Mortgage Challenges What Canadian Market Faces TODAY!

Enclosed please find a "brief synopsis" of mortgage challenges what Canadian Market is suffering these days in various market segments.

Self-employed
The main challenge for this group is in proving income, as tax return information to Revenue Canada is often quite different from the cash flow experienced by the business. Non-Income Verification (NIV) products allow the self-employed to borrow without proof of income, enabling them to access the funds they need without the documentation required by conventional lenders.

Employed
Many employed consumers derive income from a number of sources, not all of which are ‘provable’ in terms of the documentation required by conventional lenders. Those with second jobs, those in the hospitality industry earning tips and those with home–based businesses such as child care programs are all situations where employed people may have more than one source of income and have difficulty meeting the requirements of their bank or credit union in terms of proving this income by way of approved documentation. Again, Non Income Verification (NIV) products provide an opportunity for such borrowers to seek the financing required without proving income in the traditional way.

New Immigrants
The main challenge for this segment is lack of credit and employment history in Canada. They require a more contemporary view of credit underwriting enabling them to access mortgage funds required without having to adhere to the strict criteria of conventional lenders.

Unstable Work History
Lenders in the non-conventional market are less inclined to scrutinize work history. This provides greater options for individuals who have had periods of unemployment. With low Loan to Value (LTV) mortgages it is even possible to finance people that are currently unemployed allowing them to create ‘reserve funds’ to support mortgage payments for a period and the ‘breathing space’ required while seeking alternative employment.

Debt Service Ratios
Debt Service Ratios (DSR) – the amount that can be borrowed in relation to income – is an excellent example of how traditional lending methods have not kept pace with today’s changing consumer. These ratios were set in the 1960’s since which time after-tax incomes have only increased moderately whilst property prices have risen dramatically. Higher debt service ratios available in the non-conventional mortgage market allow consumers to access the mortgage funds required without having to adhere to outdated criteria established many decades ago.

Divorce Challenges
With divorce affecting 2 out of every 3 marriages, mortgages can become problematic for two reasons:

Credit Challenges – Credit may become a problem when spouses have to decide whose responsibility the debt is.
Debt Service Challenges – Debt service may be an issue when one party wishes to remove the other from title or purchase a home on their own.
Some non-conventional lenders will view divorce as an exceptional circumstance. They will disregard credit issues caused by divorce and view debt service more favourably.


High Loan to Value Ratios
With trends indicating that after tax incomes have only risen moderately in comparison to the substantial increase in house prices and with savings having been depleted to their lowest level in Canada in 60 years, there is an obvious need for people to be able to borrow more in terms of Loan to Value ratios. Uninsured, non-conventional mortgages enable this market segment to borrow funds required when they do not qualify for the government’s CMHC program. Mortgages up to 100% of the home’s value are available for both purchase and re-finance.

Credit Challenged
The credit challenged group is an obvious target market for non-conventional mortgages with lenders accommodating credit challenges from a minor “blip” to the more serious problems that may include those recently discharged from bankruptcy, those in credit counselling and those moving in to foreclosure.

Property Types
Today’s property types are more diverse than ever before with recreational, rental, rural, acreage, leasehold and co-operative often presenting challenges for conventional underwriting. Some of the more contemporary property types such as Hotel Strata Ownership (HSO), and Quarter Interest (IQ) seen in the resort communities such as Whistler also present challenges for conventional lenders.

Debt Consolidation
The statistics on credit card debt indicate that Canada is a debt-laden society with many people carrying credit card debt each month. With effective rates of interest on these cards being significantly higher than stated rates, there is an obvious need for these consumers to be able to consolidate this revolving debt in to 1st and 2nd mortgages where the loan can be amortized over a 25 year term and the interest rate reduced, with the attendant, often substantial, cash flow savings.

We have solutions for all the above listed mortgage challenges in the ever changing mortgage market! Contact me to help you and your referrals!

Warm Regards,

Kuljit Singh Janjua, AMP
President's Club Member – 2005
The Mortgage Alliance Company of Canada
7025 Tomken Road, Suite 207
Mississauga, ON L5S 1R6
t: 416-473-SAVE (7283) f: 416-987-5987
e: kuljit.janjua@rogers.com
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