Time for broker education on non-refi options

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Bankruptcy has become an all too easy for those unable to refinance, said one mortgage professional, calling on associations to offer a broker course in how to direct clients to other alternatives.

“People are using their homes as ATMs,” says Louis Glazer, a broker with Hypotheca Mortgage Solutions in Montreal. “Bankruptcy is too accessible. People are admitting failure when they shouldn’t by declaring bankruptcy.”

Instead, Glazer would like to see a course offered to brokers about the many options out there – from credit counselling to consumer settlement – once, of course, debt consolidation through refinancing has been taken off the table.

That’s something Glazer has seen a

“People see the bankruptcy trustee as a saviour, solving all of their problems,” says Glazer, who has seen a spike clients unable to refinance following the July introduction of that 80 per cent LTV cap in. “But when he is finished, he takes his cut off the top, and the client is left with no credit rating when they go to buy a car.”

The fact is many of those clients have good credit, he tells MortgageBrokerNews.ca.

“They just feel they don’t have any other options,” says Glazer. “Even the people who had 26 credit cards and lines of credit had a credit score of over 700. They were always paying on time, but they were just overwhelmed by personal debt.”

He cites the example of two of his own clients, a couple owing almost $85,000 in debt on 26 different credit cards, lines of credit and other products. They were denied refinancing on their home – refinancing they needed to pay off their debts.

“I have had three or four people looking second mortgages just this week, and every week there are a couple of people who are rejected on refinancing,” he says. “I see people going back to the well two or three times in one year to refinance.”

Non-mortgage debt jumped almost six per cent from October to December of 2012 compared to the same three month period a year ago, according to the latest numbers from TransUnion, the country’s largest credit bureau.

“Increases in personal debt are not surprising during the final quarter of the year as consumers tend to spend more during the holiday season,” said Thomas Higgins, TransUnion’s vice president of analytics and decision services. “The rise on a year-over-year basis should be more concerning as Canadians’ debt loads increased by more than $1,500.”

Ideally, Glazer would like to see government regulations placed on the availability of unsecured credit.

“Limits were placed on mortgage loans in July, where are the restrictions on credit cards?” he asks. “It is not in the credit card company’s interest to limit debt – there should be some form of penalty for credit card lenders who keep raising the amount one person can borrow.”

  • Paolo Di Petta | dipettamortgage.com on 2013-02-08 9:35:49 AM

    This is a great read.

    I think there's a fundamental problem about how debt is reported on a credit bureau. As long as minimum payments are paid on time, the account is shown to be in good standing. As long as they can keep borrowing from Peter to pay Paul, their credit score can appear to be fairly high. Amount owing and age of the debt should have a heavier weight in that number than it already does.

    Also, I agree that this is going to be something we're going to have to become very familiar with. As debt to income continues past 165%, the days of rapid property appreciation are grinding to a halt, and the ability to refinance properties at extended amortizations ends, people aren't going to be able to stretch that debt-servicing dollar as much as they have.

    I wouldn't want to be an unsecured lender right now, that's for sure.

  • Robert on 2013-02-09 7:10:28 AM

    I think it's well past time the Gov cracked down on unsecured debt, and that all of us do our best to educate consumers about credit management.

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