Brokers who pooh-poohed concerns that stated-income lending was headed the way of the dodo bird are eating their words, with FirstLine sending its own segment of that business into extinction, effective Feb. 1.
“Hello everyone, FirstLine will no longer accept new applications for stated income programs effective end of today also max loan amount is $1 million,” reads an email penned by one of the lender’s BDMs and sent to brokers Tuesday afternoon. “if you have any deals you need to send please do so by the end of today, FYI Brand-to-Brand is NOT affected.”
Many other FirstLine programs are: New Immigrant programs, non-Immigrant programs, equity programs (flex), Access low-doc programs, CMHC self-employed simplified program, Genworth Alt-A program, Canada Guaranty low-doc programs, Canada Guaranty Lifestyle Advantage and self-employed program.
It’s an extensive list and will likely affect brokers both professionally and personally, considering many themselves rely on BFS lending programs.
The FirstLine move comes on the heels of the release of documents suggesting the Office of the Superintendent of Financial Institutions is increasingly worried about BFS underwriting practices at the country's big banks.
Mortgages often granted to the self-employed and recent immigrants "have some similarities to non-prime loans in the U.S. retail lending market," and banks and other lenders are becoming "increasingly liberal" with mortgages and home-equity credit lines that don't require individuals to prove income, according to a 152-page OSFI document obtained by Bloomberg News.
It’s likely OSFI has already brought that increased scrutiny to bear in auditing the country’s banks, said James Robinson, an agent with The Mortgage Centre Mortgage Watch Inc., pointing to recent pull backs in BFS programs at other lenders.
“It’s a sign that the government is auditing the banks and asking them to come up with something to reduce the risk on this line of business,” he told MortgageBrokerNews.ca “It appears that FirstLine has said that it is out. It may be slow and gradual, but I think we’re seeing a return to the 1980s when there was a greater distinction between A and B lending.”
That’s likely to accrue to the benefit of the few lenders still prepared to lend stated-income, albeit with a significant premium attached.The appetite for conventional mortgages among small lenders is also expected to take a hit given their access to CMHC portfolio insurance is itself expected to diminish as the Crown corp. approaches the end of its $600b fund.
Michael Marini was one of the first brokers to sound the alarm about the disappearing BFS high-ratio lending.
“The change means that many of us will be challenged to get a mortgage as well,” said the agent with Dominion Lending Centres Funds in Toronto last December.
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