The sector has seen its fair share of changes in the past decade – and established lenders are doubling down on high standards and professionalism
Qualifying for a mortgage with a bank is anything but a straightforward task for a huge number of Canadians these days – and the growing conservatism of the country’s banking giants is helping fuel the rising popularity of alternative and private lending solutions.
A decade ago, borrowers in the private lending space typically fit a certain profile: those with bruised credit or income challenges, or perhaps with a unique or remotely-located property.
But alt- and private-lending executives who took part in a panel on the sector’s evolution at last week’s Canadian Mortgage Summit in Brampton underlined a sea change that’s taken place since then, also accelerated by tightened mortgage underwriting standards through the B-20 guidelines.
“What we’ve seen is that the subset of borrowers [in private lending] continues to widen at a fairly rapid rate,” Jake Bannister (pictured, top centre), regional sales manager at Glasslake Funding, said. “These are near-prime borrowers that are seeking alternative, private, or MIC [mortgage investment corporation financing].
“I think part of it has to do with B-20. Part of it has to do with interest rate volatility as well as market conditions. But I think there’s something to be said for ease of underwriting and flexibility.”
‘It’s not supposed to be a permanent solution by any means’
For any borrower taking out a private loan, having a viable exit strategy – a plan to leave the space and return to A or B lending – is essential.
Still, while credit quality in the private and alternative lending sectors has improved because of a trickle-down effect from A and B lenders, a bumpy economic outlook and qualification challenges elsewhere are also keeping borrowers in the private space for longer than before.
“We’re seeing a higher renewal rate with us,” said Armando Diseri (pictured top, second frmo left), chief sales officer at Alta West Capital. “That’s showing that customers are needing a little bit of a longer term to fix whatever their situation is so they can graduate.”
Canadian Mortgages Inc. AVP, originations and strategic partnerships Taylor Lewis (pictured top, far right) highlighted changing perceptions of the sector, and said lenders’ responsibilities towards their clients – and the need for consummate professionalism – haven’t changed.
“It’s not supposed to be a permanent solution by any means. It’s more of a step in the right direction because of the current market and because of where people are being pushed towards,” he said. “They can still find solutions.
“Private lending as a whole, when done ethically of course, hasn’t really changed… but as the market shifts, the connotation changes and there’s not as ugly a stigma as long as we all remain professional.”
Lenders, brokers have responsibility to map out exit strategy
The fact that borrowers are often kept in private and alternative lending solutions for longer than before also amplifies the need for lenders to make sure they’re matching Canadians to a solution that’s right for them, according to Sequence Capital vice president of sales Sebastien Kuperhause (pictured top, second from right).
“I think that’s really the part where [we’re] making sure everybody’s doing their fiduciary duties, doing the right thing, putting the client in a position where there’s a clear pathway to get out,” he said. “Eventually, regulatory changes will happen at some point. Who knows when that happens?
“You see a better credit quality of clients coming in but then you’re also seeing the impacts of what’s going on and how many more people now are that much more challenged. We’re all here to figure out the right way to help them get back where they need to go.”
Another way the private lending space has grown and developed in recent years has been the “significant” evolution of the institutions lending in the sector.
That’s according to PHL Capital Corp. vice president of sales and origination Aaron Duhra (pictured top, far left), who pointed to the high number of well-established companies now operating in private lending. “We’ve got institutional investors, some of Canada’s largest banks giving us operating lines of credit, increased regulation,” he said.
“I’ve been in the industry for eight years and even in that time, the sophistication level has increased substantially. It’s important for brokers to understand that and also educate their borrowers on that.”
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