Lender offers lifeline to 'subprime orphans'

Lender offers lifeline to 'subprime orphans'

Lender offers lifeline to

A new deal has bought time for some of Xceed’s subprime borrowers –  clients who could well have been left in the cold had the lender refused to renew their high-ratio loans.

Xceed re-entered the prime mortgage sector last year after settling a suit with funding partner HSBC, but at the time wasn’t able to renew the non-prime mortgages on its books.

That’s now changing for many of them, with Xceed’s announcement Wednesday it, in cooperation with a third party financial institution, will renew uninsured mortgages for up to a three-year term, before selling them on to “an investor.”

“During the first quarter of fiscal 2012, management continued to focus on the ongoing repayment and refinancing of its legacy uninsured mortgage portfolios,” said Michael Jones, Xceed president and CEO. “We expect to continue that program until all the remaining legacy mortgages, and that’s about $150 million, have matured and repaid by the end of this year.”

A small portion of the non-prime loans will be refinanced, with Xceed acting as broker, but the majority or clients have opted for renewals, Jones told MortgageBrokerNews.ca. Most have, in fact, been cleared as eligible for the full three years.

The move addresses broker fears about so-called stranded subprime borrowers.

While many of those homeowners have since rehabilitated the damaged credit that put them in alternative lending deals, many have been blocked from switching to A lenders because of the new refi rules, said one industry veteran.

“Many of these borrowers have rehabilitated their credit,” said Michael Goss, an Mortgage Alliance agent working recession-weary Southwestern Ontario, “but because they do not have CMHC or Genworth default insurance, they can’t just switch to an A lender now that their mortgage with a departed lender is closing.

“Under the new mortgage rules they now have to qualify for a refinance, and that means the client has to meet the 85 per cent loan to value requirements introduced this year. That’s simply impossible for many of them.”

The Xceed move is likely to viewed as a helping hand by some brokers still smarting from the lender’s departure last year and its position on renewing subprime clients who did not in fact meet the requirements of its A lending guidelines at the time of renewal.

Xceed has already re-established itself as a broker lender following its return to the channel last year.

In fact mortgage brokers helped the lender to what it calls a “strong first quarter” earning a net income of $300,000. Mortgage pool sales contributed significantly to Xceed Mortgage Trust’s first quarter results. Xceed’s sales of pools of insured mortgages continued and in Q1 the company sold $29.7 million of insured mortgages for a net gain of $1.2 million.

Jones also reiterated Xceed’s commitment to the broker channel, saying “the company also continued to redevelop its presence in the mortgage broker channel for insured residential mortgages.”

With its return to the broker channel Xceed has focused on growing its book of business through strong relationships with high volume brokers. Part of that has been making compensation particularly attractive.

Earlier this week, Xceed extended its “Friends of Xceed” commission program, where brokers receive 115 basis points for each three-year deal and 135 bps for a five, until June 2012.  

Jones said the decision to extend it was based on the positive reactions from brokers and the business they were sending the company.

“The quality of the business we have been getting through the front door has pleasantly surprised us,” he said. “We’re happy to be establishing new relationships with brokers.”