A report about the growing reliance on bundling mortgages may be overblown, according to one veteran.
“That story at least today is blown out of proportion,” James Laird, president of CanWise financial, told MortgageBrokerNews.ca in response to a recent Reuters report about the growth of privately bundled mortgages. “We have not seen enough of the new environment to see how people are making arrangements.”
Canada’s “subprime” mortgage lenders are increasingly relying on bundling their mortgages with private MICs in response to new mortgage rules intended to clamp down on high risk lending, a Reuters report claimed.
According to the report, these types of arrangements have “proliferated,” though no actual stats are given. OSFI told Reuters it is monitoring co-lending.
“This is what happens at the late stage of a housing bubble - the quality of lending goes down,” David Madani, an economist with Capital Markets, told Reuters.
This, however, hasn’t been the case, according to Laird. At least not within his brokerage.
“Whenever we tighten regulation or rates go up or qualification becomes more difficult, it’s going to push a certain group to no longer be able to qualify,” Laird said. “That happens every time. It’s just a question of what those people are doing.”
Laird said the new rules have forced potential buyers to consider three alternative options, none of which involve bundling regulated and non-regulated loans.
“What we’re seeing so far is one of three things happening; the number one thing is more help from the 'bank of mom and dad' from first-time homebuyers. We find that mom and dad just help to the point of qualification, which is a little further than before the regulation,” Laird said.
“The second thing is people are buying less house than they planned on. Finally, we’re seeing some people saying 'I need to rent a little longer, save a little more and my income climbs a bit before I can get the house that I want.'”
Laird said CanWise neither recommends nor facilitates bundling loans.
“If someone is near qualifying, we don’t suggest they stretch themselves, we suggest something more prudent,” he said.
Still, bundling loans is a solution lenders can offer and it’s quite likely an uptick in that type of lending would occur after a round of mortgage rule changes that make qualifying for difficult.
Just how much that market is growing remains to be seen, however.