Private mortgage lender Magenta suspends new loan applications until fall

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A home is for sale in Ottawa, Ontario on April 13.Spencer Colby/The Globe and Mail

Magenta Capital Corp., one of Canada’s largest private mortgage lenders, has suspended new loan applications until September, according to an email to its brokerage clients seen by The Globe and Mail.

It’s an unexpected move for a lender that grew rapidly during the pandemic housing boom. The suspension was announced less than a week after the Bank of Canada raised its benchmark interest rate by another 50 basis points, for a total increase of 125 basis points in four months. (A basis point is one hundredth of a percentage point.)

The sharp rise in interest rates has made it harder for borrowers to qualify for a loan from a chartered bank, which typically offers the lowest mortgage rate but has stricter borrowing requirements. Also, as borrowers have less right to a bank, they are increasingly looking to other lenders such as mortgage investment companies, or MICs, which pool investors’ funds to make loans and are not subject to same restrictions as chartered banks.

In the email to customers dated June 7, Magenta said it would not accept any new applications requiring funding until September 1. She did not explicitly give a reason for the move.

The company’s rating largely praised its growth and said it exceeded its own expectations. However, Magenta COO Albert Oppenheimer acknowledged the disruption saying, “I understand this is an inconvenience to you and your customers.”

Magenta did not respond to multiple requests for comment.

The lender may take a break because the demand for mortgages exceeds the amount of capital available to lend and investors are not bringing in as much new money to meet the demand.

Magenta’s email called this year a “success” and said “extremely favorable market conditions” allowed MIC to “grow at an unprecedented rate and well ahead of schedule.”

Magenta was established in 1994 and is one of the oldest and largest PRIs in the country, with $430 million in mortgage assets under management. It lends to what it calls borrowers with “short-term credit problems” and lends throughout southern Ontario, where home prices have nearly doubled in some areas over the past two years. .

Under the federal mortgage stress test, homebuyers who borrow money from a bank must prove they can repay their loan at an interest rate at least two percentage points above the their contract.

With the cost of a traditional fixed rate mortgage having doubled over the past year, this has made stress testing more difficult. The interest rate on a five-year fixed mortgage hit 4.41% last week, according to central bank data. This means that under the stress test rules, the borrower must prove that they can make their payments at an interest rate of 6.41%.

Borrowers are not subject to the mortgage stress test in PRI and other non-bank lenders.

“When rates go up, fewer people are eligible, so we get more business because of that,” said Nick Kyprianou, managing director of RiverRock MIC.

Laura Martin, chief operating officer of mortgage brokerage Matrix Mortgage Global, said some lenders may be taking a temporary break to understand the market. In 2017, ahead of the implementation of the mortgage stress test for uninsured mortgages, she said lenders have been slow to assess the landscape.

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