Self-employeds may want to keep that day job

The Office of the Superintendent of Financial Institutions may soon be asking the banks to keep a closer eye on business-for-self borrowers, with the release of documents revealing the watchdog's concerns about that niche market.

Mortgages often granted to the self-employed and recent immigrants "have some similarities to non-prime loans in the U.S. retail lending market," and banks and other lenders are becoming "increasingly liberal" with mortgages and home-equity credit lines that don't require individuals to prove income, according to a 152-page report from OSFI and obtained by Bloomberg News.

The concerns echo those voiced by the superintendent late last year, in moving to more closely monitor the banks.
“What we are doing is stepping in to increase the monitoring of that portfolio,” OSFI head Julie Dickson told reporters in  September. “I think the concern is that the conditions are such that there would be tremendous pressure on banks to loosen those standards.”

Brokers are now voicing the same concerns as the rate wars press on, charging that RBC and other big banks are actively undercutting broker channel rates, most often at the branch level and as a way of retaining and growing clientele as the housing market slows.

Ostensibly, tight margins have exacerbated the need to increase volumes, a strategy focused on making up for the dwindling profit on individual mortgage deals, suggested Dickson, echoing the analysis of industry veterans.

Despite those narrower margins, the banks largely met earnings expectations in the last quarter, in large part because of that growth in lending deals.

The report suggests that OSFI is keeping a closer eye on the mortgages of self-employeds. Ostensibly, that could affect full-time property investors now relying exclusively the cash flow of their portfolios.

It's one of the reasons, REIN and other leading investor groups recommend even successful investors keep a day job.

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