One of the most respected economists in Canada not only came out in favour of B-20 this week at the National Mortgage Conference in Montreal, he says it should encompass mortgage investment corporations.
Benjamin Tal, deputy chief economist of CIBC World Markets, called B-20 “a game changer,” but says the regulation doesn’t go far enough.
“I supported B-20 because I believe we need to save from Canadians from themselves,” Tal said during a keynote speech. “However, I do believe that, at this point, alternative lenders are the fastest growing segment of the mortgage market. They’re transferring risk from the regulated part of the market to the unregulated market. They’re transferring risk from where there’s light to where it’s dark.”
Tal says alternative lenders, and specifically MICs, comprise the fastest growing segment of the mortgage market. Before B-20, they were serving fewer borrowers, but since January 1 they have attracted borrowers who cannot sustain the 200 basis point stress test, and that worries Tal.
“Today household credit is rising at the slowest rate than in any recessionary period of the past 50 years,” he said. “You have to be in a recession to see credit rise this slowly, and with the exception of the MIC market, this is all good.”
Dimitri Kosturos, chief operating officer of VWR Capital Corp., was in attendance at Tal’s speech in Montreal, and he isn’t convinced that Tal understands MIC brass tacks. For starters, he says VWR lends at 75% loan-to-value or less.
“If you look at default rates on our book of business, it’s pretty low and has historically been low,” said Kosturos. “Most Canadians who borrow from us are responsible borrowers who come through our product and stay as long as they need to, then leave without issue. He’s also talking about the size of the market, but I’m not sure he has a strong grasp on that. Being in the industry, I think some open dialogue needs to happen.”
Kosturos does not dispute the fact that MICs are enjoying greater share of the mortgage market because of B-20, but risk mitigation remains as, if not more, important than ever. VWR’s overall book is 56% LTV.
“Everything we do is based on the equity and marketability of the property,” he said. “We look at that first and have a list of approved appraisers we use for third-party validation of the estimated market value of the property. And as long as it fits our criteria, as outlined in our offering memorandum, we try to get the deal done. We’re not driven by the covenant—that’s one of the primary differences between us and the banks—we’re driven by the property.”