alternative mortgage lenders Archives - Ira SmithTrustee & Receiver Inc.

Subprime lender: Introduction

Toronto’s real estate market has changed in May 2017. Many more listings have come onto the market and the Canadian subprime lender mortgage landscape has changed. The regulations for qualifying for a traditional mortgage have tightened significantly. Canadians in ever-increasing numbers have turned to alternative mortgage lenders or subprime lenders. For a higher interest rate subprime lenders give mortgages to people who are higher risk and don’t meet the criteria demanded by traditional financial institutions.

Subprime lender: Now the subprime lender is in trouble

The problems started in July 2015 when Home Capital Group disclosed it had cut ties with 45 mortgage brokers. An internal investigation revealed that certain borrower applications contained false income and employment information to get loans. The Ontario Securities Commission (OSC) alleges that the company broke securities law by making misleading disclosure after the company believed it discovered some brokers had falsified loan applications. All hell broke loose!

Subprime lender: No Capital = No Mortgages = No Business

Alternative mortgage lender Home Capital Group is now in big trouble. Its stock dropped 60% in a single day. A run on deposits have taken them into a deep dive to $391 million from $2 billion. Home Capital’s ability to attract new funding is now seriously in doubt.

Subprime lender: The subprime lender resorts to borrowing at subprime

Home Capital Group has taken out a $2 billion loan from the Healthcare of Ontario Pension Plan. With a 10% interest rate plus other fees and charges, the company is effectively paying 22.5% on the first $1 billion it borrows. This falls to 15% if it uses the full $2 billion available to it, according to Jaeme Gloyn, an analyst at National Bank of Canada. The subprime lender has borrowed at subprime rates so in effect the predator has become the prey!

Subprime lender: How can a subprime lender’s troubles affect you?

Home Capital’s problems have tainted the entire subprime mortgage lending in Canada industry. Stocks of other subprime lenders have also dropped. “Home Capital contagion has spread to the entire mortgage market, in particular, alternative mortgage lenders,” says National Bank of Canada analysts Jaeme Gloyn and Victor Dri.

Home Capital Group won’t be able to continue to fund at the same volume as they have in the past. This means that mortgage brokers and borrowers will approach other subprime lenders. This demand will probably lead to subprime lenders charging even higher interest rates, making mortgages unaffordable to many Canadians. 3bestaward

Subprime lender: What does this mean for the Toronto real estate market?

If fewer people can get mortgages then the entire real estate market is going to feel the crunch. The Canadian financial services industry is much different from that in the USA. Although no one wants to set off alarm bells, what happened to Home Capital Group sounds all too reminiscent of the New Century Bank story in 2007 in the U.S. They too faced a liquidity crunch which eventually left them with no alternative but to declare bankruptcy – a move which set off the 2007-2008 financial crisis.

Is the subprime lender borrowing at subprime rates a warning? We are already seeing the Toronto real estate market slowing. It now resembles a very active market, but not the overheated market of the past year or so. Will it slow down more? Is the Toronto real estate market still a bubble about to burst? Only time will tell.

Subprime lender: Have you borrowed all you can borrow but still need more money to make ends meet?

Buying more house than you can afford is never a good idea. If you’ve bought more house than you can afford or are experiencing serious debt issues for any reason, the Ira Smith Team is here to help. We’re experts in debt, serving companies and people throughout the Greater Toronto Area (GTA) facing financial crisis or bankruptcy that need a plan for Starting Over, Starting Now. Give us a call today.

Alternative mortgage lenders Canada: Introduction

Alternative mortgage lenders Canada have now made sure that mortgages and loans are no longer the exclusive domain of banks and other brick and mortar financial institutions. Fintechs (financial technology companies) have changed the game in the same way that Uber disrupted the taxi industry. In fact banks who don’t want to be left are changing the way they do business and investing in or partnering with fintechs.

We recently blogged our review of two recent alternative lenders in Canada:

Alternative mortgage lenders Canada: Fintechs are a legitimate alternative

We’ve traditionally thought of alternative lenders as shady operators or payday lenders who prey on the most vulnerable. However a new crop of alternative lenders has emerged in the mortgage game – the fintechs. Some are publicly traded companies and perfectly legitimate. They market to the millennials who want everything online and in an instant; and that’s what some of the new fintechs deliver.

Alternative mortgage lenders Canada: Fintechs technology advantage

Fintechs take advantage of technology to change the mortgage process. They try to create a more personal experience for users (more akin to online banking) and believe that their process of acquiring a mortgage is more transparent than that of traditional financial institutions. Some even give perks such a bottle of champagne to celebrate your new mortgage and/or dinner for meeting payment milestones. Some fintechs offer:

A mobile interface where users can compare rates, apply for a mortgage and track their payment progress

An interactive dashboard that walks users through the mortgage process

The ability to set up things like payment reminders and progress trackers

Alternative mortgage lenders Canada: What does it mean for you?

For one thing, the banks and other financial institutions have competition, and competition always benefits the consumer. Chances are if you’re already indoctrinated in digital and reach for Apple Pay or Android Pay instead of your wallet, you may welcome fintechs into the mortgage scene. But, not all fintechs are created equal. It’s up to you to check them out thoroughly and check out the rates to make sure they are giving you a good deal. You have options when it comes to taking out a mortgage but make sure you do your homework.

Alternative mortgage lenders Canada: What if you have too much debt?

Not all homeowners’ stories have happy endings. If you’ve bitten off more than you can chew or life has thrown you a curve ball and you can’t make the mortgage payments, contact Ira Smith Trustee & Receiver Inc. We’re here to help you solve your debt problems and set you on a path to debt free living Starting Over, Starting Now. All it takes is one phone call to schedule a free, no obligation appointment.