Articles of Interest

Category: Library of Resources

Mortgages for credit impaired - Look at this!

Mortgage processing in Canada, will never be the same. Technological advances make it easier than ever before to apply for a mortgage. But with those technological advances comes the American concept of Credit Scoring, a process which may hinder your ability to access the best possible mortgage rate.

Credit Scoring is not new to Canada. Many finance companies and even some trust companies have used a point scoring system for years, to qualify borrowers for personal loans. Point values are assigned to such variables as type of employment, length of employment,residence stability, net worth and more. However, the advent of electronic processing of mortgage applications has expanded this practice to the mortgage industry.

Electronic processing of mortgage applications took hold in the mid 1990's. Companies such as Lender Specific Systems developed software that would allow a mortgage practitioner to send your mortgage application to various lenders efficiently and receive a mortgage commitment in hours, rather than days.

The first phase of point scoring for mortgages actually takes place as part of your credit report. Equifax Canada, the largest credit reporting agency in Canada, has been using a point scoring system called Beacon, to analyze your credit history and provide a "Score" for almost 10 years. While many lenders looked at the Beacon score as part of the decision making process, they still reviewed the entire credit history report before making a final decision.

Over the last few years, the two largest mortgage insurance companies have been developing their own scoring systems. Canada Mortgage and Housing Corporation introduced "Emili" to the industry last year. G.E. Capital Mortgage Insurance have adapted their American program "The Genius" for their Canadian operations.

Both programs take into account your Beacon score from the credit bureau, your income and employment histories, the financial details of the mortgage being applied for, and assign a SCORE for your application. This is all done seamlessly as your mortgage is being transferred electronically from mortgage consultant to the lender. It's very simply ...you either qualify or you don't.

The problem is, this takes the "human element" out of the application process. Explanations for derogatory credit information, potential for improved income streams, or subtle detail about the property being purchased can no longer be factored into the transaction. You either qualify or you don't. And once Emili turns you down, you cannot get CMHC insurance on this transaction, from any lender, regardless of the circumstances. This has led to the development of the B & C lending guidelines of some institutions. They are now developing programs to deal with transactions that "fall between the cracks". While this means you may still get your mortgage approved, it may not be at the most favourable of rates and terms. In the rush to provide optimum service levels to the masses, the fringe applicant may be forgotten.

Do not dismay. A professional mortgage broker should be able to identify warning signs of a potential scoring issue and advise on how to deal with it before it becomes a problem.

Maybe some people were getting better mortgage deals than they deserved under the old scoring system. Maybe some people were not getting as good of a deal as they should have. The old system was arbitrary. The scoring system is not. Is it better? We'll have to wait and see.

To find out how these technological systems affect you and your mortgage, talk to your Homeguard Mortgage professional now.

Return to Main Article Listing



Home About Us Services 1st Time Buyers Rates Calculators Apply Now Join Our Team Resources Contact