Banks vs Non-Bank Lenders
Wells Fargo, GE Money, XCEED (subprime), GMAC, Money Connect Home Lenders, N-Brook and others all have one thing in common. None are offering mortgages anymore in Canada. These lenders backing out of the market has caused a number of their clients to have few options when their mortgages come up for renewal. And it is only now that many of those loans are up for renewal.
Something else each of these lenders has in common? Well, none of them are banks, and none of them followed traditional underwriting guidelines which means their book of business was not easily transferred to another institution when they stopped lending.
This being said; are all non-bank lenders risky? Simply put — No is the answer. Sub-Prime or non-traditional lenders do not offer the stability of banks and their mortgages are not congruent with those offered by banks.
However, as we saw this past week as Canadian Tire pulled out of the Canadian mortgage business we saw a good example of how non-bank mortgages can be bought up by other banks or financial insitutions with little disruption to the borrowers. In this week’s example, National Bank has bought the entire portfolio of Canadian Tire mortgages which will be transitioned early next year. No risk to the borrowers who held the mortgages.
National Bank was quoted in Canadian Tire’s press release as follows:
“National Bank of Canada is delighted to acquire such a high quality portfolio of mortgage accounts,” declared Réjean Lévesque, Executive Vice President, Personal and Commercial Banking, National Bank Financial Group. “We are looking forward to providing these new clients access to the best advice and the solutions most-suited to meet their financial needs and expectations. This latest acquisition is a good example of our strategy to expand in select markets in Canada,” said Mr. Lévesque.
With very little exception, all the non-bank lenders still in Canada follow underwriting guidelines that are very similar to those of the banks, and most insure their portfolios with CMHC or one of Canada’s other insurers. What this means is that their entire portfolio could easily be picked up by another financial institution or bank should they make the decision to stop lending as was demonstrated this week with Canadian Tire and National Bank.
If you have any questions or concerns about which mortgage lender to place your mortgage with, or have questions about your existing mortgage, please do not hesitate to contact a qualified mortgage professional.
why are there few non banks and investment houses especially in rural areas?
Hi Christine,
That is an interesting question. Most of the non bank lenders don’t have branches even in the major centres as they deal exclusively through mortgage brokers. Most smaller communities have local mortgage brokers, but you can deal with any broker in your province as location doesn’t matter much anymore. As far as the lack of investment houses in rural areas I don’t really have the answer to that but I suspect it is simply due to lower populations — the bigger offices tend to gravitate to areas where there are more people they can service.
Let me know if that helps clarify things a bit.
Josh