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Mortgage Solutions for the every day Canadian mortgage consumer. Are you thinking about becoming a mortgage broker learn first hand what you should look for in a brokerage and what you need to be successful.
Len 00:02
Welcome. My name is Len lane, and I am the founder and president of Brokers for Life Inc, and we are Dominion Lending Centers in Western Canada. The topic of our podcast will be about what we consider to be real-life mortgage solutions. Welcome back today. We're in session three of talking about the different types of lenders in the market. We've talked to some of our mortgage lenders on the A side, as we call it. We've also talked about CHIP-type mortgages. They're called reverse in some of the different parts of the industry. CHIP is probably the most famous, but Bloom was our last guest. So today, my guest today is Mike Ayoub, a long-time employee with one of our lenders called Home Trust, quite large in the B side of the market. And so we're going to kind of get rolling today and welcome Mike Ayoub to the studio.
Mike 00:57
I want to thank you so much for allowing us to come today. Lane as I mean, home trust has been a part of the alternative side for over 30 years now. A little background on myself and the company, of course. I mean, Home Trust started back in 1989 back in Toronto. I mean, we're across Canada now myself, I'm going into my 16th year with Home Trust started in Halifax, took care of the Atlanta Canada division for about 14 years, and been in Alberta now for another two, stil,l actually taking care of Atlanta Canada by a weird coincidence. But I think it's one of those situations where, you know, I think the alternative side has always gotten that interesting, I don't want to say stigma, but it's always kind of got that part of it that, you know, people think it only belongs to a certain client, where we know that that's different. You know, you yourself, has even mentioned it this year. It's changed a lot, couple of different things. I mean, the market has definitely changed. That's the biggest part of it, with Home Trust, you know, with us dipping our toes a little bit into the insured business there for a little while. Of course, with the sale going through to Smith Financial last year, we went back to focusing basically on our bread and butter. As you know, when you do submit a deal to Home Trust, it is Home Trust classic. It's our classic business, which is alternative side. So I think that's where we find ourselves. I mean, we have an interesting niche in the market, and it's been extremely successful for us, for, you know, three decades now. So,
Len 02:24
Yeah, it's, it's hard to mess with what's been working right? We've seen it more times over the last 17 years of doing this, actually 18 years as of last week, wonders more, I guess, if you want to call it that, into trying to do other things when, when they have a base like, what, what Home Trust had in on the B side, soft B side, as I call it that. You know, it's hard to try and make yourself something else in the market when the market already loved what you were doing on the other side, right? So, so Home Trust around a long time, a lot longer than I realized when I did some research. So maybe a little background on how they how they ended up in the B side. Do you, do you know that part?
Mike 03:09
Yeah, of course. I mean Jerry Soloway, which is our, you know, our founder, you know, started a law firm, got into home loan and savings back in 1989. Started out when he realized there was, there was a need in the market back in the late 80s, and then started a small, little office in Toronto, which is now, you know, obviously grown to branches all across Canada. We're big in the industry, and I'd say probably the premier alternative lender, and we have for over 30 years. The other part of the industry is that the background has always become… We've always basically focused on finding those clients, homes, is the most important thing. And I think with us, we've always decided that that was our opportunity, because there was a form of the industry or part of the market that just wasn't being fulfilled when it comes to, you know, the quote, unquote mainstream financial institutions, and I think that's where alternative lending has come into place. Over the years, it's changed a lot more. It's morphed into a lot more. So, as we've grown, we now we have branches in Halifax, Montreal, Toronto, you know, Calgary and Vancouver, because we want to localize all our underwriting to those clients. And when I say our clients, I mean our clients, our mortgage brokers. But we want to make sure that the understanding of the of what's going on in the industry, and how much you know we become a niche type of lender. Because when you do alternate business, you are a niche lender. And that's what we have been from the beginning. I think that's the type of lender Home Trust has always been. We want to, you know, you can't fit the old circle on the old square peg all the time. And I think it's one of those things where we've come to the decision that, you know, there's a part of the market that needs to be fulfilled when it comes to unique products. For example, I'd say, I. You know, if I had to pick the typical Home Trust client profile, if you don't mind me talking a little bit about it, Len, I think that's one of the things we want to look at. You know, our typical client profile is a client that you know, quote, unquote, just doesn't fit into the major bank situation. So, a typical client profile is somebody who you know has a business for self-industry or an incorporation, or has any type of income or situation that just doesn't fit into the regular A guidelines, as we want to put it. I don't want to put an A word on it, because they're not technically B customers, but that's what we're looking at. We're looking at those clients that just don't fit into that A world when it comes to stated income, or self-declared income. So they may have a great cash flow, they may have great income coming in from their business or any type of commission work that they do, but they just don't have the quote, unquote, two year history, or, you know, they don't declare enough to CRA they don't declare enough income on their taxes to meet that two year history that the A lenders want, right? And I think that's where we slide in.
