As Canadians show increased interest in private lending options, brokers will have to explore their lender relationships and decide which bonds they’d like to strengthen, as demand across the industry continues to grow. During the COVID-19 pandemic, many small lenders halted lending or exited the market completely. In some cases, they declined renewals forcing borrowers to pay full fees again, even if their payment history was favourable.
“This was sad for us to see,” said Daniel Joseph, director of broker relations at CMI. “We never stopped lending, and we have seen our volumes almost double from earlier this year, which is a testament of our fairness and commitment to assisting our borrowers.”
Joseph is confident that the “good actors” will continue to outperform. Barriers to entry for smaller, independent private lenders have been growing, as credit bureaus tightened their requirements and technology and infrastructure costs increased. Choosing a larger, more mature lending partner is a safer bet, he added, and as these nationwide alternative funding sources grow, so does the calibre of the industry.
“It’s pushing illegitimate lenders into the shadows. Our mission is to bring honesty, integrity and results to the mortgage space and a big part of that is transparency and equitable treatment to brokers and borrowers alike,” he said. “No borrower is going to return to a broker if their lender ripped them off.”
There’s also a lot of additional risk that comes with choosing a lesser-known lender without a proven track record. Joseph said they’re known for hopping in and out of the market, and because of their limited capacity, may not always have the borrower’s best interest. In some cases, these lenders play the role of lender and broker.
“When a broker works with a lender that isn’t also competing against them, it gives them peace of mind knowing their clients won’t be solicited or pursued in the future. This also gives the broker the benefit of reaching out to their own client prior to renewal to discuss the possibility of transitioning to a traditional lender,” he said.
These are the key characteristics that Joseph says brokers should consider when exploring their options for a private lending partner:
Service – Prioritize lenders that maintain consistent communication, respond to requests in a timely manner, and are open-minded and willing to listen.
Reputation – A strong relationship between lender and broker is important and requires trust. Over time, that relationship gets stronger, which will only add to a broker’s arsenal of options for their clients. Developing trust with a reputable lender also protects a broker’s own integrity, especially when it comes time for borrowers to consider renewal.
Flexibility – Private lenders can offer borrowers “wiggle room” that banks and other prime lenders simply can’t. Private lending is generally more flexible when it comes to the length of term and may even be able to waive certain conditions. Working with a private lender who is willing to listen and structure a deal to meet the needs of the borrower goes a long way.
Creativity – Private lenders can often offer solutions to help correct a borrower’s credit, pay out property tax arrears or maybe just consolidate debt to increase cash flow. An experienced lender can offer creative solutions for borrowers.
As the economic impact of the COVID-19 pandemic stretches on, relationships between brokers and their lenders will be paramount, and having a strong alternative lender will add to a broker’s value.
“Most brokers have experienced rejections from traditional lenders and recognize the benefit of establishing a solid relationship with a private lender, as well as growing their expertise in private lending practices. Alternative lending will only continue to become more relevant heading into the new year.”