How risky are private mortgage investments that don’t satisfy bank lending criteria?
Canadian chartered banks are extremely conservative lenders, functioning in a very rigid, tightly controlled regulatory environment. Banks are the major players in a mainstream mortgage market, denominated in billions of dollars. In this market, the rigid, computer generated, “one size fits all” lending policies, employed by the banks, make good business sense. Given their size and structure, banks are not equipped to underwrite mortgages on an individual, “deal by deal” basis, carefully scrutinizing individual applications to ascertain whether or not real risk is within reasonable limits. Most fundamentally, banks are not “equity lenders”. In assessing a mortgage application, a bank’s primary focus is on the question of whether or not the prospective borrower has the capacity and commitment to make the mortgage payments. In answering this question, factors relating solely to the borrower, such as income, employment stability, and credit history are assessed. Only if the borrower meets
