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Nearly half of Ontario’s first-time buyers say they’ll delay their home purchase as a result of the federal government’s new mortgage rules introduced in October.

As part of the government’s new stress-testing measures, buyers with less than a 20% down payment must now prove they can afford a payment at the BoC benchmark rate (currently 4.64%).

That change alone will force approximately 45% of first-time homebuyers to postpone their purchase while they continue building up their down payment, according to a recent Ipsos poll conducted for the Ontario Real Estate Association (OREA).

“It’s important to remember who’s being affected by measures that curb housing demand–a young family looking for more space, [or] a 20-something trying to get out of his parents’ basement…,” said OREA CEO Tim Hudak. “Rather than focusing on policies aimed at curbing demand, let’s consider boosting the housing supply or enforcing measures that make home ownership more affordable…”

Overall, the more stringent rules are expected to impact the plans of 79% of all first-time homebuyers in Ontario. Those who won’t be delaying their purchase say they’ll have to find additional funds to cover the larger down payment (27% of respondents), look for a less expensive home (34%) or look for a home in a less desirable city (22%).


Story by Steve Huebl & Rob McLister

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It’s been a long time coming but D+H finally has real competition for Expert, the system that over 90% of brokers use to send applications to lenders.

DLC Group, a subsidiary of Founders Advantage Capital Corp., has purchased D+H’s competitor, Marlborough Stirling Canada Limited (MSC), for $5.5 million. MSC produces MorWeb software, a web-based order-entry platform for mortgage brokers.

DLC is purchasing 70% of MSC and another group, led by Geoff Willis, is buying the other 30%. Willis currently runs OTTO Mortgage Systems, which also makes software that automates the mortgage origination process.

Chris Pornaras is expected to remain president with Willis also joining the management team in some capacity. As such, we suspect that Otto—or at least much of its best functionality—will be merged with MorWeb sometime next year.

DLC “anticipates it can increase MSC’s market share by having more DLC mortgage brokers use the MSC platform,” says the company’s press release. That shouldn’t be too hard, given DLC’s 5,000 agents comprise 40% of the mortgage broker market and fund $37 billion a year. By this author’s back-of-the-napkin math, if DLC gets even half of those brokers using MorWeb it could pay for the purchase in 24 months or less.

Albeit, while DLC Group has ample volume to make MorWeb viable, it will take time to shift a critical mass of agents from Expert to MorWeb. “Changing peoples’ habits is dependent on user experience,” says DLC President Gary Mauris. “Users want better access to their data, integration to the CRM of their choice and a slick mobile platform, so these things will all be on the drawing board in coming months.”

Regardless of this deal, however, Mauris says “MSC and D+H will both remain key partners for DLC.

Speaking to CMT about his MSC growth plans, Mauris said, “We’re reviewing options and potential opportunities for additional partnerships. We’re also looking for ways to more economically serve our lender partners.”

Regarding third-party brokerage partnerships, some will question whether brokerages would ever use software run by a competitor. Clearly, however, DLC would be crazy to misappropriate its customers’ data—so those criticisms probably aren’t valid.

“We’ve never held broker data hostage and marketed to past agents’ clients,” says Mauris. “A broker’s client data is their data.”

The other consideration will be getting all lenders connected to MorWeb. TD and a few smaller lenders are conspicuously absent. Without TD, many brokers simply won’t use the platform. That should be a top 2017 priority for Mauris, Willis & co. as they invest in their new platform.

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National-BankWhen it rains it pours. On the heels of Ottawa’s broker-unfriendly insurance rules comes word that National Bank will no longer sell its branded mortgages through brokers.

National Bank had 2.5% share of the broker market as of last quarter, according to D+H. Brokers represented about a quarter of its mortgage production. This now leaves Scotiabank and TD as the last Big 6 banks to distribute through brokers.

