Refinances may be down due to tightened lending guidelines, but brokers are turning to another dependable method for helping clients take equity out of their home; though some worry unscrupulous brokers are taking advantage of desperate clients.
“With Mr. Flaherty making these mortgage rule (changes) we’re only allowed to borrow up to 80 per cent; (we’ve seen) a tremendous surge in second mortgages,” Robert Floris of Mortgage Architects
told MortgageBrokerNews.ca. “CMHC has really cut back and the refinance market has basically died and the second mortgage (market) has come alive.”
In its third quarter results, released at the end of 2013, CMHC noted an 81 per cent drop in refinance volume.
“Purchase volumes increased approximately 11 per cent while refinance volumes were approximately 81 per cent lower compared to the same period in 2012,” CMHC’s report states.
And while brokers may be feeling pinched by this particular drop in business, there are many who are offsetting at least some of that dearth with second mortgage business.
“Everybody in our office (is encountering a huge surge in second mortgage business) and we can’t be alone,” Floris said. “It pays a lot less (than refinances) and they’re expensive as it is.”
However, Floris is also encountering a number of clients who have been burned by brokers taking advantage of their need to take equity out of their homes.
“The problem that we’re seeing is that some of the brokers out there have just been gouging people,” Floris said. “We had one client and I think she’s going to sue them ... but she had $10,000 in fees, so there’s a lot of gouging going on because these people have nowhere to go.”