The most common comparison checklist for a borrower includes rate, term and fees. Of course these are important, but leaves out a critical question which can decide whether or not your loan remains stable throughout the borrowing period. That question is: where does your lender get their money?
We just assume the money is there, plentiful, and secure, but way a lender sets up their pool of available funds can make a huge difference in their behaviour. It affects whether your terms hold, if your renewal will be smooth, and even if your lender is still acting the way you remember in five years.
The Canadian lender line-up
Banks
Banks are a great place to start because that’s where most people start. They are big, familiar, regulated by the Office of the Superintendent of Financial Institutions (OSFI), which sets capital and risk-management expectations. They rely on customer deposits and wholesale funding, and in return they offer stability and relatively low rates.
So what’s the downside? Well, rigidity, for starters. Chartered banks use standardized underwriting and strict qualification sheets. They don’t love irregular income, unconventional properties, or tight timelines.
Credit unions
A credit union requires membership, and is owned by the member pool. They are also provincially regulated, so lots of fingers in that decision pie. They are more personal than a bank, and offer flexibility that banks don’t. Loans are funded from member deposits so they are wary of complex or time-sensitive deals.
Alternative lenders (alt lenders)
Alt lenders are there for borrowers who don’t fit well into banks or private lenders, namely self-employed people, new Canadians, or people with bruises on their credit apples. That willingness to work with tougher client files means higher rates than a bank, and their funding varies quite a bit.
Private lenders
Private lenders are an important part of the lending ecosphere, funding loans by pooling money from outside investors, mortgage investment corporations, individuals or syndicates. Because of the diversity of their lending pool, it can dramatically affect the way they do business, so knowing where the money comes from is critical before committing.
The hidden variable: investor-funded lending
Since a lender is raising money from investors, it is a borrower as well. There are obligations to those investors, expected returns on those amounts borrowed, and those same investors can stop contributing or withdraw their capital when conditions change.
There are a number of pressures that the end borrower (you) rarely see, regardless of the source of your loan. For example, if investors pull back during uncertainty, the funding can dry up. If rates and terms shift, the criteria for the loan can force the borrower to refinance whenever markets move. Because your loan depends on someone else’s confidence level, even if you make your payments on time you are still subject to the money pool.
None of this means borrowing money is risky or unreliable, but it does mean the stability of your loan is controlled by a third party who have their own priorities that won’t align with your own. Rate cycles, for example, which the Bank of Canada influences through its policy interest rate, can make those investor pressures stronger.
How Glasslake is different
We do things differently than all this. Glasslake doesn’t raise capital through investors in the same ways that many private and mixed lenders do. As a subsidiary of Bayview Asset Management, our lending is backed by bank-sourced capital but operates with more fluidity than the traditional banking system.
The way that plays out is you get bank-level funding with a lot more flexibility. We get to look at your whole financial picture, adjust around your timeline, and structure a loan that fits like a glove. And our capital does not fall victim to a rotating group of fairweather investors.
This provides stability, because no investor pool can disrupt your financing. You are also buffered against market volatility, as the money is less personal. This also applies to rate volatility, as rising or falling rates don’t force us to chase investor returns at your expense. And that all makes us predictable, so you can plan around the plan we make together.
It’s the best of private lending and big banks all in one. And it’s a rare combination. IYKYK.
What 2008 taught us about funding
But what could cause a loan to become unstable, you might ask? Markets move all the time. That’s true, and most lenders have a plan for most types of movements. But once in a while you get erratic movements, and this happens more often than you might think. Covid, for one. The 2008 sub-prime mortgage crisis, for another. Lenders approved loans to borrowers who they knew could not repay them. They then packaged those mortgages into securities and sold them to investors around the world. The Federal Reserve’s history of the crisis explains how it unfolded.
Instead of owning the risk of the loans, the lenders passed on that responsibility to someone else. Like musical chairs, someone was left without a chair when the music stopped, and it was not pretty. When housing prices fell and defaults rose, investors just stopped funding. Loans collapsed, even for those who had done everything right.
Glasslake will never sell off your loan to outside investors, and we don’t depend on an investor funding pipeline that can freeze. We underwrite based on the strength of the borrower and the property, and do not look for a way to offload the responsibility under any circumstance.
Because our stability doesn’t hinge on investor confidence, market shocks is just a challenge to manage for us, not a threat to your loan. Canada’s regulators have also placed heavy emphasis on responsible lending since that period, and the Canada Mortgage and Housing Corporation (CMHC) publishes regular research on the health of the housing market if you want to follow the broader picture.
Questions to ask any lender
Whichever type of lender you consider, it helps to ask questions such as where their lending capital comes from, what happens to my loan if funding conditions change, do they hold the loans they write, and how flexible is your underwriting? You can also review your rights and the questions to ask before signing in the Financial Consumer Agency of Canada’s mortgage resources.
TL;DR: Cole’s One-Minute Version
- Funding source matters. Where a lender gets its money determines how stable your loan is. Especially when markets and rates shift.
- Investor-funded lenders have hidden risks. Many private and mixed lenders raise capital from outside investors, so funding is unstable.
- Glasslake is bank-sourced and flexible. You get private-lender flexibility with bank-level funding stability.
- Situations like 2008 don’t apply to us. The sub-prime crisis was driven by lenders selling loans to investors and depending on a constant flow of their money. That’s not how we operate.
