Specialized Lending: What does 2023 have in store?

Fergal: [00:00:25] Hello again and thanks for joining us on another edition of CMP TV. I'm Fergal McAlinden, news editor for Canadian Mortgage Professional. The rise of alternative and specialized lending solutions has been one of the most noteworthy stories across Canada's mortgage market in recent years, as borrowers turn their attention in increasing numbers to options that aren't offered by the country's leading banks. Today, we're joined by two top Canadian lenders to talk about their focus on the alternative and specialized side in 2023 and what mortgage brokers and agents should be keeping top of mind about the space in the year ahead. Today, I'm very pleased to welcome from Alta West Capital Armando Diseri, Chief Sales Officer. And from Community Trust, Grant Armstrong, Director of National Sales and Lending. My thanks to you both for joining us today. How are things with you? 

Grant: [00:01:15] Awesome. Thank you. 

Armando: [00:01:15] Very good. Thanks for having us. 

Fergal: [00:01:19] It's great to have you both here. And Grant, maybe we'll start with you. I mentioned the rise of alternative and specialized solutions over the past few years. Just before we get into our conversation, I'm wondering if you could tell me a little bit about what you think are the main factors behind the rise of that type of lending in recent years. 

Grant: [00:01:36] Well, you're absolutely correct. The alternative market is, it's gotten quite large. You've got federally regulated institutions. You've got small, medium, large private capital firms. You've got private lenders. So the space is grown. And the reasons for that is a number of them. But if I were to pick the top two or three, the change in interest rates over the last number of years, they're very low interest rates that have, you know, introduced the market, this alternative market to Canadians, which in the past they thought was the last resort. It was not something they wanted to gravitate to, but they've seen the alternative lending market be something that they can use. It is a tool to help them achieve their financial goals. It's become more mainstream over the last 1015 years. Alt lending is just part of traditional lending resources for Canadians. You've also seen the change in consumer behaviors, that consumer profile that somebody mentioned before, the DNA of a Canadian DNA of a client's just changed a lot. A lot more self employed borrowers, a lot more different income structures, unique credit situations, a significant number of rental properties, or Canadians that are looking for just unique financing solutions that meet their specific needs. These have all come together to create that desire and that need for an alternative market, which we're happy to be in. 

Fergal: [00:02:56] Yeah. And all of those factors that you mentioned are going to be really interesting in the year ahead. So we'll definitely get into that in a little bit. Armando. Just wanted to get your take on the rise of the space over the past few years. 

Armando: [00:03:07] Yeah and I think Grant touched, did well job of touching on all the major factors. You know we have a lot more Canadians today becoming business for self and that segment is growing wider and bigger. New immigration, tighter regulations. It's making this space a lot more popular and it's basically serving a need in Canada today in the real estate market for sure. 

Fergal: [00:03:37] Absolutely. And some of those factors that you mentioned really made 2022 an eventful year, a roller coaster for us all. And this year it started off pretty much the same. I'm just wondering, is there anything in particular that you've been keeping top of mind in your approach to the market amid such a dramatic start to 2023? 

Grant: [00:03:55] So our approach to the market's going to be pretty same, the approach we've had the last couple of years, but extremely nimble and agile. I'm not sure what the market's going to do this year. There's a lot of forecasts, lot estimations. I've got personal ones and there's economic ones. But we have to react and we have to keep her ear to the ground. We have to understand what's happening. We the last couple of years, the market changed month over month and we're still seeing that the market is not flat, it's up, it's down, it's left, it's right. So what we're looking to do is continue to keep that nimble and agility, but we're also looking to make sure that we continue to focus on communication, our awareness programs, our business develop managers, our marketing team. They constantly put out key information to our partners to understand what community trust is doing to help. What are we doing? What are our products? What are our solutions? How do you use our products? What are the benefits? What is the right type of client that we can help out at our BDMs are in market? All the time talking to partners about what our solutions are, how to work with us closer. So that's what we're going to be doing to keep top of mind and keep ourselves grounded in the marketplace. 

Fergal: [00:05:09] And Armando, anything that you've been keeping top of mind in your approach to the market so far this year? 

Armando: [00:05:14] Yeah, and I think right now for us is about education. I think more so than ever. I think there's a lot of brokers, especially in the private space, are not don't know how to put a deal together who are not familiar. I've never had a relationship with a private lender. I think it's about education, what we can do for them when they don't, when they don't meet the regulated space, where can they take their customer and still make that transaction happen? And I think that's that's what we're going to be focusing on. We have our BDMs as well across Canada going out educating brokers because brokers are calling us saying, I've never done a deal with you, I've never done a private deal with you, How can I do it? How can you help? And that's really what we're focusing on because there is going to be a lot of turbulence. There is going to be a lot of customers that typically would have qualified don't qualify. We're here to satisfy that need and get them to bridge that gap so then they can eventually, what we call graduate and go to an institution like community. 