But there’s some good news:

  • National will ramp up its funding of Paradigm Quest, which is a huge vote of confidence in the mortgage process outsourcing firm.
    • This will generate billions in new mortgage originations for PQ brands like Merix Financial. “Our goal is to fund a similar volume of mortgages in this new third-party model as we do currently,” the bank says.
    • “It’s a natural extension of a great partnership that we’ve had for several years with National Bank,” said Kathy Gregory, President of Paradigm Quest Inc. 
    • Merix Financial CEO Boris Bozic added, “We’re delighted the bank had this confidence in us. It adds to our list of institutional partners, lets Merix offer new products and lets us support mortgage brokers more than ever….”
  • It’s a testament to the quality of broker-originated mortgages given the bank’s own treasury will continue standing behind them.
    • The bank confirmed that “this is a business decision driven by economics, not by any concerns about the health of the channel or risks in the channel.”
  • Other “balance-sheet” broker channel lenders should immediately benefit from National’s departure, including Scotiabank, TD, B2B and Manulife Bank.
    • We see Manulife Bank in particular as a big winner here since its Manulife One product resembles National’s All-in-One, and since Manulife is reportedly launching key balance sheet products, including a potential replacement for National’s equity-focused “net worth” mortgage.
    • TD could also see soaring volumes if it launches its HELOC in the broker channel. B2B could also be a winner if it makes its HELOC automatically readvanceable. I believe both of these scenarios are real possibilities. And lastly, MCAP and its Fusion HELOC will see more volume, especially if it opens it up to non-top-tier brokers.

Here’s the bad news:

  • No matter how you spin it, it’s never great PR for our industry when consumers hear that a bank has pulled its broker products.
  • Brokers are reportedly losing National’s popular All-in-One, Net Worth and rental programs. We hear the bank will not be funding these products at third-party lenders.
  • I fear that NBC will provide competitive funding mainly for vanilla fixed-rate products (hopefully I’m wrong on this.) Given NBC’s deposit-raising challenges and cruddy variable-rate pricing this year, we’re not overly optimistic about its 3rd-party floating-rate offerings.
  • There’s no telling how long the bank will continue funding 3rd-party mortgages. Once it ramps up its online channel it may need some or all of that funding back.
  • Some of National Bank’s branches outside of Quebec could wither. Many of them relied on brokers for the majority of their new customers (broker-originated customers were typically referred to a local branch). It’ll be interesting to hear if NBC is closing branches on its analyst conference call tomorrow.

What led to this decision:

  • Big Investment: To thrive in the broker space, National would have had to invest tens or hundreds of millions in systems and infrastructure. Its legacy technology and workflow was simply not effective in delivering the prompt service that brokers and customers demand.
  • e-Channel: CEO Louis Vachon wants to shift resources online. He recently stated: “…We feel that in the relative near future that online origination of mortgages will be a fourth distribution segment…We feel that over time, [selling mortgages online is] going to be as attractive, if not more attractive…than the traditional third-party brokers market.” 
  • Compensation: The bank paid brokers too much. When your commissions are double or triple the industry-standard on HELOCs, and 30-50% more on mortgages, what do you expect to happen to profitability?
  • Cross-sell: Brokers don’t cross-sell National Bank’s non-mortgage products, and apparently its branches weren’t doing a bang-up job of it either. Meanwhile, Scotiabank is reportedly quite pleased with its new broker cross-sell strategy. So this factor was clearly not insurmountable.
  • Renewals: National enjoys higher retention of customers at maturity if the customer comes to National directly.

Parting Thoughts

For full disclosure, my firm did over $30 million in mortgages with National Bank last year, so I know them and their service “challenges” well. But the bank always respected brokers and its top-tier management (i.e., Mark Squire), genuinely tried to deliver better rates and service to brokers, despite the tight constraints he was under from HQ.

Our industry will miss National and the amazing people we’ve come to know there. It’s a stinging blow to be sure, but nowhere near as painful as FirstLine’s exit.

