We had a nice chat with Pino Decina last week. Pino is Senior Vice President of Mortgage Lending at Home Trust.
We talked about what’s new with alternative lending at Home Trust, and the subprime market in general.
About 12 months ago, Home Trust started trimming back its subprime business outside of Ontario. The company made this decision as real estate markets across the country began to weaken. It stuck it out in Ontario, however, because that’s where Home Trust started, and where it feels most knowledgeable and comfortable about real estate.
“There is danger in alternative lending when you’re not experts in the real estate,” Pino said. “We’re a niche lender and we need to know our real estate.”
Pino said that gauging property values has become tougher in the last year, especially in certain markets out west. “If you lend against 80% of a property’s value, you need to know you’re 80% of the right number,” he said.
He noted that Home’s focus lately has shifted to it’s insured product line-up. “Our ‘A’ products have exploded,” he says.
On the other hand, Pino believes Home Trust will re-enter the western markets with alternative lending at some point. “There will be a time in the near future,” he says. “You can kind of see the dust settling now.”
“I think alternative lending is a very attractive business. The problem becomes the issue of rate. There are a lot more costs involved today (with non-traditional lending) versus one year ago.”
That’s made “B” lending spreads tighten significantly.
Yet, Pino is optimistic: “With a proper spread it will become a lot more attractive once again.”
On the topic of subprime rates, Pino noted that the last few years have been really tough. With the credit crisis, it became a matter of “what can be sold in the marketplace. The rates lenders were charging didn’t cover their costs, so a lot of people exited,” he said.
Pino believes consumer education may be needed as the subprime market re-evolves. “Educating consumers is key,” he says. As we come out of this tight lending environment, “B” customers will not be able to expect “A” rates. People will have to understand how alternative lending products are priced he feels. “Alternative products are a short-term fix.” They’re meant “for 1-2 years, to get people back on their feet.”
After talking with Pino, we got the sense that, in the next year or so, Home Trust may start aggressively reasserting itself in the alternative lending market. That’s the place it made it’s mark, and there will probably be plenty of opportunities once things revert to normal.
“We’re starting to see stabilization in the market," Pino says. “The ‘B’ side is a core business and you’ll start to see us bring back old products.”
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More About Home Trust
Home Trust has been a primary Canadian lender for borrowers who don’t have traditional credit backgrounds. Home Trust and its predecessors began lending in Canada for 32 years ago. It’s now a wholly owned subsidiary of Home Capital Group Inc, traded on the TSX under symbol: HCG.
Good story. We’ll probably see greater demand for B lending in the next 12 mo. The economy is soft, B lenders have disappeared from the market, and credit balances are rising.
People get themselves into situations where they need B products and it would be beneficial for them to have more institutions in the market. You can’t really rely on today’s non-insured lenders to get tough deals done. Each of them has a list of guidelines longer than your leg.
Once commercial paper is no longer considered junk there will be more nonprime mortgage offerings.
Xceed should get back in the game in the next few quarters as well.
Now that Home Trust is not lending in western Canada on non-prime, some private lenders will be much more in demand, particularly those offering decent rates and lender fees. For mortgage brokers seeking to place a private deal on very good private terms, and where they can keep 100% of their brokerage commissions, they should consider approaching Premier Home Mortgage. They have been in business for 24 years, administer a $50 million MIC and have offices in BC and Alberta. They also lend selectively in Manitoba.