DIGGING OUT: Miner Consolidates Debt
A geological entrepreneur reached out to me a couple of weeks ago for help. He’d been involved for decades in the world of mineral exploration – a prevalent industry in our city that has certainly gone through its share of highs and lows.
During more recent highs (that is, before the financial crisis of 2008), my client was easily pre-qualified as a “Business For Self” borrower by a Big Five Bank, and then purchased his family a lovely house in the hills.
Then came the crash of 2008; then a brief recovery in 2011; then another big pullback that has persisted in the sector. People involved in natural resources and the junior capital markets have languished accordingly. Hug one today.
My client was no exception: maxed out credit cards, balances outstanding with the Canada Revenue Agency on both personal and corporate taxes – even unpaid property taxes. This had manifested as a bruised credit score as well. On top of that – the mounting political pressure of an outstanding loan from a business partner.
But in the midst of the maelstrom, some rays of sunshine: through thick and thin and despite having fallen behind, the household had managed to maintain relatively stable income. The family never missed a mortgage payment. And thanks to the local market, the value of – and the equity in – their home had risen dramatically in recent years.
The client had initially turned to his original bank to refinance the home, only to be declined – even for a line of credit. Many self-employed borrowers who’d purchased during the same period as my client have come to realize that federally regulated financial institutions (banks/lenders) engaged in residential mortgage underwriting have been subjected to a series of rule-tightening since the autumn of 2008. It’s therefore a much different game out there for the self-employed homeowner or purchaser – the rules of which I would be pleased to explain and navigate with you.
Nonetheless – my client’s next stop was in the office of a private lender. This was a quick conversation because the proposed facility was, politely, far too usury and complex. Double-digit interest rates are simply uncompetitive in this market given my client’s profile.
Ultimately, my first-phase solution was to arrange a “single-digit” second mortgage on the home using a well-known mortgage investment corporation (or MIC) as the lender. We did a 2-year, fixed rate loan that was open and therefore penalty-free if and whenever the client could pay off chunks. To aid in cashflow, monthly payments were designed to be interest-only in the first year, then amortizing in year #2.
The loan had a 2-year term for two reasons: first, the client felt this gave him and his spouse enough time to repair their credit and increase their income (the latter through industry recovery and/or career change); and secondly, the loan’s maturity would dovetail almost perfectly with their bank’s fixed-rate closed first mortgage. This will allow us an almost seamless entry into the second phase of my assistance: a refinancing of both mortgages at a sympathetic institution into one, competitively priced loan. The couple now know that the better they manage to recover, the larger and more competitive the lender smorgasbord may be at renewal/refinancing time.
In the meantime, relief washed over my clients as they zeroed out their consumer, government and interpersonal debts. They exit this year with room to breathe and time to contemplate their next career moves. And that is SO fulfilling for me.
My only problem now is, how can I ask great people like these for referrals or introductions to others in need?
Who on earth is going to tell their friends, “Toma Sojonky got me a great Second Mortgage?”
Ha – who knows.
But know that I’m here.