“FirstLine took more than $13 billion right out of the marketplace,” notes Bozic. “But NBC is still actively involved in the broker space, just not through their brand.” That’s key, he says, because “Monoline support and growth is vital for mortgage brokers,” as is broker lender liquidity.

As one final note to those depressed by this news. Recall that after FirstLine’s departure in July 2012, it might have seemed like the beginning of the end. Broker share of the mortgage market back then was 25%.

Today, brokers own 30% of the market, five points more.

Our industry has always been good at bouncing back. That can’t be overstated. And it’s worth remembering, because we’ll need every ounce of that resilience in the years ahead.

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Business gift_FBHappily, it’s only taken six hours to update 183 rates and 25 lenders’ policies following today’s default insurance rule changes. I reckon I’ll be done combing through the rate sheets and policy updates by the weekend, just in time to question the grey matter of those responsible for this absurdity.

Here’s some of the results so far of the DoF’s mortgage insurance ban. These numbers are not exhaustive. They’re just from the banks, monolines and credit unions this author commonly uses:

  • Typical new rate surcharge on refinances: 15 bps
  • Number of broker lenders who have terminated prime refinances altogether: 6
  • Typical new rate surcharge on amortizations over 25 years: 10 bps
  • Number of lenders who have terminated amortizations over 25 years altogether: 7
  • Typical new rate surcharge on single-unit rentals: 15-25 bps
  • Number of lenders who have terminated rentals altogether: 6
  • Typical new rate surcharge on properties over $1 million: 15-25 bps
  • Number of lenders who have terminated lending on $1 million+ properties altogether: 5

Some of the lenders who pulled the plug on these products will be back in the game once they’ve arranged new funding. But they’ll be tacking on meaningful rate premiums, like almost every other lender.

But there’s more:

  • Number of lenders who raised all their rates in the last week (and no, not because of bond yields), instead of just raising refi, long-amortization, rental and $1 million+ rates: 4
  • Number of lenders with better rates on higher-defaulting low-equity insured mortgages than lower-defaulting 20%+ equity conventional mortgages: 18
  • Number of borrowers with 20%+ equity who default on their mortgages: Less than 1 in 300
  • Canadian taxpayer losses from a U.S.-style housing catastrophe: $0
    (Insurers’ capital would be drawn down ~$9 billion, says Moody’s. But that’s a fraction of their combined overall capital base, so a taxpayer bailout would be extraordinarily improbable.)

And that brings us to the most upsetting stat of all:

  • Estimated number of mortgagors who will unjustifiably get their pockets picked by those behind this, one of the most costly, reckless, ill-planned, non-consultative series of policy decisions in Canadian mortgage history: At least 6 million (half of current borrowers)…and more to come. 

 

 

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2016 ConferenceMortgage Professionals Canada’s National Conference has wrapped up in Vancouver. It’s the nation’s largest gathering of mortgage brokers and lenders.

One of the best MPC events is perennially the Expo. It’s kind of like Christmas for mortgage brokers because you always discover new products and services to improve your revenue. On that note, here’s some of the news we heard on the show floor:

  • B2B Bank: Is now the only national lender left who still offers a 35-year amortization.
  • Bridgewater Bank: Is reportedly considering re-entering the prime lending market.
  • Eclipse: Is one of the only B-lenders with its own MIC; it’s doing 85% LTV bundles again.
  • Home Trust: Will be announcing a new near-prime product for borrowers adversely affected by the new mortgage rules.
  • Kanetix: Launched a warm lead phone service for $150 a lead.
  • Lendesk: Launched a new broker loan origination system with integrated e-signatures, automated document reminders, APIs for data transfer, customized commitment letters and a borrower portal with a mobile-friendly application.
  • Manulife: Will reportedly be announcing a conventional product to 80% LTV, a BFS product to 65% LTV and an “equity” product to 50% LTV.
  • Mortgage Alliance: Now offers customers free credit scores and personalized property valuation updates (from Brookfield) in its mobile app.
  • MPP: Is working on a solution to help B.C. brokers meet FICOM’s updated guidelines on selling creditor life insurance; is considering launching job-loss insurance in 2017.
  • Scotiabank: Reaffirmed its commitment to the broker space. Is going national with its new cross-selling program, which promotes other Scotia products to broker-originated Scotiabank customers.
  • Street Capital: Is still awaiting its bank licence. Upon receipt, it reportedly plans on launching a new non-prime mortgage product.
  • TMG: Offers a new mobile app that can pump applications directly into D+H Expert.
  • VERICO: Has rolled out its new lender hub, powered by DealAssist, at a promotional rate of $99 per deal submitted.
  • Xceed: At long last has an online portal for mortgage customers.

