Borrowers forced into the private channel by government intervention are getting a break
Canada Mortgage & Financial Group is easing the financial burden shouldered by borrowers who have been forced into the private channel by government intervention.
The firm’s new product, CMFG Limited Partnership, is essentially a low-cost rate for borrowers chary about taking out private loans on first and second mortgages. The product will mainly fund residential and construction, but interestingly, CMFG isn’t chasing high yield on the product.
“Typically, on a first mortgage you’re looking at about 8.5% or 8.99%, and the lender fee alone would be 2-3%, and the broker fee would be one or 2%,” said Ameera Ameerullah, CEO of CMFG. “When it comes to second mortgages, you’re looking at 12.99% to 14.99%. I’ve seen second mortgages go at 17.99%, and then a lender fee of anywhere from 3-5%, and then there’s a broker fee on top of that.”
Brokers often promise their clients the moon but can’t deliver. Under B-20, securing institutional B lending can be cumbersome, and borrowers often get stuck with private funds despite promises to the contrary. Ameerullah believes CMFG LP will reduce the occurrence of that happening.
“It’s expensive for the client, so I’m okay with yielding 10% and we charge only a lender fee, no broker fee, and we don’t have a cap on the dollar amount. The maximum I’d yield on a second mortgage would be 12%, including rate and fee.”
Brokers often negotiate their own terms with lenders so that they can charge clients higher fees, however, CMFG is mandating that brokers cannot charge clients fees that are higher than the lenders’.
“This way the client doesn’t get screwed over and overcharged,” said Ameerullah. “I’ve talked to borrowers who go to the private side and they’re not going to be charged those enormously high fees. It’s a little cheaper than what’s out there in the market.”
In addition to a minimum buy-in of $10,000 (with no maximum cap), investors interested in the fund will have to pass a stringent suitability test, and only then can they invest a certain percentage of their assets.
“For every deal we fund, we’ll be putting 50% of the fee we make and the overall return into a
reserve fund in case there’s a default or a client is late with a payment, because I want to make sure the investors continue getting paid,” said Ameerullah. “In the investment, the investor won’t be tied to one mortgage. The risk will be diversified, and this way the investor won’t overleverage in one type of investment.”
To date, Canada Mortgage & Financial Group has an impressive track record with a zero default portfolio in syndicated mortgages. Given the built-in risk mitigation in the CMFG LP, Ameerullah expects both borrowers and investors alike will win big.
