Borrowers with repayment issues now have a new mortgage option thanks to Home Trust’s “Credit Assist” product.
Credit Assist is designed for those who don’t meet insurer guidelines and have “bruised credit.” It’s meant to be a 1-year solution to help people get back on their feet. After one year, the idea is for the customer to renew into a prime mortgage at more favourable terms.
Home Trust officially requires a 520 minimum credit score for approval, but it will consider lower on a “case by case” basis. The key is that borrowers must have verifiable income and a 44% maximum total debt service (TDS) ratio.
Credit Assist lets homeowners borrow up to 85% loan-to-value without needing default insurance. (Normally, LTVs above 80% require insurance from CMHC, Genworth, or Canada Guaranty. The exceptions are called “uninsured mortgages” and they’re offered at higher rates by non-prime lenders.)
Pino Decina SVP of Mortgage Lending says, “Customers can either refinance their existing debt through a Credit Assist Bundle or place a Credit Assist Equity Line Visa behind an institutional first mortgage.” The product is also available for purchases.
Mortgage options for non-prime customers have been limited since the onset of the credit crisis in 2007. Lenders have slowly waded back into this space but choices are still skimpy compared to 3-4 years ago.
In terms of direct competition, Decina says little exists. “HTC has prided itself on providing mortgage solutions for the underserved sectors of the Canadian market and we feel we’ve done it again. We believe we have no institutional competitors for this product.”
Credit Assist will be fully rolled out in Ontario by Friday. It will make its way to other provinces sometime after the initial launch.
For brokers who may be wondering, this product is not related to Genworth’s Credit Assist program that was discontinued in April 2009.
Here’s a summary of the key points:
- Max. LTV: 85%
- Term: 1 year term
- Fee: 1.50% (purchases) to 1.75% (refinances)
- Minimum Beacon: 520 (lower evaluated case by case)
- Registered As: A 1st and 2nd mortgage (The 2nd is fully open)
- Income Type: Verifiable only
- Max. Amortization: 30 years
- Property Type: Owner occupied and owner occupied rentals
- Private sales: Not allowed
- Fee to Renew: $400
- Lending Area: Marketable urban and suburban properties in Ontario
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If you’re a broker wanting more information, Home Trust is hosting a webinar on Wed. Nov. 10 at 2:00-2:30pm EST. Brokers receive a special promotion for attending + .25 CE Credits. Here is the link to register: Credit Assist Webinar Registration
I don’t understand. I thought all mortgages above 80% LTV HAD to be insured. What am I missing?
From the CMHC website: “Typically, lenders require mortgage loan insurance for loans made to anyone that wishes to purchase a home with less than 20% of the purchase price. The Canadian Bank Act prohibits most federally regulated lending institutions from providing mortgages without mortgage loan insurance for amounts that exceed 80% of the value of the home or purchases with less than 20% down payment.”
This language seems to imply there are exceptions to the 80% rule. Is that the case? Who are the exceptions?
The 2nd is listed as unsecured…
Thanks Tim. I guess if the 2nd mortgage is unsecured, its not really a mortgage anymore but an unsecured personal loan.
Not all lenders are governed by the Bank Act. Those that are not can sell uninsured mortgages above 80% LTV. The lender usually takes all the risk and holds the mortgage themselves.
Pretty sure that Home Capital is regulated by OSFI, and OSFI enforces the Bank Act. Although I do agree with your points.
Hi JP. A company can open a diferent division within their company and not have to follow the bank act to get around this. Same thing that TD did with TD Financial services (formally VFC) and that program does not have tpo follow the bank act rules as the same with finance companies like Citi, Wells Fargo HSBC.
I will assume that is what Home Trust has done here. I would almost guarantee it is listed as secured on the property. I would have a problem believeing that Home Trust is giving out money unsecured on low beacon clients.
home trust mtge is registered to 80% as “Home trust” (yes to comply with the act) and the extra 5% to their finance company arm, that does second mortgages. ( finance companies have different rules than banks and trust companies – ie more restrictive and must have more security in total assets to what they lend out on in loans, although they could lend more than a bank on an individual asset) For simplicity Home Trust mtge is registered as one charge (with one interest rate and one payment amount) but internally the credit risk is split in two with the two companies, with EACH having a registered claim on the property.
Registration and liability/security are two different concepts ( note Td’s new “registration” of their collateral mortgage to 125% of value )
Great explanation Dr. Mtg. Thanks
Dr Mortgage and Banker99, thanks for your helpful information.
I poked around a bit. The name of Home’s finance arm, the one doing the extra 5%, is Regency Finance Corp.
Here is a snippet: “The Company has an agreement with a Trustee, operating as Regency Finance Corp. (Regency), a
Canadian company based in Toronto. Home Trust is Regency’s exclusive agent in offering second mortgage loans to homebuyers. This product provides financing to borrowers who require additional purchase financing or who wish to refinance their residential property at greater than 80% of the current market value. Home Trust earns administration and servicing fee revenue, which is reported under fee income in the mortgage and deposit segment of the business. These mortgage loans are then securitized into pools. Home Trust purchases these pools and collects interest income…In the fourth quarter of 2008, the Company made a strategic decision to cease lending under this program due to the economic downturn and customers who would have qualified under this program were introduced to the Accelerator Program. The Company recently resumed marketing this product in anticipation of improving housing and economic markets.”
What I find really interesting in all this is that the max 80% LTV rule is really easy to get around. TD Financial Services does it too? Why is everyone not doing it?
“Why is everyone not doing it?”
Because you can’t sell them off afterwards, and you need to carry more cash on the books to make them legal.
This only works when you are able to charge consumers +10% rate for that extra 5% cash, I doubt there is much profit in it otherwise…
Exactly.