 

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Network FBLenders pay a toll to get applications from mortgage brokers. The long-established toll keepers are D+H and Marlborough Stirling. These two technology companies get a slice of every deal lenders receive through their online platforms.

But lenders are growing weary of this expense, which is reportedly as much as 5-6 basis points per funded mortgage in the case of D+H (i.e., up to $180 on a $300,000 mortgage). Lenders resent having to pay more for bigger deals when D+H’s processing costs are much the same regardless of deal size. So they’re taking matters into their own hands.

The talk out there is that a consortium of lenders is making a play for Marlborough Stirling’s MorWeb platform. The MorWeb business is rumoured to have been hemorrhaging cash. Its parent, Capita plc, has reportedly been running a process to find a buyer for weeks now, as MorWeb clings on to just 5-9% market share (our best estimate). If lenders are successful in buying MorWeb, their connectivity costs could drop by 50%.

But lenders may have competition for MorWeb. Word is, Dominion Lending Centres and a few other broker networks have been separately eyeing the company. With DLC controlling roughly 40% of broker market volume, it could make MorWeb viable overnight by cutting lenders’ costs (relative to D+H), pumping $30+ billion in volume through the system and charging its own access fees.

If the MorWeb transaction doesn’t pan out, lenders seem open to cutting deals with Canada’s largest superbrokers for direct access. Lenders would then invest some of their D+H savings back into the brokerages (perhaps 1 bp a deal, or a small flat amount per mortgage). That could fund new technology and marketing initiatives for broker firms, among other things.

Case in point is a firm like Mortgage Alliance. It’s decided to build its own direct channels to lenders. Just today it announced a link to First National, Canada’s largest non-bank lender. Last month it hooked in to Paradigm Quest and its brands Merix and Lendwise.

It’s Been a Long Time Coming

Most monopolies don’t last. D+H might have avoided his fate had it restructured its pricing and built in value that end-users (brokers) crave. Brokers have long been underwhelmed by Expert’s functionality, as this sample ILMB Facebook post conveys:

Facebook-on-DH2

 

D+H could have broadly released tools like online application APIs (accessible to tech-savvy broker-owners, not just superbrokers), better links to third-party CRM systems, a native CRM system, a slick mobile app with document imaging (it demo’d this a few years back…where did it go?), secure email document sharing and so on. That might have instilled broker loyalty.

Instead, it’s seemingly opted to milk its cash cow — and despite all of its well-drafted lender contracts, that could cost it long-term.


Here’s to hoping that D+H surprises everyone with innovation at this weekend’s MPC conference in Vancouver. 

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Interview with mic FBNow that FICOM’s B.C. broker compensation disclosure is a done deal, many want to know how it helps consumers make better broker decisions.

We asked the Office of the Registrar of Mortgage Brokers for its take…

CMT: What do you want consumers to do with this new required compensation disclosure?

FICOM: Consumers may use that knowledge in any number of ways. For example:

  • They may ask how compensation paid by one lender compares to that paid by another.
  • They may ask how compensation influences advice.
  • They may use compensation to assist them to judge the value of the services they receive.

