Mortgage Broker

editorialsummary 8 | winter 2017 cmba-achc.ca CMB MAGAZINE FOLLOWING THE OCTOBER 3 announcement by Finance Minister Bill Morneau of new mortgage rules designed to stress-test borrowers and restrict mortgage lending, the media was quick to make some predictions concerning the mortgage-broker industry. In a Financial Post article titled "Canada's mortgage brokers find ways around new lending rules," it was pronounced that "Canada's new mortgage rules risk pushing borrowers deep into the shadow lending market, with brokers set to line up secondary loans with private lenders as a means of circumventing tests on borrowers' ability to repay debt." Media personality Larysa Harapyn commented: "A rising number of borrowers are seeking out what is known as the shadow- banking market – lenders who operate outside of the strict rules imposed by regulators of the country's large financial institutions." Most recently, on January 11, the Globe and Mail published an article titled "Bundles of debt: How lenders sidestep Canada's mortgage rules." e authors argue that "Canada's subprime mortgage providers are increasingly teaming up with unregulated rivals to sidestep rules designed to clamp down on risky lending," and that "e result of these partnerships are so-called 'bundled' loans, which pair a primary mortgage with a second loan from unregulated groups called Mortgage Investment Corporations (MICs)." So, essentially, the financing of property with the assistance of a second mortgage is seen as risky and unregulated. However, given the recent rate hikes for high-ratio mortgage insurance – in which buyers with five per cent down are now paying a whopping four- or even a 4.5-per-cent premium if they use a government second- mortgage assistance program, such as the new BC HOME Partnership program – who can blame buyers from seeking financing alternatives? ese buyers are paying almost as much in CMHC fees as their down payment. In many cases, a second mortgage in lieu of CMHC fees may actually provide a more cost-effective and desirable alternative. Of course, most of us in the mortgage industry are acutely aware of the mischaracterization of alternative lenders as "shadow banks," which connotes an image of mysterious – perhaps even nefarious – individuals lurking in a dark background, lending money to hapless victims in a clandestine, illegal fashion, akin to loan- sharking. Perhaps, in some ways, alternative lenders do resemble banks, such as by making money from the spread between funds paid to investors or, in the bank's case, depositors on their deposit funds, and the interest income earned from loans. Fundamentally, however, banks are deposit-taking institutions, with regulations designed to keep them fiscally afloat well above any minutely foreseeable risk of sinking, in order to protect those deposits and thereby protect the integrity of the banking system. Alternative lenders do not carry such a heavy burden; those who invest in alternative lending entities take risks with their investment monies in the hope of reaping rewards. Referring to alternative lenders as deposit-taking banks is also, therefore, a misnomer. However, for the media and other commentators to suggest that alternative Most of us in the mortgage industry are acutely aware of the mischaracterization of alternative lenders as "shadow banks," which connotes an image of mysterious – perhaps even nefarious – individuals lurking in a dark background, lending money to hapless victims in a clandestine, illegal fashion, akin to loan-sharking "Shadow banking" has become a buzz term in the mortgage industry. But what does it mean, and who's really doing it? BY SAMANTHA GALE, CMBA EXECUTIVE DIRECTOR Step Out of the Shadows

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