Len 06:05
And that’s a big part of the market that I think that we've seen change over the last two years, for sure, especially with people with heavy debt load, that somehow it seems to we're seeing files where, you know, credit card debts and things like that are in that almost most of them are in the six-figure range, right? So when, when you have to debt service that and pay it out, sometimes it doesn't work with the bank. It doesn't or the bank doesn't want to do that, right? So it's, it's become an option, I think for a lot of people, whether it's short term or not, you know, is to be seen, but to, you know, to get into a higher debt servicing ratio, even though they can afford it, because once you've paid off $100,000 worth of debt that, you know, it makes a big difference in the stress in your life, right? So,
Mike 06:55
That’s a great lead in because I think Len, we've noticed, you know, obviously, with the rising interest rates in the last two years, which, you know, I think people are so tired about hearing about I think that's why our client profile has changed so much from the alternate side you would see 10 years ago to somebody in the last two years, right? We have a lot of higher beacon score people that, you know, typically would have fit into that A world, but just don't fit because of their debt ratio, where a typical A lender can only go to 44% of the client's debt situation, where, here on the alternative side, we can go to 60% so we have a lot of those clients that are falling into that gap because they just don't fit under the 44%, had nothing to do with their credit and had nothing to do with their situation or their income, they just don't fit into that debt ratio. So that's where we've seen a higher number of higher beacon score clients, you know, fall into that, into that alternative side, whether it's just short term for one or two years, just until interest rates get themselves back in or we've gotten them into a better position to move on to an A situation as well.
Len 08:00
And that's that client score that when you talk about the beacon score, it's like, yeah, we're seeing 700+, which, you know, at one time was, was golden. Now it's kind of average. Now these days like this, if you want to get an A lender, but, you know, but incomes are there. They just have themselves in such a position after the pandemic and after all of the rising interest rates that went up so quickly.
Mike 08:25
Oh, of course. I mean, I think that's one of the biggest things that we're seeing more and more now, especially when you're focusing on self-employed, Incorporated and commission income clients, which is a huge bulk percentage of our business. The reason we do have to do that is that because that client could have a high beacon score, great income in all that situation, but the A lenders have decided to to pass on that because of the outstanding CRA debt. So we, we would fill that niche for them, whether it's just a short-term situation, typically, like yourself or you brought that deal to me, I would say, you know, Len, let's put them into a one-year term, pay out the CRA date, and then you take them back the next year into one of our, you know, our, one of our partners in the A world to focus on something like that as well. Because, again, there's another customer right there who have excellent credit, excellent income, but just has fallen into a CRA situation, which we can help out with, even though it's only short term.
Len 09:21
And, you know, it's funny, we've been talking with a trustee on one of our episodes, and it's like people didn't realize that CRA debt, the interest rate on it, went up with the Bank of Canada, right? You're paying 9% on CRA. So it's you can find a way to get rid of them faster. It's that that's a good alternative. So, you know, you talked about self-employed. What other, what other types of programs do you guys have a lot of success with?
Mike 09:48 (some background kitchen noises in this section?)
