The hasty retreat of A lenders from the NIQ space will certainly limit funding options for broker clients, but shouldn’t – despite growing fears – lead to a spike in borrowing costs, said a leading Alt A player.
“It’s not an oligopoly here,” Lester Shore, VP of Optimum, CWB, told MortgageBrokerNews.ca, referring to the broker channel’s handful of Alt A institutions. “Yes, we are seeing A lenders retrench and move out of the Alt A space, but their departure won’t drive up rates, because we have enough alternative lenders in the space to ensure competition.”
The comments address broker concerns head on as they grapple with the dwindling number of A lenders prepared to do stated income and rental deals of any kind.
Their departure, kicked off by FirstLine’s decision to axe BFS lending, comes after CMHC signalled it would ration access to bulk insurance for their conventional loans as the Crown corp. nears its $600 billion funding cap.
Mono-lines are most likely to be affected because they rely on that insurance to facilitate the securitization and sale of those mortgages – a way of taking them off their books and freeing up cash for more lending.
Calls for federally-regulated lenders to better vet their underwriting, specifically BFS, have also had a chilling effect across much of the broker channel.
Still, all of those factors are poised to grow business for Optimium and other alternative lenders as an increasing number of Canadians seek that type of mortgage funding and A lenders are unable or unwilling to service them.
“It does represent a good opportunity for us in that the big guys have stepped back,” said Shore, at the same time suggesting the spread between A and Alt-A interest rates won’t be directly affected by that good luck.
Historically, that gap has been as much as 200 basis points, said Shore, pegging it as currently closer to 125 bps.
That won’t likely press upward until the Canadian economy moves further out of recession and onto firm ground, he told MortgageBrokerNews.ca.