Private lenders are increasingly going where few others have gone before, specifically, rural Canada – one of the few markets institutional players still refuse to enter.
“We’ve always done a few deals in rural areas,” Jason Vyner, owner of New Haven Mortgage Corp. “But, more and more, private lenders are looking to do those deals because of the non-appetite of the alternative lenders to lend in those areas. There’s lesser competition out there than for other B deals.”
The observations jive with those of other private lenders struggling to grow their respective books even as institutional alternative players expand. Those big lenders are not only capturing more of the growing number of deals that no longer qualify for A lending, but also a portion of those that would traditionally have gone to private lenders.
The phenomenon is directly tied to new mortgage rules, introduced this spring and making it harder for brokers to arrange refinancing and seconds on clients with limited equity. Those near-A deals have created more business for alternative lenders and greater pricing flexibility for borrowers.
“I believe the reason we are seeing increased activity in (alternative) lending is because the Feds are cracking down on the loose lending practices that have been prevalent in bank lending over the last decade,”said David O’Gorman, broker/owner of MortgageLand Inc. in Markham, Ont. “Banks appear to be declining most deals that are not ‘in the box.’”
That new business hasn’t weakened alternative-lender demand for the lower end of the B segment, effectively putting the squeeze on private lenders. Rural deals have helped to shore up their books of business, although private lenders are still evaluating rural deals on a case-by-case basis, said Vyner.
“We’re still looking at the marketability of the property,” he told MortgageBrokerNews.ca. “That’s still very important.”
Interest in rural properties is likely being buoyed by the growing number of Canadians turning to mortgage lending because of increased volatility in the stock market and diminishing returns.