‘For many clients that fit this profile… the alt solution is the prime solution’
It’s no secret that alternative lending occupied a specific corner of the Canadian mortgage market for years, representing the option of last resort for borrowers after the Big Six banks said no.
But the dramatic evolution of the housing outlook has seen Canada’s lending giants take a more conservative approach to the market in recent times, and that – coupled with growing affordability challenges for scores of buyers and the rise of non-traditional forms of income and employment – has helped spur a big change in the alt-lending outlook.
Some of Canada’s foremost alt-lending executives took to the stage at last week’s MortgageFest Canada (September 23-24) at Mississauga’s International Centre, arguing that the alternative space has now evolved well beyond bruised credit.
Self-employed borrowers, investors managing multiple properties, entrepreneurs with complex income structures, and Canadians navigating divorce, Canada Revenue Agency debt, or bankruptcy proceedings are increasingly landing in the alternative channel. That’s not because of a damaged credit history, but rather because of how banks define qualifying income.
Grant Armstrong (pictured top left), chief growth officer at WealthONE Bank of Canada, said that the average FICO score of his institution’s alt borrowers sits at 763. He said that figure, in some cases, outperforms credit quality at the Big Six banks, something he said reflects a structural change in how income is assessed.
“Banks have very, very specific ways of looking at income,” he said. “That’s where the alternative lenders can come in and have a different risk appetite – to look at cashflow of the business, bank statement approach, investment properties, holdcos.”
‘No longer a short-term solution’
Joel Cote (pictured, top right), chief operating officer at Haventree Bank, agreed that the traditional profile of the alt borrower now represents a much smaller share of the channel. “It’s no longer, for many, a short-term solution,” he said. “For many clients that fit this profile, the alt solution is the prime solution.”
Prakash Bector (pictured, middle left), vice president of sales and distribution at EQ Bank, stressed that for self-employed clients, income assessment requires understanding the entire business: revenue, overhead, expenses, and how the client structures their operations.
“The more equipped you are upfront, the easier it’s going to be to assess the deal and give you a quick answer,” he said.
And Cote warned that surprises can be what ultimately kills deals. “The more info we know upfront, the better equipped we are to navigate a solution,” he said. For MCAN Financial regional sales director Cam DelliPizzi (pictured, middle right), consistency matters as much as individual file quality. He said brokers who are transparent, responsive, and tell a clear story build the kind of trust that compounds over time.
Looking ahead: What’s in store in the coming years?
Two major forces have the potential to exert a big influence on the alt space in the years ahead, the panel said. The first, unsurprisingly, is artificial intelligence.
Armstrong said 25 years’ worth of technology change could be coming in the next 12 months, with lenders already building and changing processes in days that once took months. Brokers, he said, need to adapt their client communication accordingly.
DelliPizzi, meanwhile, urged brokers to narrow their lender relationships rather than spread across 10 or more. Depth of knowledge, he argued, consistently outperforms breadth.
Equifax Canada’s employment verification data, now being integrated into the credit bureau, could mark another fundamental shift. “The [requirement] for you to have to chase T4s and paystubs and job letters is about to go away,” he said. “That is 30, 60, 90 days away on some files.”
Canadian mortgage debt is continuing to swell, and DelliPizzi said that likely signals continued growth for the alternative space for a simple reason. “There are millions of Canadians,” he said, “that do not fit the prime Big Six credit box on a full-time basis.”
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