With the Ontario government tightening real estate rules earlier this year and the Toronto market slowing down soon after, a renewed hunger for cash has led to the increased popularity of alternative mortgage providers.
“What we have found recently is a whole bunch of aborted deals … and we’ve stepped in,” Atrium Mortgage Investment Corp. chief executive Robert Goodall told Reuters.
Atrium—which lends to those unable to access cheaper bank credit by pooling resources from moneyed individuals—provides would-be buyers with second mortgages and bridge loans at around 7.5 per cent to 8 per cent interest, twice or thrice the rates available for first mortgages.
“It is actually really good business … these are good people with impeccable credit ratings, who just got caught,” Goodall said.
The mad dash for purchase funds stemmed from the recent cooling in the Toronto market, which has led to sellers scrambling to get deals closed before home prices decline further. Sellers are considering suing those who are lagging on their agreed purchases, while buyers are desperate for a way out of contracts without losing deposits amounting up to $100,000.
“Some people want to walk away, some want half their deposit back, some bury their head in the sand and say ‘I’m not closing, if they want to sue, fine,’” according to real estate lawyer Bob Aaron, who said that he keeps encouraging clients on both sides of the transaction to refrain from filing lawsuits, as these years-long recourses could involve as much as $40,000 in legal fees.
However, Mortgage Professionals Canada chief economist Will Dunning said that currently, there is no reliable source of data on requests for second mortgages.
Dunning warned that the BoC rate hikes along with ever-higher costs are dangerous for the sector as a whole, in the long run.
“There will be an impact in the Canadian banking world. It may simply be the second mortgage guy gets wiped out and the first takes less of a beating, but really the Canadian housing market would be at risk, there is no question in my mind.”
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