Fergal: [00:06:28] Yeah. And it's interesting that you mentioned the importance of brokers, too, because obviously as the lending landscape has become more complex over the past few years, brokers are playing really an increasingly important role. What's the main thinking for community trust on the value of brokers in 2023? 

Grant: [00:06:44] We noticed over the last few years that shift to digital communication. Then over the last year there's been a desire for in-person. So our approach to work in the brokers are we're here to help you, we're here to meet with you or here to talk to you however you want to when you want to. We have got our credible mortgage advisory team, which is open 8 a.m. to 8 p.m.. So we have brokers that call in at 7:00 at night, which is outside your traditional hours that just say, I want to talk to somebody about potential deals and understanding. So we've made ourselves available to support those brokers. We're also providing a lot of training and coaching. What we're seeing from an application front is we need more details. The applications are a bit more unique. They're a little bit different than we've seen in the last number of years. So we're helping bring back that information to teach our broker partners what is critical information we need. Talk to us about the years that your clients not just been at their current job, but the number of years they've been in the industry. So we can really wrap our arms around the clients. What I'm also very proud of is we launched in 2020 and we expanded it to all of the provinces. We are is our provincial broker advisory councils. So our approach is we're going out into the marketplace and we're sitting down breaking bread with some of our top partners and asking them what's going well and maybe what we need to improve on. And we get some great ideas and we learn from that and we make drastic or we make immediate changes based on that feedback to make sure that we're working with our partners the way they want to work with and to make sure our policies or procedures or communication are aligned with that philosophy as well. 

Fergal: [00:08:18] Okay, Great stuff. And for you, Armando, anything that Alta West is focusing on in its approach to brokers this year? 

Armando: [00:08:24] Yeah. And I think going back to the education, we're also looking at new products that we can bring to the to the marketplace. We've improved on the technology on a back end space, back end improving efficiencies in terms of turnaround time, closing time. We spent a lot of time and money improving that aspect. And and really at the end of the day is education and and letting them know what we can do for their clients when they don't qualify through typical traditional lenders. So that's really what we're focusing on for this year. 

Fergal: [00:09:10] So we touched a little bit earlier on the fact that it's obviously really hard to predict what's going to happen in the year ahead. And maybe, Armando, I'll stick with you at the moment for this one. Do you see any big changes in the market or the industry in the year ahead? Obviously, we don't have a crystal ball, but what are your thoughts on that one? 

Armando: [00:09:27] For 2023, we see that there is going to be turbulence in the marketplace. With rising interest rates, it's unprecedented with the interest rates over the past year. But I think what we're going to see in my prediction is that as we saw yesterday, there's going to be a pause. And I think that's going to be good for the market, because I think we've seen a floor in terms of where we're seeing home prices for the next little while, assuming inflation doesn't change or there's no geopolitical things that pop up. I think we're going to have a nice, steady real estate market. We won't see the craziness that we saw in the past couple of years, but I think we're just going to see the traditional real estate market where natural increases on a year to year basis still 1, 2%. But I think there's still going to be there's going to be a pent up demand out there where people still want to transact and there's still a need for housing and investment opportunities. 

Fergal: [00:10:33] Okay, Great stuff. And Grant, is that something that you agree with? Things are going to maybe ease a little bit more this year? Or what changes do you think might be ahead? 

Grant: [00:10:41] Well, you mentioned the crystal ball, and I know the batteries have run out of mine, so I'm a little lost on what I think. You know, the market is it's going to do what it's going to do. And I know that's got a very safe answer to say. And it's it's been very difficult to forecast over the last couple of years. But what I, I'll continue to say is the resilience of Canadians and meeting the needs of whether they want to buy a house, they want to refinance all the lenders, you know, Alta West, Community Trusts being very nimble and addressing the needs and reacting really quickly to the needs of Canadians. So do I see any big changes or what's my forecast for the year? I'm not 100% sure yet, but I think what it's going to happen is it's going to be a another unique market. And I know at Community Trust we're going to stay really close to it and we're going to make sure that we adapt with the market and and just continue to bring those great products and services to our partners. 

Fergal: [00:11:39] Absolutely. And of course, we're all in that same boat and that nobody knows for sure what's coming down the line. But Armando, one thing that we've talked a little bit about already is the kind of clients that normally use alternative solutions. I'm just wondering, as the market evolves or has evolved, are there any new types of clients that you've noticed this year or that you're expecting to serve in the year ahead? 

