By Vernon Clement Jones
Brokers prepared to let Alt-A and non-prime clients pass them by may miss out on the market's fastest growing segment, those attending the recently held CMP Mortgage Workshop were told.
“Don’t be a B mortgage snob,” Albert Collu
, president and CEO of Argentum
Mortgage and Finance, told a group of about 50 brokers at the Toronto event, part of the Canadian Real Estate
Investors Forum. ”The fact is that one in five people looking for a mortgage are turned down by the bank. And there is an expectation that this market will increase.”
The advice came as part of Collu’s workshop, focused on that segment of the market analysts predict will experience significant growth over the next five years. They point to the slow pace of economic recovery, a Canadian workforce in transition and tighter lending guidelines as key drivers.
The end result may be an increasing number of Canadians seeking high-ratio loans, but with the kind of bruised or battered credit preventing them from winning prime rates. Still, it’s important to remember, said Collu, that as many as 50 percent of those borrowers will retain the “capacity to service the debt”.
That’s also the case for Alternative-A deals, also expected to spike and driven by the growing number of self-employed Canadians, tradespeople and hospitality workers. The group is often challenged to provide the kind of proof of income – T4 slips, pay stubs and tax assessment notices – banks look for. Collectively, they represent as many as 6.74 million potential clients, said Collu.
An expanding divorce rate may also grow Alt-A lending as Canadians experience isolated credit challenges and debt run-ups in their push to re-establish themselves.
“As brokers, we’ve got to find solutions to help these types of clients,” Collu told workshop participants.
Brokers already account for some 80 per cent of Alt-A/subprime mortgage originations, although only a fraction of the country’s 12,000 mortgage professionals are actively courting the business.
“You know, brokers have to change their mindset about non-prime clients,” said Collu “They tell themselves that ‘The rates are higher than I’m used to selling’ or ‘I don’t like to charge fees.’”
In fact, the challenge of steering those borrowers through the transaction process can be relatively straightforward, although Collu and other industry veterans suggest a higher degree of client coaching is required. Even that investment, he said, is likely to pay off for brokers willing to put in the time.
“At the end of the day, that client is going to refer the hell out of you – more than your A clients – because you’ve been able to get them a mortgage when they thought they wouldn’t be able to,” said Collu.