Meeting the needs of a changing market

When it comes to the mortgage industry, private lenders can often be a more responsive and flexible option for Canadian borrowers in challenging and changing times than banks and credit unions.

That’s the view of Canadian Mortgages Inc. (CMI) director of operations Taylor Lewis, who tells CMP that private lenders not being subject to the same regulations as banks means they can be nimbler and more flexible in their application of lending criteria and solutions.

Conventional lenders, he explains, usually have extremely rigid lending criteria, with borrowers having to fit within strict qualifying parameters and even stricter underwriting guidelines.

Rules also govern the types of employment, debt ratios, income and Beacon scores of borrowers that banks will consider, as well as property types, location and loan-to-value ratios.

“Private lending, on the other hand, can be viewed as a spectrum,” he says. “CMI, for instance, has discretion to assess every borrower’s unique circumstances, including the subject property and location, to make a lending decision and to customize the terms of the borrowing solution, including the rate.”

There are vast differences between the underwriting process for private and conventional deals, Lewis adds, with broker-lender collaboration a key differentiator on the private side.

“CMI is a partner with the mortgage broker. We’re here to provide advice and structure deals so that we deliver the best possible solution based on the borrower’s unique situation, while considering market conditions in context as well,” he says.

In a shifting housing market like the one being experienced in 2022, it’s important for brokers to note that private lending is designed for different scenarios than conventional lending, and that private options are an excellent choice for borrowers who may not currently qualify under traditional lending guidelines, are out of work, have poor credit history or face cash flow challenges, Lewis says.

Brokers being knowledgeable about viable alternative lending solutions means they can provide optimum advice and guidance to borrowers who may find themselves unable to meet the banks’ lending criteria and facing dire circumstances as a result.

“A private mortgage can be a valuable lifeline to borrowers struggling to qualify for conventional lending in the current economic environment,” Lewis says.

“By design, private loans are intended as a short-term solution to solve an immediate problem or need, with a built-in plan to transition back to traditional lenders.

“A private mortgage should be viewed as a valuable tool in the context of a borrower’s longer-term financial picture.”

For brokers, the benefits of this type of lending are obvious, not only in terms of the wider range of loan options they are able to offer but also because it allows them to expand their businesses and help a wider range of customers, Lewis says. That’s especially significant as a source of growth in a transitory and rapidly changing market.

CMI’s focus

Amid those market changes in 2022, Lewis says CMI has been focusing on actively monitoring conditions and ensuring that its lending criteria appropriately reflect prevailing conditions.

He says the company has doubled down on its strong due diligence and underwriting protocols to manage the quality of its mortgage originations, with its “dynamic” business model helping it adapt smoothly to changing conditions and a cooler climate.

CMI is expanding its geographic reach, having become licensed in Quebec and Atlantic Canada, while also diversifying its funding sources to expand its product shelf and broaden its base of borrowers and prospective clients.

“This expansion will allow us to widen our appeal to the brokerage community by being able to provide additional options for their borrowers,” Lewis adds.

Other new developments include the relaunch of the company’s revamped websites and technological enhancements to better represent its product offerings. The first site for CMI MIC Funds recently debuted, and additional launches are planned throughout the year for CMI’s Mortgage Investment program and its broker site.

CMI is also highly attuned to the changing needs of borrowers during a cost-of-living crisis and rising rate environment, with Lewis explaining that the company has the ability to customize solutions to fit a range of needs and circumstances.

Those options could include a second mortgage, allowing homeowners to leverage home equity to consolidate debts and provide interest savings and cash flow relief. That could help stave off collections or bankruptcy and help them repair their credit in the long run, Lewis says, as well as potentially providing badly needed funds to bring a first mortgage up to date to avoid foreclosure.

That’s something that sets the company apart from more conventional solutions. “Most traditional lenders like banks won’t offer second mortgages, except in the form of a home equity line of credit,” Lewis says. “That type of revolving facility is not the right fit for a borrower looking to eliminate debts of this type.”

Other solutions offered by CMI for borrowers who are experiencing cash flow issues include flexible repayment terms such as interest-only and prepaid mortgages, in addition to term customization and funds for short-term needs.

The company can also match the term to maturity on a second mortgage with an existing first mortgage in the hope that the borrower is re-employed or in a better overall financial state at that time, Lewis says. That would allow the borrower to refinance and consolidate the first and second mortgages together at a lower rate – or renew the second private mortgage if that isn’t possible.

What brokers should know about private lending

When it comes to choosing a private lending solution, Lewis says the most essential consideration for brokers is that not all private lenders are created equal.

“It’s vital for brokers to do their due diligence when selecting a partner,” he says. “The market is heavily fragmented with hundreds of different lenders. Many differences set these players apart. For example, some will focus on a particular segment of borrower or geographic region.”

Some of the most important things to keep in mind when choosing a private lender are the size, age, industry reputation and track record of the business, as well as its commitment to ethical lending practices, fee transparency, the borrower segment served, and whether their focus is merely regional.

For brokers, technology is also key – how easy it is to submit deals and ensure a quick turnaround – as well as service level and the depth of the company’s product shelf and flexibility of its solutions.

Ultimately, brokers and their clients can win by working with a private lender that’s established, reliable and flexible, Lewis says, but it’s important that brokers should also be aware of whether the lender has its own sales force and deals with consumers directly.

“They could be competing with the lender for the client,” he advises. “CMI only works with mortgage brokers and doesn’t compete for the client. The broker always maintains the client relationship.”