“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.”
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.