This is a column by our resident real estate expert Rachelle.
I just recently found out about a problem in the mortgage market. It appears that some of the mortgage lenders that came to Canada have decided not to do business here any more. Some others are only renewing mortgages that can be insured by CMHC. Even though I heard of this only a few days ago, it’s not recent news.
Yesterday a long time friend of mine dropped by my house. In the course of the conversation he starts telling me about his mortgage woes. He’s a great guy but he’s having a rough go of it for the last few years and his mortgage situation is just the icing on the cake.
He has not missed a payment on his mortgage in three years, through some very hard times in the economy and a heart attack. Then last year he got sued and had to declare bankruptcy. He is getting discharged May 19th of this year. He struggled to keep his house through all these challenges. So a few weeks ago, he gets a letter from his mortgage company Accredited Home Lenders. They are not renewing. In fact they are not renewing any mortgages.
So now with a credit score of 520 he is in the market for a renewal for $200,000 in mortgage principle. He has found a broker willing to do a deal at 11% for a 35 year term or he can get another mortgage at 8% -9% possibly. He is currently paying 5%. Furthermore, this broker has charged him money for an appraisal. He asked for a copy, which he is not entitled to have even though he paid for it. As I am writing this he is being asked for another $700 for faked income documents for his wife, who is a stay at home mom. Nothing is guaranteed either. I really wish I could name names here, but I don’t want to limit his options at this point.
I’d like to be able to say this is an isolated incident. His wife was talking to one of their neighbors; she also has a mortgage with Accredited Home Lenders. Her term is up in a year. She called the company only to find out that it was true and no mortgages are being renewed. She also finds herself in a precarious position; she got badly injured at work and is collecting Workman’s Compensation as a result. It’s not exactly business the bank is clamoring for.
I looked up the news only to find yet another story.
I can also understand the predicament the lenders are in. They just can no longer do business here and they can’t lend anymore. SO WHY THE HECK ARE THEY WAITING FOR THE LAST 90 DAYS BEFORE RENEWAL BEFORE TELLING THEM. These lenders already know they are leaving the country. They know they can’t renew their mortgages. They know their client base are the most difficult to remortgage. Why not send out all the letters now so that these people can plan ahead. If they have to sell their house, three months is not sufficient time in some markets.
I know why they won’t be decent and mail the letters out. If all the people got the letters at once there would be a hue and cry. It would make the news in a serious way. These companies would much rather limit the damage to a few people at a time. How many people are involved?
Keep in mind that these are not people buying. These are people who are renewing their mortgages and I have never heard of people who have made their payments not getting a mortgage renewal. I know that mortgages have terms but at least in residential real estate it was pretty much unheard of for lenders not to renew.
Here’s another point, FICO score notwithstanding, these people have already proven their creditworthiness by paying their mortgage for years. My friend didn’t ask to be sued and have to declare bankruptcy as a result. I’m sure that his neighbor didn’t ask to be injured at work. All these people have struggled though adverse life situations just to be pole axed for no good reason.
In my friend’s case according to the appraisal, he actually has $70,000 in equity. This is about 35%. Can someone please explain to me why he should have to pay 8 – 9 % interest? In fact, paying an extra $400 – $500 per month may well prove entirely unaffordable.
When you have bad credit you pay more. It’s that simple. In our society nothing seems to be a greater crime than having bad or no credit. You can’t get a decent apartment, you can’t get a mortgage, you can’t finance a car and you don’t get a line of credit. Yet there are a lot of honest, hard working people who have suffered serious injury to their credit. Divorce, illness or unemployment are all reasons why you can’t pay your bills for a while. Once you enter the world of bad credit it is very difficult to reestablish yourself.
Even those with good credit may well be affected. As someone who deals with investors I am getting concerned. The new guidelines from CMHC will only count 50% of rental income from your properties. I am also aware that a number of my clients may well have used some of these lenders that are no longer going to do business in Canada. Their mortgages may not be renewed and through no fault of their own. Mortgages on income properties have always been more difficult to get. ResMor is apparently not renewing mortgages on income properties.
Right now there are more questions than answers. Who will service the needs of these “bad credit” people who have mortgages that cannot be renewed? What about investors? Is it going to become more and more impossible to get financing? Then of course there’s my friend, will he have to sell his house, is he being ripped off by this mortgage broker, will he even be able to get a renewal, what will he end up paying in interest? Maybe someone out there has some answers that I can’t find. If so please let me know what direction to go in.
In any case if you are reading this post and you have a mortgage with Xceed Mortgage Corporation, Accredited Home Lenders, HSBC Finance, GMAC, GE Money or ResMor call them and find out if you are being renewed. Chances are good that if you don’t qualify for CMHC insurance because of your credit, bankruptcy or any other reason the answer will be no. Please warn as many people as you can.
In my opinion the people this affects need as much lead time as possible to fix their credit or get financing or sell their house. Ninety days is not enough. These companies already know what’s up. Frankly, I’m disgusted that they aren’t manning up and sending out the letters to all the people it affects. The irony is that mortgage companies are crying foul in the States when people walk away from their houses, which are worth 50% what they paid for them. Here in Canada they walk away from paying customers without any consideration for the effects on people’s lives.
Our government is doing nothing I know of to help these people. They have no problem making landlords take people who may or may not pay the rent even before they are moved in. I reference the Ontario Human Rights Commission’ fact sheets for landlords (link).
Landlords can no longer discriminate against tenants for not qualifying according to arbitrary cut off measures such as the 30% of income rule or credit score. Why don’t they make the banks swallow this pile of horse manure and continue the mortgages of people who are making their payments on time every month?
About the Author: Rachelle specializes in renting property on behalf of landlords. She also works with investors to find good investments in Toronto and surrounding areas. Her passion is bringing multi res properties back from the brink and maximizing profitability.