CMT: Have you produced any consumer materials to assist mortgage shoppers in interpreting this information?

FICOM: In our April 2016 open letter, we recognize that the development of information for consumers is an important part of the disclosure requirements. Materials will be available for consumers when the guidelines come into force on June 30, 2017.

We encourage industry to explore how it can contribute to our shared goal of an informed consumer, and look forward to ongoing discussions.

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So it appears that FICOM will develop some sort of guidelines to help consumers decipher the raft of new compensation information they’re about to receive. That’s terrific. A key concern about FICOM’s new policy is that some consumers could make bad decisions without compensation data being put into context (as this study has shown).

One obvious example is the borrower who compares disclosures and then chooses the broker who “buys down” rates more, and displays less commission. Such brokers work on volume. By their very nature, they can’t afford to spend as much time advising clients—compared with full-service mortgage professionals. By receiving less analysis and guidance on term selection, interest saving strategies and mortgage restrictions, some discount broker clients could potentially choose mortgages with higher overall borrowing costs. (This is coming from someone who runs a discount brokerage company.) 

This is where FICOM can add value. It can counter some of these side effects by helping consumers understand:

  • What is routine for broker compensation, volume bonuses and status benefits
  • The potential tradeoff between compensation and advice
  • The importance of overall borrowing cost and contract terms, over upfront rates and compensation
  • How the breadth of products a broker can access (or chooses to access) can impact their recommendations
  • How research suggests that brokers save borrowers more (overall), regardless of the lender compensation earned by the typical broker

Ideally the disclosures would focus on differences in compensation (i.e., identifying when a broker is making abnormal reward for facilitating a mortgage). Barring that, FICOM would do consumers a favour by crafting practical information like that above — and tossing in a few examples that borrowers can easily digest. Without this context, comp disclosure could distract many folks from what matters most: overall borrowing cost, not price.

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A member of the federal Conservative Party has spoken out against the government’s latest salvo of mortgage rules.

MP Pat Kelly, a former mortgage professional and president of AMBA before becoming the representative for Calgary Rocky Ridge, told the House of Commons last week that he doubts the government’s blanket approach to mortgage rule-making.

“I’m concerned for young families who…may now have a harder time achieving their dream of home ownership,” Kelly said (the full speech can be viewed in the video below).

CMT spoke to Kelly for his position on the changes and on how they were implemented.

“Many people are concerned about affordability in some housing markets, yet the policy appears to have a one-size-fits-all solution that will have perhaps unintended consequences…for the 27 million Canadians that don’t live in Vancouver and Toronto,” he said.

Kelly noted that many members are hearing from consumers who are worried about the restrictions—particularly the new stress test requirements, since that’s the issue they most clearly understand and can relate to.

“We’re right to be concerned about [taxpayer risk]. But addressing this correctly and in a way that doesn’t target the wrong borrowers is important,” he added.

Even members of the Finance Minister’s own party have publicly questioned the consequences of his mortgage policies. “I have some concerns about it and I want to look at it more closely to see how it affects [the market] and trickles down,” Liberal MP Randeep Sarai told The Hill Times. “We want to make sure young families are not excluded from the markets…”

In the House of Commons, Kelly also expressed uneasiness about how the Minister’s announcement impacts competition in the mortgage business, adding that he’s “disappointed that this important policy change was imposed on consumers, Parliament and the mortgage industry with no consultation or notice.”

“When you change rules that affect millions of consumers, consultation with industry is generally expected,” he explained. Parliamentarians, even members of the Finance Minister’s own caucus, only heard the rules on the day they were announced.

Kelly also suggested that the government look at its own over-borrowing before dictating how all Canadian households must manage their finances. He suggested that making homes harder to purchase nationwide was “hypocritical of a government who said in the House that low interest rates are a great time to invest, a statement they made in response to their out-of-control deficit…A home that you raise your family in is an investment. A $40-billion deficit is not an investment.”