Oct
05

An Open Letter To The Globe And Mail.

(Background)

Today I nearly lost it but I had to think long and hard as to what to write to The Globe And Mail. The article in question is (unfortunately) hiding behind a paywall but you can see the article on https://www.pressreader.com/ if you search “To Compete, many alternative lending firms target less desirable borrowers” in google, - it’s the first hit (I can’t link it)

So, here’s what I wrote to the two authors of this story. Here goes:


David and Tim

Thank you for misinforming the public once again with your front-page ROB article about the New Rules and how they will challenge non-bank lenders.

You write:

“The banks, which account for 70 percent of the market, have the highest underwriting standards in the country”

Completely and utterly wrong. How do you define this versus what standards Street Capital, MCAP, CMLS, etc have? Please let me know. The truth from the street is, CIBC, RBC, TD etc., do not have higher underwriting standards they just take much longer to approve the same application. What they do have is much higher penalties if exiting the mortgage, much less information to pass to unsuspecting clients, and much less choice for consumer. Awesome!

You also write “To compete, many alternative lenders target less desirable borrowers”.

Again, totally and utterly wrong. As a matter of fact I would argue opposite; I know from experience many many times I have lost 65% financing deals ranging from foreign buyers to high-net worth buyers without incomes to jumbo loans to the big banks from the so-called “alt lenders” you mention. Why? Because these lenders have much stricter criteria for these off-the-map deals which I have placed myself with the big banks!

I also know that you are not differentiating from…

Oct
03

Monday October Third, Two Thousand And Sixteen.

Today may end up being one of those defining moments in our housing market, that’s why I called this post Monday October Third Two Thousand And Sixteen. It’s a very important date to consider when we look back in a few years’ time in assessing if this move was the right move in trying to normalize activity in our feverish Toronto housing market. Why in a few years? Frankly, I don’t think we’ll see a change overnight but I do think it’ll take some time to figure out what kind of impact this move had.

And what a move it is.

First let’s start with the basics. If you have less-than-20% down payment you’re going to have to qualify for a mortgage at a much higher criteria, called “the stress test”. Prior to today, anyone in the market could (easily) qualify at the discounted rates if they were okay with a 5-year fixed. The thinking was, hey, 5 years is a long-enough time to hold a loan, let’s let those terms qualify at 2.39, and anyone else (variable, for example) qualify at a higher rate, since variable rates may move with time (up or down).

Now, everyone is at the same qualifying rule: 4.64% (today). That’s not the rate you get, that’s the rate I use to qualify you. On average that’s about 20-25% less in borrowing ability than before. Wow, big change, right?

Now let’s discuss how we may have gotten here. You see, in Canada there are two places to get your mortgage from: A bank, or a lender. A bank is backed by deposits and branches. A lender is backed by CMHC and mortgage insurance, and securitizes all of their loans through the mortgage insurance market. A lot of people have opined that this move was brought…

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