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Radius’s New ARM + Monoline Q&A

To some brokers, Radius Financial is perceived as just another monoline lender selling plain-Jane insured mortgages. Until now, its shortage of competitive products had a lot to do with that. But Radius took a big step on Monday by adding a range of new mortgages.

Headlining its new lineup is a red-hot prime — 0.70% adjustable rate mortgage (ARM). It’s a high-ratio full-frills full-comp product with 20/20 prepayment options and a standard (i.e., fair) penalty. Radius also added a new conventional mortgage line with better, albeit not spectacular, pricing.

These moves will only help Radius, whose submission volumes rocketed 300% last year versus 2011 — albeit from a relatively small base. That growth ranked it second in the industry among the top 20 lenders. (It opened up to all brokers in 2011. Previously, it was a proprietary lender for Mortgage Architects.)

To handle that growth, Alex Haditaghi, Chairman and Founder of Pacific Mortgage Group (Radius’s parent) says the firm has hired 18 staff in the last 12 months. That includes top underwriters lured from two of the four biggest broker lenders.

While researching this story we had an informative exchange with CEO Ron Swift about Radius’s funding and strategy. His feedback also reflected what other monolines face these days when putting out competitive products.

First let’s acknowledge the obvious question to brokers: Why would a mortgage originator divert his or her precious volume to Radius Financial? Here are a few possible reasons:

  • It finally has aggressive 5-year rates to go with its solid broker discount points and broker loyalty programs.
  • Its guidelines have flexibility. For example: A $1.2-million maximum loan amount with no sliding scale; rental financing in a company name (holding or operating company), favourable rental income treatment (80% offset plus a net rents calculation for other rental income); allowance of non-taxable income, etc.
  • Radius is a broker-only lender so it doesn’t have a retail channel that competes with brokers. (Some brokers care about that. Others — this author included — not so much.)

So, one of the first things we were curious about was why it took Radius so long to get a decent variable-rate product. We asked Ron Swift:

“Like the other monolines, we rely on various funders to buy our mortgages,” he said. “Structuring funding arrangements is a very complicated process and very time consuming. Having said that, we have been successful in signing up new funders this year and are now in a position to offer a more competitive variable product.”

But like so many other non-bank lenders, Radius has to charge a premium (15 bps) for its conventional ARM. We asked Swift about that as well:

“For our rate promotion we offer a lower rate for high-ratio insured loans,” he noted. “Insured mortgages are a lower risk to the lender and since the borrower pays for the insurance we can offer the lower rate. For conventional mortgages, our risk is higher, so either we charge a higher rate to offset the risk or we need to self-insure through one of the insurers’ bulk insurance programs, and pass the cost on to the borrower.”

Another common limitation at monoline lenders is the minimum amortization. Radius’s minimum is 20 years. We asked why it imposes that requirement:

“It is because of the pooling requirements we have when we securitize our mortgages for mortgage-backed securities and the Canada Mortgage Bond,” Swift said. “The securitizations have certain rules all lenders must follow. One of the rules is based on amortizations. Loans with amortizations less than 15 years (including the effect of weekly and bi-weekly payments) must be pooled into separate pools from loans with amortizations 15 years or greater. The pools with 15 years or greater have better demand than those that are less than 15 years, and therefore are priced to us better, and are therefore more profitable for us.”

Side note: As you might have gathered from the above, Ron Swift doesn’t do much PR spin when answering questions. He’s one of few guys in this business who I can say that about, and he’s shared a lot of “inside baseball” with our readers over the years. As a broker, knowing your lender partner is managed by someone with a transparent mindset is perhaps another reason to give Radius a look.

Rob McLister, CMT