With the Office of the Superintendent of Financial Institutions calling for further changes to mortgage rules, several observers have warned that extending mortgage stress tests to uninsured loans might force Canadians to go for more volatile options such as variable-rate mortgages. However, the president/CEO of a major alternative lender has offered a second opinion on this grim prognosis.
Robert Goodall of Atrium Mortgage Investment Corporation holds an HBA from the Ivey Business School, and an MBA from the Schulich School of Business. Goodall founded CMCC, Atrium’s manager, in 1994. From 1996 to 2011, CMCC managed financing for Ontario real estate valued in excess of $6 billion.
How will OSFI’s proposal impact Atrium MIC?
The changes will actually be positive for Atrium because we would like to grow our book of first mortgages on single-family homes. OSFI’s proposal will cause some of the regulated lenders to be unable to make the loans required by purchases.
Let me emphasize: We at Atrium only lend up to 75% of value, so we require a minimum of 25% down payment. We are fairly conservative, but what we do differently from the banks is that we look at a borrower’s net worth as well as their income in underwriting a new loan. We think a purchaser’s net worth is particularly relevant in lending for small business owners and immigrants.
Should the OSFI changes push through, how do you think will your clientele respond?
Our clients are neither those with bruised credit nor purchasers looking for high-ratio mortgages. They are entrepreneurs, small business owners, wealthy immigrants, and those looking for bridge financing, to name a few. Opportunities to lend to these people will actually increase the more regulated the institutional lenders become.
Considering these possibilities and the current market realities, what advice would you provide to your clients?
Fortunately, they have several choices. They can buy smaller homes, and get that institutional financing at the very low rates that they seek. They can buy a larger home and finance with a first mortgage from a provider like Atrium. What can also happen is that there will be an increased need for second mortgages, especially since the concept of bundling appears to be in the process of being eliminated.
As for borrowers’ risk profiles, these will actually go up because monthly mortgage payments are going to increase. Whereas in the past they might have received a larger loan from an institutional lender, going forward they would get a smaller mortgage under the revised “stress test” rules (probably 15% to 20% smaller)—and they may have to bridge that through a more expensive second mortgage from a private lender.
In your view, what does the future hold for Atrium?
As mentioned earlier, the OSFI proposal is good news for Atrium in that we have seen our book of business in single-family first mortgages go up in the last year as a result of liquidity issues at one prominent institutional lender. We expect that book of business to continue to grow, although only about 15% of our mortgages are single-family mortgages, with the balance of the portfolio comprised of loans to real estate investors and developers on commercial and multi-residential real estate.