Canadians are losing another non-prime mortgage lender.
Effective March 31, 2012, TD’s specialty lending division, TD Financing Services, is exiting the non-prime mortgage business.
A spokesperson said, “With today’s announcement, we have eliminated any non-prime lending in mortgages.”
The move was made “As part of a regular review of TD’s secured lending risk management strategies.”
“Ultimately, we decided it wasn’t a core part of our focus on building a franchise business,” he said, adding that “The (TDFS) portfolio has not grown to an economically viable size.”
TDFS mortgages comprised just 0.2% of TD’s overall mortgage book, he noted. TD says its TDFS customer base was not in the “tens of thousands,” but rather in the “thousands.”
Abnormal defaults were not an issue in this decision. “Our existing (non-prime) portfolio has performed quite well with minimal losses.”
“To remain competitive, it would have required us to increase (that) risk profile, something we’re not prepared to do.” (The spokesperson suggested that some non-prime competitors have been doing increasingly higher-risk lending and TD has chosen not to follow.)
Brokers were the main source of volume for TDFS. In an email it sent out earlier today, TD said: “TD Canada Trust remains committed to the mortgage broker industry and this announcement does not affect TD Broker Services.”
For existing customers, “renewals will be offered in the normal course of business.”
That said, as with any borrower approaching maturity at a non-prime lender, we’d strongly advise TDFS customers renewing after March 31 to contact a mortgage planner to survey alternative options.
This move has no effect on TDFS’s non-prime auto lending business.
Rob McLister, CMT
I find this particular sentence rather interesting:
“The spokesperson suggested that some non-prime competitors have been doing increasingly higher-risk lending and TD has chosen not to follow.”
TDFS, at least as of a year ago, did some pretty risky deals in areas where even Home Trust wouldn’t go. So for them to say that other self-insured lenders are taking increasingly higher risk when TDFS used to applications that were quite high risk in their own right is puzzling. They just sound like a sore loser.
I personally think the real reasons why they’re exiting the non-prime segment is:
1) They just don’t know how to work in this high risk, high reward segment and they never really managed to take away business from more experienced non-prime lenders (Home Trust, Equitable, credit unions, etc.)
2) With other major banks cutting back on risk, it is no surprise that they want to exit a market segment that’s quite risky heading into a slower economy with higher unemployment, another potential credit crisis, and highly inflated property values in key markets like Vancouver and Toronto.
Thank you for the great article, I visit your blog often for all the latest news.
If I may ask, what is “non prime” lending?
People who shouldn’t qualify for a mortgage, just look south of the border to see what can happen with non prime borrowers.
non prime is the new word instead of sub prime
Interesting timing for TD to de-risk from non-prime loans… TD just sold the “Largest US Dollar Covered Bond Deal Of 2012” earlier that day.
http://www.foxbusiness.com/news/2012/03/05/td-bank-sells-largest-us-dollar-covered-bond-deal-2012/
People who shouldn’t qualify for a mortgage are insured by CMHC.
“Non-prime” are people who shouldn’t qualify for a mortgage and CMHC won’t touch.
;)
so : “the worst of the worst” borrowers ;)
TDFS – I never funded a deal with them, no point. Won’t miss this lender, they were competing with private lenders and MICs, still lots of those around.
…another thoughtless comment comparing US mortgages to Canadian mortgages. Will bears like you ever learn “Concerned Canadian”?
Not only did US lenders not qualify borrowers, but they did not apply reasonable LTVs for the risk. This DOES NOT happen in Canada. That’s why our subprime default rates are measured in basis points and not percentage points like the yahoos down south.
To answer your question, Jungle, without the editorializing, a non-prime loan is where a borrower does not fit the industry’s most preferred category or a weak in one of the 5 C’s of credit. For example, prime lenders prefer people with reliable regular income such as those employed in a big industries; entrepreneurs and contractors do not have reliable income. So, while they may satisfy every other requirement of the five C+ for credit, they represent a risk to the lender and as such are classified as non-prime. There are many things a lender can do to mitigate their risk, such as require a higher beacon score, a larger down payment or a guarantor. Some choose not to deal in this market at all.
Typically a non-prime lender will accept a higher risk for a greater reward if one of the 5 C’s is less than desirable. Once they start to offer loans where there are two or more of the five 5 C’s are below prime, their risk increases exponentially.
Risk adverse lender – like the banks and credit unions – prefer a borrower who meets or exceeds their requirements for all 5 C’s. Non-prime lenders like TDFS will use either lower criteria across the board or where one criteria does not meet their normal criteria, and sometimes both.
Comparing a market at the top where anyone in over their head can exit easily to a market approaching bottom where anyone who bought in the last four years of the bubble now must bring cash to exit is a valid comparison?
Right.
I felt that the past little while they were a hassle to deal with and would find any reason not to do your deal. Even when you sent in deals just like their deal of the week they would reject it.
They also did not allow you to charge brokerage fees or capitalize fees…which is ridiculous for some deals.
I never used TDFS either. . so won’t miss them.
Quoted below, they admit they didn’t have a ton of customers and yet the ones they did have, they didn’t really lose on. . . As with all the Big Banks, I think they just want to focus more on the Cream so they can rake in more profit.
“”TDFS mortgages comprised just 0.2% of TD’s overall mortgage book, he noted. TD says its TDFS customer base was not in the “tens of thousands,” but rather in the “thousands.”
Abnormal defaults were not an issue in this decision. “Our existing (non-prime) portfolio has performed quite well with minimal losses.” “”
I know I’ve heard it before we don’t have sub prime in Canada… That’s why Flaherty is about to tighten up the lending rules yet again. It’s always different here until it isn’t
“People who shouldn’t qualify for a mortgage are insured by CMHC.”
What do you base that assertion on? Entertain us with your version of the facts.
I’m so tired of ignorant people spewing deceit about the mortgage business. You know nothing about CMHC approval standards. In fact, you know less than nothing and the more you talk, the less credibility you have.
Who are the most non-prime lenders at the moment? Does anyone have a sense of who is out there lending to the most risky among us?