I think our biggest, and we've seen it in recent months, especially when you're dealing in the Alberta market. You know, everybody's heard the news. Alberta is the hottest market in Canada right now. And I think with the huge amount of migration that's coming to Alberta, the rental market has exploded. I mean, you have definitely have seen it. I think it's one of those situations where we've decided the rental market has another niche for us as well. I think with the rental market, we allow up to 10 properties, but on top of all that, we will go to 80% loan to value on those types of properties, on refinances and purchases. But those questions about those clients that are self-employed at Commission, we allow them to do the stated income situation, where they allow us just to show 12 months of cash flow and allow them to buy, you know, those rentals, as well as give you higher percentages of rental offset. So, if a client's got a current rental property outside of where they're looking to buy, now it's a non-subject will allow you use 95% rental offset where some of the other institutions may not allow you to do so much. And then, of course, the subject rental will allow you to do 80% add-back. So it's a lot more flexibility, plus, I mean what we talked about earlier with those clients, with those situations, with their debt ratio, we’ll allow those clients that are purchasing rentals to use the 60% debt ratio, percentage that they would not normally get, let's say one of our premier lenders on the A side, right? So, yeah, yeah,
Len 11:16
The offsets are pretty amazing when you hit into that 80 and 95% kind of numbers that that doesn't exist on any of the worksheets, regardless of how hard we try to squeeze the numbers right? So, yeah, yeah. So you know what, what are some of your other unique products?
Mike 11:33
I think, I think what we've seen more and more, because since we were just touching on rentals, I know, I know you have definitely seen a lot more with clients, more and more getting more understanding what the rental market looks like when it comes to investment properties. Purchasing in a Holdco has become a huge, huge part of our business, especially in the last 48 to 72 months. So, we allow clients to go to 80% again on those Holdco, everything we just talked about for personal rentals. We've done the exact same thing for Holdco, but we also allow the clients to purchase them in operating companies, which is another very unique product to home trust. So you know, you get the same guidelines. You're still allowed to use the 12 months of cash flow, self-declared income, 60% debt ratio to play with, and again, the 95% rental offset for non-subjects, 80% add back on subjects, it gives you a lot more flexibility, especially when clients are trying to, you know, build an investment portfolio, as you're starting to notice, that's a huge part of a lot of people's businesses nowadays, it's very rare to see a client only own one property nowadays, which is Incredible nowadays. I mean, we have a lot more smarter industry consumer out there, right?
Len 12:46
Yeah, actually, just working with one of our new agents on and the client that he, he's brought in has has five already, a couple of paid for. So that kind of helps everything. But it's like, you know, gonna hit that brick wall with the bank, because the bank could only have five, maybe, maybe not five with them, even just five in general, including your principal residence in a lot of cases, right? So, so being a so is it 10 doors or 10 titles?
Mike 13:14
It's 10 titles, so you have a client that can have four doors on each title. So yeah, I mean, I think the flexibility gives them a lot more room to play with. I think, you know, when you're dealing with the whole coast and operating companies, you have a lot of, like I said, a lot more smarter consumer out there. But you know what, we also want to give clients more opportunity to be more flexible with. You know, another one of our unique products which kind of leads into it is that I always, I don't like to call it that word, but it seems to be the big touch word. Now we have a lot of clients that have what we call COVID mortgages. And when I say COVID mortgages, they have low, low interest rates in the ones, and they're looking for a little bit of extra money. And, you know, with the rates where they are Home Trust offers the equity line visa, which is a HELOC product that we offer, and it's a little bit more unique than you would say for some of the other HELOC products we see out there, because we not only allow you to use stated income, or self declared income from the cash flow to 60% debt ratio situation, we allow you to put it on not only just owner occupied but rentals. But here's the best part of it, Len, and we allow you to go buy any lender. It doesn't have to be us, and that's what makes us the most unique product on that so you can have a typical client profile. Could be somebody who's got a $300,000 mortgage at 1.98% with one of the major institutions and only needs $90,000 so we put a HELOC on that. It's a fixed rate, it's an open product, just like any other HELOC, and the client can pay it off at any time with no penalty. And that gives them the opportunity that you know yourself as some of these COVID mortgages are coming up for renewal. They'll just merge it together, refinance and pay out our HELOC, but we give them that, that access to that funds. To get them over that hump, whatever that's renovations, vacations, any type of credit, debt situation that they want to take care of, and they don't want to touch that incredibly great rate on their first mortgage. And they just simply take our HELOC product.
