In an opinion piece, one advisor is suggesting the government should crack down on the alternative lending market.
“If we want to address the underlying causes of irrational price increases in housing, we should stop looking for convenient bogeymen like ‘foreign buyers’ and ‘house flippers.’” Soheil Karkhanechi, a private investor, writes in an opinion piece for the CBC late last week. “Instead, we need to tighten credit conditions for speculative transactions in a targeted manner that does not negatively impact other parts of the economy. The best way to do that: make nonconforming mortgages more expensive.”
He argues the government elects “crowd-pleasing” solutions when implementing housing policy, such as BC’s foreign buyer tax and Ontario’s proposed capital gains tax hike.
No mention, however, of last year’s mortgage rule changes, which have widely been considered a governmental overreach that made it harder for many middle class Canadians to qualify for a mortgage.
Karkhanechi then takes aim at brokers.
“Much of the nonconforming loan market is brokered and there is often no direct contact between the borrower and the lender, but there is significant economic incentive for the broker to complete the transaction,” he writes.
Karkhanechi argues the “nonconforming” mortgage market is the most susceptible to fraud and shady practices. And that it’s speculators who turn to alternative lending options.
“The nonconforming mortgage market is where many real estate speculators go when seeking financing. They are loans given to borrowers who do not qualify under a lender's standard metrics; loans where the lender takes more comfort in its collateral than the ability of the borrower to service the debt through income,” he writes. “The salaried homeowner who cannot afford a second mortgage, but wants to doubly participate in Toronto's soaring real estate market by buying another house, will invariably end up borrowing in the nonconforming market. Similarly, a foreign buyer is most likely to borrow under this type of arrangement, given the lack of Canadian income or credit.”
No mention, however, of the new-to-Canada borrowers and self-employed buyers who don’t qualify for mortgages in the A-market.