Merix has made changes to a key segment of its business-for-self lending, passing the cost of insurance on to some borrowers while reducing the interest rate premiums they must, nonetheless, continue to pay.
“A true broker partner, we are pleased to confirm Merix will continue to offer both the Business for Self (Alt A) and Rental Programs,” reads a product update sent Monday. “We understand there have been industry and market changes to these programs, and wanted to confirm Merix’s position."
For LTVs greater than 65 per cent but less than 80 per cent, “Customer will now pay the insurance premium, reads the update. The“BFS interest rate premium to be reduced to 5 bps from 20 bps!”
BFS clients with LTVs less than 65 percent won’t need to insure, although will also benefit from that slash to the interest premium
For its clients that will have to fork out that insurance, the lender is also allowing them to tab the default insurance premium onto the mortgage amount.
While that has the potential to save a deal, said John Panagakos, principal broker at Dominion Lending Centre Home Financial, told MortgageBrokerNews.ca, in the long run it has the potential to further tax the borrower’s finances, even despite the lowered interest rate.
That may be true for some clients, said Jason Kay, the lender’s VP of corporate development and sales, but "while some clients are having to pay more, from a cash flow perspective it is relatively neutral compared to costs before the changes.”
Still, by making those changes Merix is protecting its BFS offerings at a time when other lenders – especially non-bank mono-lines – are expected to draw back from that kind of lending.
“It was important to Merix to continue to offer those products – BFS and Rental -- so originators can continue to offer them to their clients,” said Kay. “We don’t want to be known just for BFS and rental product, but want all of an originator’s business.”
Last week both FirstLine and Street Capital effective axed their own programs, although the latter is willing to make exceptions in cases where clients are pay the default insurance on their conventional mortgages.
All changes come on the heels of the CMHC’s warning to lenders that its $600 billion insurance fund was within $60 billion of that cap amount. It also suggested that lender access to so-called bulk, or portfolio, insurance would be harder to come by as a result.
That’s particularly problematic for mono-lines, which bulk-insure conventional mortgages in order to securitize and sell them, effectively making room for new lending.
That reality suggests that more mono-lines will move to follow Merix in passing on default insurance costs to clients, said Panagakos, pointing to increasing pressure on Canada to rein in record-high household debt and protect its banking system from stated-income loans -- what Office of the Superintendent of Financial Institutions suggests "have some similarities to non-prime loans in the U.S.” lending market.
Many brokers object to that characterization.
“Too many unwarranted external stresses from the European Bank, IMF and G20’s Financial Stability Board are being put on the Canadian mortgage industry,” Panagakos told MortgageBrokerNews.ca. “The Governor of the Bank of Canada and the government appear to be bowing to that international pressure, and as a result consumers in Canada are paying for it. The problem is that it’s very easy to turn the tap off, but very hard to turn it back on once it’s rusted.”