A wealth of options

CMP: What sort of impact are the most recent mortgage stress test rules having on Canadian borrowers?
Bryan Jaskolka: It seems clear right now that first-time home buyers are experiencing the biggest impact. Those people now have to qualify at a higher rate, no matter what their down payment is. According to some of the recent Bank of Canada statistics, the rules could disqualify anywhere from one in eight to one in 10 people, depending on location. That takes a decent percentage of people out of the pool and is pushing people toward alternative lenders – both the B channel and non-regulated lenders.

CMP: Given the current environment, how important is it for brokers to embrace the alternative lending space?
BJ: It is critical. It’s clear that buyers have less purchasing power and homeowners have less refinancing capacity as a result of the rule changes. If they aren’t seeking out alternative sources of financing, they are really leaving a lot of dormant equity in their properties.

Even at higher rates compared to what banks may offer, alternative lenders still offer a very viable solution for people to refinance their debt or generate working capital or funds for real estate investment. Brokers who aren’t utilizing those tools are missing out on one of the fastest-growing segments in the mortgage marketplace.

CMP: What are the benefits for a broker who is able to build meaningful and mutually beneficial partnerships with alternative lenders?
BJ: First and foremost, it’s preferred service. Brokers might also receive preferred pricing and greater access to exceptions with lenders and access to volume bonus programs. There’s a wide variety of benefits that come from having relationships with any lender category, whether it’s an institutional or an alternative lender.

It’s important for brokers to realize that lenders want to do business with people who are good to do business with. Just like there are many lenders in the marketplace, there are also many agents and brokers. It’s a two-way relationship that, once established, can be mutually beneficial for both parties.

CMP: How can brokers go about building those relationships?
BJ: When they meet a new lender, brokers should really try to understand the business the lender is looking for. Just because a lender is private, it doesn’t mean they lend on anything and everything regardless of credit or other considerations – that’s a misconception many people have of private lenders.

CMP: What are the risks for brokers who are reluctant to build partnerships with alternative lenders?
BJ: You could be losing out on a lot of revenue. Most astute and experienced agents will tell you that even AAA borrowers can benefit from a private lender in certain situations. Lots of clients with great credit and good incomes go to private lenders to get second mortgages at competitive and attractive rates.

A good example is a bridge mortgage that can be used by someone who plans to sell their home but wants to do some renovations to the property beforehand. Most people are able to improve the marketability of their properties by getting that financing, without affecting the underlying mortgage and paying interest penalties on that. We see a lot of clients with great credit getting second mortgages from private lenders. There is a misconception that today’s private lending space is the same as it was 25 years ago, but things have changed. Today, things are run on a process-driven basis, just like any institutional lender.

CMP: There are so many options out there in the marketplace. How can brokers go about identifying the most suitable alternative lender to partner with?
BJ: Be cautious of lenders who appear to be fly-by-night. Look for lenders who have some proven longevity and have a good reputation. It’s fair to say that no company is perfect, and most have somebody who has made a complaint or left a bad review online. Overall, when looking at the private lending space, brokers should consider their own reputation, too, and how that could be impacted by partnering with the wrong lender.

It’s important to have a good relationship with a reputable private lender because they can really help accelerate anybody’s business, whether their clientele is traditionally A or if they are already involved in the alternative or self-employed space.

CMP: Given that regulations are expected to continue tightening, what’s your outlook for Canada’s alternative lending space?
BJ: It’s clear that the industry is going to continue to grow. The Bank of Canada recently reported that MICs and other private lenders accounted for 8% of mortgages in Ontario last year. The overall asset growth within the space, and the fact that regulators will continue to monitor the private lending environment, will ultimately produce a more robust and scalable industry that is going to provide a good alternative source of financing outside of the regular banking channels in Canada.