Len 15:14
Right? And that we're, I personally don't, I don't go solicit business. It's all from past clients. But I have past clients coming back who are saying, you know, we've, we don't want to, we need some more money out of the house, but we have a 2.39% even, right? And it's not due until 2026 and so we're trying to match up, you know, seconds and HELOCs and stuff like that behind it. So it's, it's interesting to see how much and I don't blame them. I would pay that to the last day personally, right? And then kind of do what we need to do in 18 months, or whatever time it is right, to make that switch out of there, so.
Mike 15:53
I think it's great, because that's where the mortgage broker has to really educate the client. I think they really need to step in there and say, Look, if you're looking for this amount of money? Yeah, maybe it's better for you to break your first and do a refinance, but if you're only looking for this certain amount of money, this is a much better option for you, because one you're only gonna be charged on what you use. But on top of that, you have a renewal coming up in less than 18 months. Maybe just do this to get you over the hump, because it's a lot better option for you, feasibly in the long run.
Len 16:21
Right? And that's that balance, I guess, for the broker, like, you're going to 80% so that that that is a viable number where, you know, we can take them back out into something else at that point, right? It's, I still see some of the odd ad for 90% and I'm going like, no, don't do that, because we won't have a place for you to go. Right? Exit Strategy has always been a big part of what I've taught and what the Brokers for Life has taught to new agents. It's like you might end up starting a private, private deal, and, you know, move up the soft B, which is what I consider you guys, and then, you know, to an A lender, and it sometimes is a two or three year process, right? So having an exit strategy is that still as important to Home Trust in the process?
Mike 17:06
Of course, I think, I think our biggest position when you're dealing in a non A situation is, what is the what is the exit strategy for the client? Because as a broker, you are to educate that customer, as we are to educate the brokers on certain products, is this, this is what we want to have done in the long run? I mean, one of our unique products is the under 65% loan to value, non-conforming product, which allows clients to have a lot more flexibility, because we can go above that 60% debt ratio. We can go above the unique type of income that the client has because they are moving to a different province. They're coming from outside of Canada and starting a new life in Canada as well. This product where we really focus on the extra strategies, to tell me as the broker, what is your extra strategy after 12 to 24 months? And the extra strategy is always going to be one of our biggest things that we do try to lend on because, you know, not that we don't love our clients, but I think at the end of the day, every client wants to be in that quote, unquote, major bank institution, and some of the major ones, and I think that's where alt lending and private lending is, has kind of squeezed in to feed its purpose. It's a short-term situation. I like to call it a band-aid situation, to get that client to where they I mean, there's a lot of clients that may never leave and because they're always going to be self-employed stated income. But you know, we want to help that client, to get them in the absolute best position possible. That's the most important thing. So yeah,
Len 18:35
And we do have those. I we know of one, one in particular client who just goes, I'm not paying Revenue Canada any more money. So here's, here's what I'm doing. I'll be in the B market for the rest of my life, and I don't care. So we've heard that.
Mike 18:46
I think, Len, you and I have heard that probably about 50 times. I think a lot of business owners feel that they've paid fairly enough, and they've decided this is it. I'm not doing it anymore, and I'm willing to take the higher interest rate and situation. But I think, you know, they do have to take something away from it. You can't blame them, because the soft B situation, I mean, our rates are usually only about a point or point and a half higher than what the A rates are offering right now. So, yeah.
Len 19:11
That’s right, yeah. And is that? Do you think that gap has definitely narrowed over the last two years? I think, right.
Mike 19:17
Yeah, absolutely. I mean, you know, the way we raise funds for all alternative lenders. We are a bank, of course. I mean, we are basically, the way we raise funds is our RSPs, GICs, you know, investments. We do have our oak and financial division that does investment as well, and Home Trust Bank as well, does, you know, investments for GICs and all that. So it's basically our cost of funds against what we can lend it out. So I think, you know, the gap between A and B world has gotten a lot smaller. Like, for example, you know our lowest rate now, you know we're in the low fives now. I mean, we have clients now that are taking out alternative B lending mortgages that are lower than the A mortgage they took out 12 months ago. So it's, it's a very unique situation. I mean, I've never, and all my 16 years of history homes, I've never seen so many rate drops in one year in my life. So it's a it's an interesting situation we're in right now. It's very, very new territory.
