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SHADOW LENDING MARKET: WHY JEWELLERS MAKING MORTGAGE AND CAR LOANS ARE AFRAID OF THE TRUTH

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Picture courtesy of Huffington Post

Jewellers making mortgage and car loans in the shadow lending market are afraid of the truth

If you really knew who you were dealing with for that loan and what the real costs were, and how they felt about you, you certainly would question the wisdom of doing it. Here is what one such jeweller famous for his television commercials said:

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He believes some of his customers probably shouldn’t be seeking refinancing to hold on to their homes, but added that if Canadians are going to be so addicted to home ownership, he might as well cash in. “It doesn’t make sense to go to your jeweller for a mortgage or even for a car loan,” he said.”

The shadow lending market Canada and the shadow lending mortgage market Canada

How times have changed! Did you ever think you’d see the day when television commercials featured jewellers offering you mortgages? Yes, there are now a growing number of “alternative lenders” offering mortgages; of course at interest rates well above what traditional financial institutions are charging. One mortgage broker (who was not identified by name) said that although major Canadian lenders offer five-year fixed mortgage rates at about 2.5% to qualified borrowers, rates in the private market range from 7% – 15%. In addition to higher service fees, the market is also weakly regulated, allowing lenders to take advantage of the estimated 20% – 30% of Canadians with limited or no options at traditional financial institutions due to low income or a poor credit score.

The shadow lending market is growing fast

This shadow lending market is growing faster than it can be regulated and preying on the most indebted, vulnerable Canadians. A CIBC report from earlier this year noted that lending by non-commercial bank lenders has doubled since 2012. The Bank of Canada warned about the risks inherent in the shadow banking sector in its most recent Financial System Review last month. The shadow market is estimated at less than 10% of Canada’s mortgage market, much less than the 30% estimated for the pre-crash U.S. market. Low interest rates make it very attractive for people to continue borrowing and pile up debt, making it an ideal climate for the shadow lending market to continue to grow at an ever faster pace.

Why are Canadians falling prey to these shadow lenders?

  • They have multiple mortgages, taking equity out of their homes to cover other debts
  • When they get into financial difficulty, the homes have been used as ATM machines because of the increasing values

Then they fall behind on mortgage payments and are threatened with foreclosure. Mortgages in Canada are considered “full recourse” loans, which means the borrower is responsible for repaying a loan even in the case of the lender taking over and selling the home through power of sale proceedings because you could not keep up the mortgage payments. Canadians who don’t qualify for a bank loan have been forced to refinance in the shadow lending market to avoid losing their home.

I don’t buy jewellery from a trustee

Don’t take financial advice from a television commercial and don’t go to your jeweller for a mortgage or a car loan. Are you plagued by debt problems? Do you have bankruptcy questions? Professional trustees are experts you can count on for sound financial advice regarding insolvency, bankruptcy and bankruptcy alternatives. If you’re having financial difficulties contact Ira Smith Trustee & Receiver Inc. as soon as possible. We’re a full service insolvency and financial restructuring practice serving companies and individuals throughout the Greater Toronto Area (GTA) facing financial crisis or bankruptcy that need a plan for Starting Over, Starting Now.

By Brandon Smith

Brandon Smith is a licensed insolvency trustee and Senior Vice-President of Ira Smith Trustee & Receiver Inc. The firm deals with both individuals and companies facing financial challenges in restructuring, consumer proposals, proposals, receivership and bankruptcy.

They are known for not only their skills in dealing with practical solutions for individuals and companies facing financial challenges, but also for producing results for their clients with realistic choices for practical decision-making. The stress is removed and their clients feel back in control. They do get through their financial challenges and are able to start over, gaining back their former quality of life.

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