Armando: [00:12:00] Well, I think it's going to be the traditional clients that are the underserved in the Canadian real estate market. But I think one of the interesting trends that we've been seeing and we've been servicing is Ontario customers and BC customers buying properties in Alberta that has been growing for the past couple of years, and we're seeing that trend just slowly increasing. And I think that's going to continue. And that goes back to the whole affordability aspect and more so on the investment side where people are buying rental properties. So we're seeing that. But I think in terms of what we're seeing in terms of clientele, it's always been that underserved Canadian that's looking to refinance or purchase a home and we're there to satisfy their need. We understand that we're a short term stop gap for a lot of customers and then they're with us for a year or two and then they eventually move on. And that's fine with us and that's what we're here for. And I think that we're going to continue to service that market. And that market in our from our perspective, is only going to get bigger as criterias and from the regulators on the regulated institutions are going to get tighter. We feel that we're going to see that trickle down effect and we're just going to our space is just going to see a bigger piece of the real estate market in the next year or so. 

Fergal: [00:13:37] Okay well that's really interesting to hear actually, especially on the Ontario Alberta trend that you mentioned. Grant, any new types of clients that you've been serving or that you're expecting to see this year? 

Grant: [00:13:48] So we expanded into the Alberta market. So as Armando said, we've seen that as well. We've seen that interprovincial migration. And I know as we look at different markets for our future expansion, we're seeing we're forecasting some of that types of clients. I mean, our our core products have still been around are self employed borrowers or clients with nontraditional income, flexible alternatives. I think we'll see a little bit more of our clients, and this is something we're glad to help with, is those clients that have maybe felt a little bit of the pinch over the last couple of years. Affordability. Some Canadians have dipped into their credit cards a little bit more, or they've financed a little bit more than they should have. And I think they're going to be sitting back and spending some time early in this year to look at their finances and they're going to need a lender that might help somebody that's a little overextended, but there's a solution that's going to help them. So we're going to be that next step to get them to where they want to be to achieve their financial goals. So I think our core clients will remain the same, but we're going to continue to see that client that needs that extra extra support based on their credit history, their affordability, we can still see that they can afford their transaction, but they're going to need someone that can look beyond the beyond the numbers a little bit sometimes. 

Fergal: [00:15:02] Okay. Good stuff. Look, we've covered a lot of topics there today. But just before we wrap things up for our viewers, I want to ask you both if there's anything about alternative lending that you think they should be keeping in mind this year that they may not be at the moment. Armando, maybe we'll start with you in that one. For brokers, any kind of message you'd like to get out? 

Armando: [00:15:21] Yeah. The message is get educated when you're submitting a deal to any lender. Tell the full story. Let's find out what the full story is on those on the on the deal. Because every piece of information is important. And when we're trying to package something up and make the deal work, if we don't have a full story, it makes it a little bit more difficult as we go through the approval process. So get educated, learn. I think you're going to customers are going to be reaching out to their agents more so than ever because of the all the turbulence in the marketplace. And this is where it's as lenders, as mortgage partners. This is where we get the shine. We make things happen. This is where you can get people and give some comfort that there is a solution out there and and that we can have we have products that can satisfy a lot of those needs that are out there. 

Fergal: [00:16:29] Okay, Great stuff. And for Grant. How about you? Anything about alternative lending that you think brokers should be keeping in mind that they might not be at the moment? 

Grant: [00:16:36] So I loved what Armando said about education that's going to be continue to be incredibly important. I will take two things I think that bureaucrats need to be aware of. One, the terms alternative, Alt-A near prime. They all get mixed and mingled a little bit. And there's some cross, there's lenders that are an Alt-A lender. They're near prime, or they have an alternative portfolio where they'll do all types of those lending. Reach out to your partners. This is the second part. Reach out and ask them what they do. You'd be very surprised what lenders do over the last couple of years. I think some of our broker partners have learned one of our products really well, so they almost think that's the product you only do. But when you reach out and you say, Well, what else do you do? How do I diversify my my workings with you? Is it just your product? Is it just a self employed program, your new construction program? Are those what are all the things that you do as a lender? So if you're a broker, reach out to your BDM, buy them a cup of coffee and ask them, How do I do more business with you? How do I help more Canadians? How do I do more deals? Because what you'll find is some of those lenders, a lot of programs that you didn't realize they had, and you'll be able to deepen your relationship with that lender. So those are my two of my comments on that and hopefully it helps. 

Fergal: [00:17:57] Okay, perfect. Well look interesting times ahead, as always, for the alternative lending space this year. It's always great to hear insights from both of you. We'll leave things there for today, but really looking forward to checking back in with you both very soon and hearing some more of your thoughts. 

Grant: [00:18:12] Thank you. 

Armando: [00:18:13] Thank you. Thank you. 

Fergal: [00:18:15] That's just about all we have time for on today's edition of CMP TV. Thanks once again to Grant Armstrong of Community Trust and Armando Diseri of Alta West Capital for joining us today. Thanks to you for watching. And we'll see you next time.