01/27/2020
What do you say to the somewhat-informed, and/or article “skimmer,” and/or anonymous internet commenter, who offers the generalization, “If you can’t get financing from a Big-5 bank, you shouldn’t get financing, otherwise these alternative lenders are simply allowing non-qualified buyers into the market, and thus artificially propping up the real estate market, and heading us towards a U.S.-style real estate collapse, circa 2008 with their shoddy lending practices?
I would re-word this question as “What do you say to the skeptic who offers the typical adage “If you can’t get financing from a Big-5, you shouldn’t be getting financing at all. Otherwise These alternative lenders are helping to artificially prop up this crazy real estate market. Aren’t we setting ourselves up similar to the US before the 2008 housing collapse?”
I would say that the fear of a housing collapse is a completely legitimate fear, but the chances of this causing a housing collapse are very slim and any sensationalist media is somewhat misinformed. In our day to day operations, we see perfectly stable clients turned down with the Big-5 because they are tightening their reins. These are not credit-seeking, debt-reliant clients who are irresponsible with money; they are typically clients that can easily afford to service the mortgage but have either non-traditional forms of income (self-employment, commission, overtime hours, international income, etc) or a very reasonable explanation for bruised credit. These clients are put into reasonably priced alternative mortgages as a temporary solution until their situation can be improved. If the risk is too great, however, they don’t even qualify for these loans and instead need to turn to higher risk-tolerant lending such as private funds, MICs (Mortgage Investment Corporations), or smaller alternative lending institutions. It’s worth noting that these types of lending solutions are almost always used to refinance out of bad situations and very, very rarely used as a means of purchasing (and thus falsely propping up the market).
In other words, there are very healthy reasons for a client to seek alternative financing and with the right advisor, it’s a quick and temporary fix. Alternative financing should almost never be used as a means of acquiring real estate if there is no intention of ever qualifying as an “A” client.
