Lately the insurers have not been following their guidelines to the letter. They are making their decisions based more on the whole deal, rather than the debt service ratios and it is making it more difficult to give pre-approvals.
The lenders are approving the applications but the insurers are declining because they “feel” there is too much risk.
Below is an article about self employed individuals but there are similar instances for anyone who does not have a guaranteed salary or income.
While lenders are showing renewed willingness to loosen their purse strings for the army of self-employed borrowers, default insurers are making it tougher to get those deals done, a very frustrated principal broker told MortgageBrokerNews.ca.
“The minute I start to get questions from CMHC or Genworth about a non-income qualifying mortgage application, I know that it’s going to be rejected,” said Vittorio Oliverio with Centum Professional Mortgage Group. “We have a lot of lenders satisfied with the borrower’s downpayment and ability to pay, but what we are finding is that the insurers are the ones that are rejecting those applications. They have guidelines and they should stick with them.”
The concerns mirror those of other brokers from across the country who are now seeing the pendulum swing back from the dark days of 2007/8 when broker channel lenders had all but closed their doors to non-income qualifying mortgages. But while banks and mono-lines are increasingly willing to fund those equity deals at prime rates, they are still demanding default insurer backing.
That’s where brokers are hitting a snag, said Oliverio, who works the entrepreneurial-rich Alberta market. The Canadian Federation of Independent Business, in fact, identified his Lethbridge community as one of the country’s Top 10 “most entrepreneurial cities.” Seven other Alberta centres also made the cut.
Oliverio and other brokers across the country see the business-for-self market as a key growth area for an industry looking to grow originations in a slowing market. The statistics back them up with more than 22 per cent of Canadians now self-employed.
Many of those clients fit within CMHC guidelines for equity mortgages of 75 per cent loan to value. Winning that insurance is the difference between accessing today’s prime rates as opposed to those in the B market. But insurers have now retreated to more conservative standards, outside of their own guidelines, said Oliverio.
“They don’t appear to be allowing gifted down payments and they scrutinize the business’s cash flow and question income even though sales support that income,” he told MortgageBrokerNews.ca, suggesting the hyper-scrutiny keeps clients from winning mortgage amounts appropriate to their income and down payment.
The increased difficulty in getting insurer approval appears to contradict the position of lenders.
“It used to be that 80 per cent of the deals were rejected by the Schedule A banks,” Bob Woods, of Assured Mortgages, told MortgageBrokerNews.ca. “But the banks are beginning to adopt a common sense approach rather than being reactionary as they were even a year ago. They are back in the business of dealing with self-employed.”