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Australia’s current run has been going from 1990 when they experienced a recession in the early part of the year and has continued to this day. That in itself is a feat that demands a little closer inspection and then some thorough introspection to see what they have done right and if any of it can work in your situation.

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Through insurance requirements, a stress-test, and other tightening measures have already put a squeeze on borrowers. The OSFI (Office of the Superintendent of Financial Institutions) has just completed its review of its latest iteration of changes to the Guideline B-20 − Residential Mortgage Underwriting Practices on October 17th. This guideline underwrites rules and requirements for all federally regulated lenders.

The new-stress test alone is often touted to have the capacity to reduce qualifying applicants by up to 10%. A claim we will only be able to verify once it comes into effect next January. One thing that is for sure is that more and more potential borrowers are considering, and turning to, alternative options as a result of being disqualified by traditional lenders.

Alternative lenders | What are the options?

Since lending institutions are either regulated by the OSFI or not, your options basically fall into two broad categories: Federally regulated institutions such as banks or non-regulated lenders, often referred to as “private lenders”.

As you can imagine, because they are not as tightly regulated by federal institutions, they can vary dramatically in the products they offer as well as the investments they are willing to make, qualifying criteria for new borrowers, and the terms they offer.

Syndicate mortgages, credit unions, and private lenders such as mortgage investment corporations are just some of the types of lenders available in this broad spectrum. Their tangible differences in the way they operate and how they fund their loans or investments is where they differ most.

For example, MIC’s choose whether a loan and borrower satisfy their requirements and profit goals and offer investment opportunities to others in their portfolio as a single package that is the same for all investors who they pay out to based on their shares.

A mortgage syndicate actually provides investors with a list of available opportunities that they can then pick and choose from to invest indirectly.

As of now, private mortgages make up 10% of the total number of mortgages in Canada. Though the fact that they often give out much smaller loans over shorter terms mean that they only make up 6% of the actual total value of residential mortgages.

They are not only attractive because of tightening lending criteria at traditional financial institutions. They are also usually quicker, have shorter terms, and sometimes rely more on the potential returns of the investment than the credit history of the applicant.

However, their growth is stymied by the fact that their interest rates are extremely high at 10% compared to the 3-4% at banks. For this reason and because they are associated with more consumer risk, they are unlikely to have a massive growth spurt anytime soon.

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