risk Manager.... please be aware many lenders allow no such add backs and many small business owners use totally legitimate tax strategies that often create higher and lower income years which play havoc with lenders looking for smooth average incomes.

    @ Wahid........... based on multi year studies Beacon Score is by far the highest determinate of default risk. An insurer executive told me that once the Beacon Score exceeds 720 the default statistics for self employed and salaried are identical and default is essentially non-existent.

  • MR. B . on 2014-05-20 7:23:45 PM

    Since 1989 - these are the types of deals that we specialize in BFS - corporate borrowers, commerical mortgages and business loans, deal development, deals that have been forgotten or abandoned this is our area of expertise. 90% close record for deals that we accept. Yes, a lot of hard work, but if the clients cooperate we perform. 905-348-6133 . . . .

  • Daniel McKay on 2014-05-21 1:44:57 PM

    @Ron I'm not talking about the legitimate business owners that use good and legal means to reduce their taxable income and/or those that simply leave the bulk of the income within the corporation rather than pay excessively high income tax to take the money out personally. We all know that there are a lot of great BFS deals with proveable income out there that are very low risk to lenders/insurers that are being left out in the void now. The government is basically telling these people, if you want a mortgage at best rates, you'll have to voluntarily over pay your taxes to show enough income to qualify. If not, go to a B lender and get a mortgage at a much higher rate.

  • Ron Butler on 2014-05-21 2:10:34 PM

    @ Daniel, that is the essence of what I am saying. Imagine a long time self employed business owner, a person in their 50's. Buys a new construction condo to downsize 3 years ago, sells his house with a normal rate HELOC, now it's time to move in to the condo because it is finally finished and suddenly here is someone who for his whole life had standard rates with 25% down and now he is up against it for normal rates. Nothing in his life has changed, only a government policy has changed. I think in spite of all the discussion about who should pay their fair share of taxes that this man has been screwed and there is a basic unfairness to high beacon score, always followed the tax rules available to him guy being the victim of a change of policy.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions