The Office of the Superintendent of Financial Institutions is looking to regulate equity-based mortgages, and that could adversely affect Alt-A banks.
“As OSFI regulates schedule A banks, this will not affect private lenders, but will affect many of the trust companies that brokers have come to rely on for more flexibility, such as Haventree Bank, Equitable Bank, B2B Bank, Street Capital and so on,” said Laura Martin, COO of Matrix Mortgage Global and director of Private Lending Hub.
“A lot of my business is private mortgage financing, but it’s never my first choice. As a mortgage broker it is my fiduciary duty to attempt the best terms and conditions for my clients.”
Martin recounts the story of a client for whom she is seeking mortgage approval: He has capital gain income from the sale of his business, and in addition to bank statements and legal documents, he’s armed with AAA credit, has very high net worth, and a large down payment.
“Despite this, he was declined by two of the Schedule A banks, but under consideration by another,” said Martin. “I want the best for my client, who has shown perfect repayment history and character, and worry that he may end up being pushed into the private space and facing a rate and payment increase of a sizeable nature. There’s also no prospects of him getting into an A bank in the future if they will categorically refuse to make special consideration and take the whole picture into account. If their concern is whether the loan can actually be paid back, then why can’t he qualify?”
In setting its sights on equity-based mortgages, it is clear that OSFI isn’t satisfied by B-20’s chilling effects on the housing market. Martin wonders why OSFI is so worried considering the two overheated markets B-20 sought to chill have the lowest default rates in the country.
“It was a nuclear solution for a localized problem,” she said. “They’re making homeownership and the responsible use of home equity funds to improve one’s financial situation overly difficult for a large number of Canadians not lucky enough to get into the market pre-B-20. The two most overheated real estate markets—B.C. and Ontario—have the lowest default rates.”
However, Carla Allen, director of the Canadian Administration of Private Lending, believes prudent lending practices should be embraced, and that, moreover, the industry will adapt, as it always does.
“Requirements for valid income documentation and having proof beyond a reasonable doubt that the borrower can afford to pay their mortgage is something that we already enforce, like many of my industry partners that are administering non-bank mortgages,” she said. “This is a benefit to everyone—people lending their money want to know that the clients can repay.
“This is more of a continuation of the B-20 guidelines. It doesn't change much; we already employ prudent lending practices. We always put our clients in a position where they'll be able to qualify with the bank after we take care of their debt consolidation.”