Expert to brokers: KYI -- Know Your Investor

Expert to brokers: KYI -- Know Your Investor

A compliance expert is offering a cautionary note to the growing number of mortgage brokers working with individual investors eager to fund private mortgages: KYI – know your investor.

“Especially in light of the coming OSFI guidelines, more and more brokers are exploring private lending deals as a way of getting clients short-term financing and as a result they’re looking at working with individual investors looking to fund those mortgages,” said Karim Talib, principal of the broker-focused Canada Compliance Support Network.  “But as just as they’re an onus to ensure suitability for the client, there’s also the onus to ensure the mortgage agreement is suitable for the investor and their appetite for risk.”

The warning of sorts is likely to prick the ears of a growing number of brokers now being pursued by high-net-worth individuals looking for alternatives to the stock market.

Their interest comes as more and more mortgage professionals are exploring private lending options for clients increasingly shut out by the conservative lending policies of institutional lenders.

That development is only expected to continue as the federal banking regulator moves to introduce new, more-rigid underwriting guidelines later this month.

Those parallel trends promise to help brokers grow and diversify their business outside of A and Alt-A business, but they have to ensure that they’re synching up the right investor with the right lender, said Talib, formerly of FSCO and a panellist at this month’s CMP Mortgage Summit.

He, along with CAAMP President Jim Murphy, used the event to address broker concerns about provincial regulations and compliance requirements – something his consulting firm will likely see more of as the channel grows its private deals.