The Monoline Challenge

Monoline-Lenders“Support monoline lenders” is the mantra of many in the mortgage broker business. Unfortunately, that’s getting harder to do.

Many (not all) monolines are now posting rates that are 15-20+ basis points higher than what bank branches are quoting. And if you add credit unions to the mix, several monolines are completely out to lunch on pricing.

But base rates aren’t the only problem. We’re seeing many smaller lenders impose one or more of the following:

  • Rate premiums or insurance premiums on 75-80% loan-to-values
  • Rate premiums, insurance premiums or restrictions on rental properties
  • Rate premiums, insurance premiums or restrictions on condos
  • Rate premiums or restrictions on pre-approvals (or they’ve halted them altogether).

And non-bank lenders, with the exception of MCAP, still can’t get funding for HELOCs—a product sought by 36% of mortgage consumers.1

Yet, despite all these hurdles, some broker-only lenders still expect funding commitments upwards of $10-20+ million for brokers to qualify for their top “status” pricing. That would be like Sony selling only high-priced 20-inch LCDs and expecting TV retailers to meet normal sales targets.

Many of the restrictions and the mediocre pricing stem from investors (funders) who buy or securitize the mortgages that monolines originate. Those funders are increasingly risk-averse and regulatory-constrained.

One can feel for lenders who must rely on funding sources that barely keep them competitive. What a luxury to be a well-capitalized, self-sufficient, deposit-taking lender.

1 Source: CAAMP

Sidebar:  Banks have been imposing a slew of restrictions themselves in recent quarters. But they still maintain far greater pricing power and product breadth than non-bank lenders.

Rob McLister, CMT

  1. Being a non-bank puts you between a rock and a hard place. You don’t have enough capital or economies to be a bank and you can’t flourish by pushing the same securitized mortgages as everyone else. Let’s see how things pan out for Street Capital if it gets a bank license. Things didn’t work out so well for Moncana.

  2. HI Rob, I agree with your article. I hate to say this it almost feels like a conspiracy! I met with one of the monoline BDO and she outlined to me the new changes they were implementing and I had to laugh. My reaction was I guess your not looking for any business! I have 22 years of experience and I have seen lots of changes. What is currently happening is disconcerting to say the least! It will come back but its going to be a cold winter!!

  3. Rob’s last comment says it all. We want the monolines to thrive but changes in the federal government’s approach to CMHC / NHA / CMB securitization combined with a changing attitude from the investors who fund the monolines makes it harder and harder for non-balance sheet lenders to compete.
    I know this for a fact: all of them want to succeed, to gain market share from the big banks and contribute to the success of mortgage brokers who are their distribution system but circumstances are just lining up against them. Here’s hoping it is all temporary.

  4. Monolines are currently priced out of the market but this is temporary. They are focusing on profitability to end the year, and will launch newer/better pricing soon in my opinion. It obviously can’t last forever to be 20-30 higher.
    Well, nothing is certain anymore, right!

  5. The Reality here is that there is only so much money “out there”. The monolines have to approach their investors (banks) at the beginning of the year to get commitments for the year for volummes. The truth is that sometimes a monoline will lend all their committed $$’s in a short period of time and the funding source will dry up… As you know – at this time of the year.. .banks usually “turn off the taps” after hitting their numbers.. so they aren’t likely to provide any more capital at this time of the year…
    The good news is the bank year-end is up in a month, which means that everyone who is running out of funds to lend (hense the higher rates) will renew these commitments and replenish thier supply as the banks open their wallets once again.

  6. If there is only so much money out there, why is Street Capital trying to get a bank license? According to them, it’s a way to fund more mortgages.

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