Comprehensive due diligence to be expected in sector, says BC-based company president
A common-sense approach should be top of mind for brokers dealing in any sector of Canada’s mortgage market – and being able to ask difficult questions of borrowers is a key component of that, according to a top BC-based private lending executive.
Alan Long, president at Mandate National Mortgage Corporation, told Canadian Mortgage Professional that brokers and borrowers should be prepared for an extensive due diligence process on the part of lenders before they give the go-ahead to a deal.
“If you’re a broker who’s in the business of mortgage lending, there are certain flags that you should be looking for, checkboxes to make sure that these things are covered – everything from due diligence on the person’s net worth to their credit, their history resumé,” he said.
“A lot of brokers don’t want to ask the questions because the borrower says, ‘Why do you need to know that?’ So they’re reluctant to ask those questions because they don’t want to get slammed by the borrower.”
Extensive due diligence a hallmark of company’s approach
Originally launched in 1982 as a mortgage investment corporation (MIC), Mandate switched into the private lending space in 2017 with a reputation, according to Long, for asking searching questions and conducting a comprehensive due diligence process on its prospective borrowers.
That’s something of a point of pride for the executive, both as a means of ensuring successful applications are creditworthy and keeping investors happy.
“We inspect every property personally. I meet every borrower,” he said. “When we ask for certain backup for our due diligence, a common question is, ‘Well, you guys ask too many questions,’” he told Canadian Mortgage Professional. “And my common response is, ‘Buddy, wouldn’t you want to know who the borrower is, wouldn’t you want to know how to get out and understand [their] business?’”
That extensive due diligence process has found favour with the company’s investor group, Long said, as well as the brokers who know they’re dealing with a careful and precise lender for their client.
Most of Mandate’s loans are in the commercial realm, with the company catering to both residential and commercial brokers and also syndicating with other private lenders to do larger loans in the pricey BC market.
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Private lender prospects grow as banks tighten purse strings
Opportunities in the commercial space have grown in recent years amid a pullback on the banking side as economic storm clouds continue to gather. “Their book is black and white. We’re grey,” Long said.
That means Mandate is able to work on a more creative basis with borrowers, with Long’s lengthy track record in the industry making him a familiar face for brokers and investors alike.
“I’ve been doing this for 40 years. I’ve seen a lot of different cycles and a lot of different players,” he said. “They tend to know who the liars and cheats and the bad guys are and the guys who are sensible and straightforward. So we just be very careful. That’s why we don’t lose money.”
The transition from the MIC space to a straightforward private lender proved a jump worth taking, freeing up the company to be more flexible and independent with its hands no longer tied by the complex regulatory framework underpinning the MIC sector.
“Our underwriting [means] we’re comfortable investing on behalf of our investor group,” Long said. “That’s based upon things like geographic location, type of mortgage (first or second), loan to values never more than 75%, the type of product – whether it’s single-family, multifamily, industrial, land, construction – and then the type of borrower that has to have experience and a backdoor exit on every loan so we don’t get stuck if there’s an issue.”
The majority of the loans issued by Mandate are a maximum of one to two years, he added. “We like to keep on top of them – making sure these people are still generating income, paying the property taxes, keeping insurance current, and working by adding value where necessary to increase the property value and pay us back,” he said.
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