Brokers focused exclusively on high-ratio A deals may be increasingly out of luck, with both mortgage insurers and analysts suggesting a large chunk of that business has already crossed over into other, more complex categories.
That migration is well underway, said Charles Sweeney, Genworth’s head of risk operations. More specifically, the default insurer is now seeing 65 per cent of mortgages fall into the low-ratio slot, with the remaining 35 per cent in high-ratio. That changed from the 50/50 ratio that characterized the books of most industry players.
“It’s due to regulation changes,” he said, “and as prices go up and affordability decreases, there may be further change.”
The assessment jives with analyst expectations around a spike in alternative lending deals as CMHC insurance becomes harder to score.
“We believe that certain borrowers may not qualify for lending at the large financial institutions due to new restrictive constraints and alternative mortgage businesses will likely benefit at the margin,” said Stephen Boland, an analyst at GMP Securities, this month. “We believe that the increased lending restrictions on the use of the CMHC will provide the alternative mortgage lenders with additional product which will help them continue to grow their loan books.”
That’s good news for the growing number of brokers already moving to incorporate or increase their number of alternative deals.
It may, on the other hand, be a concern for those A mortgage professionals who’ve shied away from even Alt-A deals, favouring the relatively quick and easy work of the high-ratio, CMHC-approved deals.
Guideline changes, expected to come as early as June, may speed up the client shift toward conventional mortgages as lenders are forced to comply with tighter underwriting standards.
While broker associations are hopeful the banking sector’s federal regulator will amend those changes given industry concerns, it may still be harder and more-time consuming getting many first-time buyers approved with 5 per cent down, say analysts.