If you’re looking for a mortgage and have bad credit you’ll probably need to go to a Toronto mortgage broker in order to get your home loan. That’s because, as the major lenders in Canada (namely the Big Six banks) start to see a housing downturn on the horizon, they’re refraining from handing out sub-prime mortgages.
A sub-prime mortgage is one that’s given to homebuyers that wouldn’t qualify for a traditional mortgage because of a low credit score. Major lenders have always had more restrictive requirements on sub-prime mortgages, but they’ve also always considered these higher-risk mortgages, and had a place in their portfolio for them. But as fewer buyers are expected to hit the market once interest rates increase, and lenders needing to take on fewer risks than normal, now many are pulling out of them altogether.
While some lenders, such as CIBC’s FirstLine branch, have been retreating from this higher-risk market for months now, it’s something that some major lenders are now just starting to do. One of those major lenders is TD Bank, who just stopped lending to sub-prime lenders as of March 31. While the sub-prime market only represented 0.2% of the bank’s mortgage portfolio, even that was too much for them. “This decision was based on a number of factors,” says Mohammed Nakhooda, spokesmen for TD Bank, “including a regular review of our secured lending risk management strategies. To remain competitive in the business in the current environment would require us to increase our risk profile, something we concluded was no longer in our risk appetite.”
But it’s not all bad news for sub-prime borrowers – many have already been going to mortgage brokers for years, understanding that these professionals have access to many more lenders that are still very active in the sub-prime mortgage. And, some of those lenders are actually jumping into this market.
“We see opportunities with people that are really high-caliber borrowers with good proof of income, but their circumstances are a little different,” says Chairman and Chief Executive Officer at Home Capital, one Toronto mortgage lender. He says his company is seizing the opportunity to take on more sub-prime mortgages because, “We haven’t had to go down the credit scale; we’ve been able to go up the credit scale, which is an unusual phenomenon.”
Soloway also points to the reason why so many major lenders are pulling out of the market, and says that his company doesn’t have the same concerns. While the interest rates may bring a slight downturn in the housing market, Soloway doesn’t see any signs that it will have a dramatic effect on the economy. “I don’t think there is any sign anywhere from people on the ground in Canada that foresees the bubble.” He says that those talking of a bubble in the nation “have been wrong for years. My prediction is they’re going to be permanently wrong.”
