Banks have pulled back on their willingness to facilitate mortgage investment as part of self-directed RRSPs – a concern for brokers worried about shrinkage in alternative funding.
“People used to be able to use their RRSPs to fund mortgages – whatever kind of mortgage they wanted to fund,” David O’Gorman, president and principal broker of MortgageLand Inc. told MortgageBrokerNews.ca. “And now (they) can’t do that through the bank; there are only three companies that allow you to do it: Home Trust, Community Trust and Great Western.”
In a self-directed RRSP, investors are free to choose where their money is invested.
“You call the shots on what you want to invest in, whether its stocks or mortgages – and not necessarily bank-run mutual funds – and you could put the RRSP money with a borrower to fund a mortgage,” O’Gorman said. “(And they can be used to) fund other peoples’ mortgages.”
With banks – and more lenders in general – barring clients from using self-directed RRSPs, the public has begun to view them as insecure.
“It’s made it more difficult for people to do these sorts of investments,” O’Gorman said. “They think that if the banks aren’t doing it, it isn’t safe.”
However, though there are risks – as there are with any other investment – they are a way of injecting more money in the marketplace. And lenders refusing to allow these investments are essentially limiting the competition, according to O’Gorman.
“It’s starting to take some of the private money out of the marketplace and it’s the bank’s intent to limit the potential of competition,” he said. “It’s taking an option away from the investor and from the broker. It’s less money available to do mortgages.”
Still, there are a few lenders who allow self-directed RRSPs.
However, “most of those companies that are set up to do it are reasonably small,” according to O’Gorman.