Is there room for private lenders to drop rates?

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Despite rate slashes from conventional lenders, many private mortgage providers haven’t budged on rate and brokers may not buy their reasoning for holding out.

“Our lending matrix and rates will remain the same; the institutional B-lenders may but generally I don’t suspect any non-bank lenders to follow suit,” David Vyner of New Haven Mortgage, an Ontario-based private lender, told MortgageBrokerNews.ca Wednesday. “We don’t deal direct with the homeowners, but if I were to wear the broker’s hat I would explain that our cost of money has not changed and we still have to maintain a certain spread to be profitable.”

At least one broker is questioning the reasoning.

“In 1989, fully qualified first mortgages were in the 10.75 per cent to 11.50 per cent range, non-qualified first mortgages were roughly ½ per cent to one per cent higher through companies like Municipal Savings and Loan, and private second mortgages were between 15 per cent and 16 per cent,” James Robinson of the Mortgage Centre wrote on MortgageBrokerNews.ca. “So in those times, there was a 35 per cent rate premium between a fully qualified first and a private second. Today, the private second rates are about four times the fully qualified first mortgage rates.”

So, unless underwriting and overhead costs have increased exponentially since the days of record-high conventional rates, the thinking is that private lending margins have only grown. And with rates coming down across the board, surely private mortgage providers can also pass some savings along to their clients.

At the end of the day, however, private lenders operate as businesses fixed on profits and are free to price their rates accordingly.

“I don't begrudge the privates for these rates as that is free enterprise, but they have to expect a little push back from consumers,” Robinson wrote. “I guess we can draw the same analogy with the credit card business.”

 
  • Michael Graves on 2015-01-30 11:45:34 AM

    You have to take into consideration where the funds are coming from which these private sources are lending out. A Mortgage Investment Corporation can only raise capital to lend out if the yield is attractive enough to meet the risk profile being offered. The manager in most cases takes a fee on "Assets under Management". If you get into the conversation of the manager dropping its fees to pass on savings to the consumer - that's just a poor business model. Speaking for ourselves, our management fee is 2%. Sure, we could drop it...let some staff go (overhead) and watch our service levels drop which would create a whole other dilemma - we can't afford to react to price wars at the risk of losing the capital investors have trusted us with. Hope this helps clear up some questions on rigidity of private lending pricing.

  • Michael Graves on 2015-01-30 11:45:38 AM

    You have to take into consideration where the funds are coming from which these private sources are lending out. A Mortgage Investment Corporation can only raise capital to lend out if the yield is attractive enough to meet the risk profile being offered. The manager in most cases takes a fee on "Assets under Management". If you get into the conversation of the manager dropping its fees to pass on savings to the consumer - that's just a poor business model. Speaking for ourselves, our management fee is 2%. Sure, we could drop it...let some staff go (overhead) and watch our service levels drop which would create a whole other dilemma - we can't afford to react to price wars at the risk of losing the capital investors have trusted us with. Hope this helps clear up some questions on rigidity of private lending pricing.

  • Rayanne Soderberg on 2015-01-30 11:55:45 AM

    The private lender I prefer to use, Spectrum-Canada, dropped it's rates even before some of the "A" lenders did, but I can certainly understand the risks involved with private lending and why they are reluctant to participate in the rate decreases.

  • Jerry Quigley on 2015-02-02 12:47:45 PM

    We just dropped ours the full 25 bps! and as much as 100 bps on some of our products!
    W1005.com

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