Len 20:13
So, is part of that, because when interest rates were high, you would have had a lot more investors. Is that just, just that there's more money to go around or?
Mike 20:20
I think So absolutely, because as interest rates are higher, you have obviously a lot more higher interest rates you can offer on investments. So when you get higher interest rates on investments, you get a lot more investors, because they're willing to park money at GICs and 5 and 6% when you're lending it out at 7 and 8% when it comes to those situations, I think you know, as interest rates start to drop, you know you're still going to get lower cost of funds to bulk up their investment portfolio, because they have that flexibility, right? So
Len 20:50
I was a Home Trust shareholder for quite a while, and it went to six and got out when it wasn't. We didn't throw this on the list, but you have, you have new leadership, one, one that's well known around the industry. Has Mr. Bissada made a big difference in how everybody feels at Home Trust working there?
Mike 21:12
You know, we had a situation. I mean, it's very common back a few years ago, but when Yousry, did step in, it was like, and I've said this a million times, but I think I'm a little biased, because I consider Yousry, one of my, my biggest mentors, and I'm probably, he's probably one of my biggest heroes, because he's always been a person that's always focused on the employee and what's best for the company. And, you know, I think branding has become a huge part of his portfolio as well, but he is one of those people that's just kind of a really shines bright when he walks in the room, because he is a genuine person that just wants you and the company to succeed. But I think he's one of these people that also it's very hard these days to find somebody that can say anything that they don't like about him, because you're so person that always, always genuinely wants to focus on what you're speaking about, not what he's speaking about. So, and that's a hard thing to find these days, I think.
Len 22:09
Like I've said in the past, one of my favorite dinner guests is Yousry Bissada. Don’t tell him I said that out loud, so. Yeah, no question that he knows the janitor's name as well as his vice president, frankly. So, he’s that kind of guy. That's good. That's, it's, you know, an evolving industry, I think that will continue to change over the next few years. More and more people are, you know, we still have that two or three year window where things people are still gonna just starting to kind of recover from COVID, not just the not just the flu itself, but you know about how their finances change so much over, over that time as well. So, there's definitely a spot in the industry for the B lenders, and we're glad that Home Trust is making a bigger appearance on our books every month. So that's always nice to see as well. So,
Mike 23:03
Oh, absolutely. And I think, you know, as you continue to to train and tailor newer brokers, I think that's the one thing that brokers need to understand, whether you're new or old, senior or rookie, alternative business has to be a part of your portfolio. I think it's one of those. There's no such thing as a broker says, “Well I don't do B or private business,” I you know, if you are, then you're missing, you're missing the boat, I think. And that's why we have such great, you know, BDMs in the Alberta market or all across Canada that, you know, if you don't understand it, always reach out. We're always welcome to help. I mean, whether it's myself or any other industry partner, you know, we're here to help you grow your business, because as you grow, we grow so I think that's the biggest thing we want to come across from. Yeah, excellent.
Len 23:46
All right, Mike, well thank you for your time today that's some great information for not only our listeners, but the broker world as well. Their reach is getting a little farther every month, and it's great to have that information for them on hand. Thanks. Great. Well.
Mike 24:03
Thank you so much for the time, Len and I do appreciate all the time you took away to get this done today. And you know, hopefully everybody can take away something from this, and hopefully I didn't blab on for too long, but.
Len 24:16
I know we usually go half hour at least.
Mike 24:22
Okay, we're good. Great.
Len 24:23
Okay. Thank you.
Mike 24:24
Thank you.
Len 24:24
Thanks for listening today. I hope you found the information that we provided to be useful in your mortgage journey, and remember you can always find our associates at www.brokersforlife.ca/associates. Have a great day.