Canada’s population of subprime lenders has thinned out considerably in the last 12 months. The U.S. housing crisis has simply made it too expensive for most of them to raise capital.
One big exception is Wells Fargo Financial Corporation Canada. It’s one of the largest remaining non-traditional mortgage lenders in the country. We recently spoke with its President, Rick Valade, about how his company is presently navigating Canada’s subprime waters. Below is that discussion.
CMT: Rick, in general, how has the aversion to subprime changed Wells’ Canadian mortgage underwriting policies in the last year? For example, have equity or credit score requirements been increased, etc.?
Rick: Wells Fargo Financial Corporation Canada hasn’t changed its underwriting policies or practices. We’ve stayed consistent in the last 24 to 36 months while new competition entered the market with more aggressive risk and pricing policies. Because we didn’t change, we’ve stayed in business while some of our competitors have not. We were in front of the curve and remained disciplined in our underwriting, so we haven’t had to respond to the market downturn by tightening underwriting standards like some other lenders.
CMT: Now that multiple subprime lenders have exited the Canadian market, is Wells’ planning to become more or less aggressive in its Canadian subprime lending?
Rick: We will continue to aggressively seek business in the Canadian subprime lending market when it meets the appropriate risk and return criteria we have set. And, of course, customers can expect that we will continue to offer competitive pricing that is based on credit risk.
Because we are a portfolio lender and not subject to swings in the securitization market, our pricing model has not changed. In terms of the broker channel, it is important for mortgage brokers to understand that there is still a viable subprime market for them to serve, but brokers need to be educated about how some of the rules in serving that market have changed.
CMT: Given the credit tightening, what kind of problems do you expect Canadians will face problems when trying to renew their existing subprime mortgages (from lenders like Accredited, Xceed, etc.)?
Rick: There’s no question this is becoming a bigger problem for Canadian homeowners. We are starting to see instances where customers have a perfect payment history on their mortgage, but because of market securitization issues customers are being forced to sell their homes because the company that holds their mortgage has gone out of business or is not able to renew the mortgage when it is up for renewal.
The good news is Wells Fargo Financial Corporation Canada is in a position to help out creditworthy customers who find themselves in this position. We’re here, we are in business for the long haul and we offer quality options for customers seeking a sound mortgage lender.
CMT: What makes Wells unique in the Canadian subprime market (in terms of tangible benefits to borrowers)?
Rick: In a word, I think it’s quality. We will only make a loan if it offers a demonstrable benefit to the consumer, and we only makes loans we are confident the customer has the ability to repay. We maintained our credit discipline during the years of excess risk taking in our industry, and, therefore, we have not been impacted by many of the industry issues. We are fully committed to responsibly lending and servicing in all communities, and, as a result, we have become among the most successful lenders in the industry at helping our customers sustain home ownership in these difficult economic conditions.
CMT: Thank you Rick.
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