The number of mortgage brokers and non-bank lenders operating outside of Bank of Canada’s reach is increasing, including the likes of cash-for-jewelery dealer Harold Gerstel of Toronto.
Gerstel, 57, owns a cash-for-jewelery shop in the Lawrence Manor neighbourhood and has found arranging mortgages as another way to earn dollars.
In his daytime commercial ads, he promises to seal a mortgage in five business days for low-income borrowers. He adds that these applications will require little documentation and a record of late payments.
The venture to mortgage broking appears to be fruitful for Gerstel, as he has sourced hundreds of home loans since 2011 with lightly regulated non-bank lenders.
“We arrange mortgages for the average Joe,” Gerstel said. “The banks are very strict today. A lot of these people go to the bank and they get refused. So they turn to the private market.”
This new industry of mortgage brokers and non-bank lenders is expanding fast, but the Bank of Canada (BOC) warns homebuyers who deal with less regulated lenders may come with a hefty risk.
“A sizable proportion of new, uninsured mortgages are being issued to riskier borrowers,” the BOC report said. “Although less-regulated lenders account for only a small share of overall lending in Canada, stress experienced by one or several of these entities could have adverse financial and economic spillover effects.”
Of all of the mortgages writing in Canada, about 5% come from unregulated lenders. Eighty-percent of mortgages are created by federally regulated lenders, including the country’s five biggest banks.
“A lot of this business falls out of the regulated space and into the shadow banking or unregulated space,” said Martin Reid, president of the federally regulated non-bank lender Home Capital Group Inc. “It may become a bigger systemic risk.”
Despite the authorities warning against the likes of him, Gerstel is firm to pursue his second career.
“I’m always going to do a little bit of jewelry but I’d rather do mortgages because there’s a lot of room for growth there,” he said. “Every day there’s thousands of thousands of people that need mortgages.”
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