Our brokerage is currently receiving an influx of calls related to COVID-19 issues. We understand that many Canadians are under tremendous financial pressure and have questions on government-endorsed relief efforts. In particular, many people have been calling with questions on the Mortgage Payment Deferral program endorsed by the Government of Canada. Due to the reduction in the Bank of Canada’s overnight lending rates, many banks are offering extremely low-interest rates. For those who can qualify, it is the best time in over a decade to get a mortgage with a bank or other A-Lender. Since the situation is changing so rapidly and each lender is approaching deferrals differently, we’ve been recommending that people contact their lender directly. For the most trust-worthy and up-to-date information, it’s a good idea first to read the latest government news regarding the outbreak at https://www.canada.ca/en/public-health/services/diseases/coronavirus-disease-covid-19.html and https://www.cmhc-schl.gc.ca/en/media-newsroom.
Alternative Lenders and Mortgage Deferrals
For certain people with private lender mortgages, we understand that the same government-enforced remedies may not apply with their mortgages. The lack of strict government regulation has traditionally been one advantage of private mortgages. Banks, trust companies, and credit unions generally turn away many people who can’t meet the government’s requirements. The typical customer for a private lender is a person who cannot qualify at banks, trust companies, or credit unions. Unfortunately, this also means that there is less government oversight when it comes to mortgage payments and deferrals. While many private mortgage lenders are willing to defer payments, some are not as they are not required to. Most major private lending companies have stated in advance that they are willing to work with people impacted by COVID-19. However, some smaller private lenders will not agree to defer payments or make other concessions. Mortgage Broker Store is both a licensed mortgage brokerage and a private mortgage lender that is willing to be very flexible during the current crisis.
Private Mortgage Solutions During the COVID-19 Crisis
For mortgages held by Mortgage Broker Store, our company is allowing payment deferrals and other more creative arrangements. We, unfortunately, we cannot promise the same for mortgages where we’ve acted as a broker and not as a lender. We’ve asked our group of lenders to be as lenient as possible during these difficult times, but ultimately it is their judgement that decides what happens with their investment. In some cases, we’ve seen high-risk lenders deny a mortgage just before the final papers are signed. In other cases, lenders have asked us to personally take over their mortgages so they can quickly recoup their investment and address their other financial obligations. We have, in a few cases so far, changed a mortgage from one lender to another. The typical method of recouping money after a borrower’s failure to make payments is called a power of sale. A power of sale typically involves a court granting permission for the lender to order a sheriff’s eviction. Only a sheriff may perform a legal eviction in Ontario. As both the courts and sheriff offices are closed, power of sale and eviction actions cannot be processed.
Changes in Private Mortgage Approvals Due to COVID-19
While most private lenders are continuing to operate, they are gradually making changes to their mortgage approval criteria. The most impactful change in standards is likely the reduced maximum Loan-to-Value (LTV) ratios that lenders will accept. Previously some private lenders would lend up to 85% of the appraised value of a property (85% LTV). These lenders are now either no longer providing mortgages or only lending up to 75% of the value of a property. This is due to an anticipated 10% drop in real estate values across Canada. The maximum 75% applies only to cities with populations over 100,000, borrowers in smaller cities and towns will only be able to borrow 55% to 70% of the value of their property. For the most part, the interest rates and fee structures for these lenders are being kept the same. Appraisals are also made more difficult due to the COVID-19 crisis. Most appraisal companies are either just doing drive-by appraisals or require homeowners to take cellphone videos of their property for their appraisal report. The cost for these appraisals has also been increased as much as three times with longer processing time. As most lenders are working out of home offices, they are taking more time in general to process mortgage requests.