Name: Robert McLister

Email: robert@canadianmortgagetrends.com

Biographical Info: Robert McLister is one of Canada’s best-known mortgage experts, a mortgage columnist for The Globe and Mail, editor of CanadianMortgageTrends.com (CMT) and founder of intelliMortgage Inc. and RateSpy.com. Robert created CMT in 2006. The publication now attracts 550,000+ annual readers, is a four-time Canadian Mortgage Awards recipient and has been named one of Canada’s best personal finance sites by the Globe & Mail. Prior to entering the mortgage world, Robert was an equities trader for eleven years and a finance graduate from the University of Michigan Business School. Robert appears regularly in the media for mortgage-related commentary (recent coverage: http://bit.ly/tUjp3Q). He can be followed on Twitter at @CdnMortgageNews


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Canada’s banking regulator wants mortgage default insurers to put more money between themselves and taxpayers, especially for mortgages they insure in riskier cities.

The new rules, detailed today by OSFI, will force government-backed insurers to bolster their capital on mortgages in certain areas. Effective January 1, 2017, this could make mortgages more expensive for insurers and consumers alike.

“When house prices are high relative to borrower incomes, the new framework will require that more capital be set aside,” said Superintendent Jeremy Rudin. 

In a report today, BMO Capital Markets referred to these changes as “modestly tougher capital requirements.” It said that “through a phase-in mechanism” the new rules “essentially apply to new business only.”

You can bet your last basis point that insurers are already looking at ways to offset these new costs. Borrowers could be stuck with steeper premiums, higher interest rates and/or more rigid underwriting. That’s especially true if they have:

  • Lower credit scores
  • Higher loan-to-values
  • Longer amortizations.

I’m hearing insiders speculate that this could even lead to regional premium variations. So I asked OSFI if it’s possible that a borrower in Toronto might be asked to pay a higher insurance premium than a borrower in, say, London, Ontario. OSFI replied: “It is up to the institutions to determine how they will manage the new requirements.”

As of Q2, Toronto, Vancouver, Edmonton and Calgary would have exceeded OSFI’s valuation thresholds and forced insurers to cough up more capital on mortgages in those cities. OSFI is using census metropolitan areas (CMAs) to define the regional boundaries.

The following map shows Toronto’s CMA, for example. If regional variations came to reality, someone in Guelph, Barrie and Oshawa could pay smaller insurance premiums than borrowers in Toronto, Mississauga and Markham.

Toronto CMA. StatsCan

Genworth Canada, the country’s largest private insurer, is already setting expectations for higher premiums. In a statement today it said:

The Company expects that the capital required for certain loan-to-value categories may increase and this could lead to a corresponding increase in premium rates. In addition, for those regions that are impacted by the supplementary capital, premium rates could also increase.

CMHC reviews premiums annually. We wouldn’t be surprised if it announces higher premiums by the first few months in 2017 or before.

Even premiums on low-ratio mortgages may rise. That could be a problem for certain monoline lenders who depend on buying transactional insurance to fund (securitize) their mortgages. More expensive low-ratio premiums could put them at a further competitive disadvantage to big banks who don’t rely on low-ratio transactional insurance.

OSFI confirmed for us that, “The same calculation formulas will be used for all mortgages whether insured individually or as part of a portfolio.”

Rising premiums aren’t the only fallout here. It could also get incrementally tougher for some borrowers to get an insured mortgage. Insurers may now try even harder not to incur losses on mortgages that entail higher capital costs. That could mean marginally more declines and fewer guideline exceptions.

In some cases, however, insured mortgages might actually require less capital than today. OSFI says, “All else being equal, the capital requirement for mortgages associated with borrowers with better credit, and that pay their mortgages off quickly, will be lower. Also, under the new framework, mortgage insurers will no longer have to hold capital for mortgages that have been fully paid off.”

OSFI’s proposed changes are up for public comment until October 21. 

Mortgage Market & MBS Nuggets

Bank of America Merrill Lynch put out a fantastic primer on mortgage-backed securities (MBS) last week. Here’s a small sampling of its notable factoids:

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Securitization versus the U.S.

Risky mortgage securitization was blamed for feeding the U.S. housing crisis. In comparison, not only is Canadian MBS regulated far more rigidly than that toxic American MBS of old, but our overall securitization share of mortgage finance remains well below U.S. levels (although the gap is narrowing).

MBS Outstanding

There are $440 billion of outstanding NHA MBS in Canada, all fully guaranteed by our government. NHA MBS benefits from Canada being one of only 10 countries in the world with a triple-A credit rating (Australia, Denmark, Germany, Luxembourg, Netherlands, Norway, Singapore, Sweden and Switzerland are the others).

Distribution of MBS

The majority of NHA MBS are held in Canada Mortgage Bonds (CMBs), of which there are $215 billion outstanding. Big 6 Banks hold another $172 billion of MBS, leaving roughly $39 billion in the hands of secondary investors.

Canada’s Banks are Titans

Canada’s major banks hold almost twice as much mortgage market share as do U.S. banks.

Regulatory Impact on Credit

Check out how CMHC’s average borrower profile has improved in the past year and a half, thanks in large part to the Department of Finance’s stricter lending policies.

 

Canadian Versus U.S. Delinquencies

Total mortgage delinquencies in Canada have typically remained under 0.50%. Compare that to U.S. prime fixed-rate defaults, which soared to about 2.4% during the financial crisis. Over the past two decades, Canadian delinquencies have never surpassed 0.7%.

Canadian Versus U.S. Insurer Capitalization

CMHC’s insurance in force is $523 billion. Backing that is about $16 billion in capital, or 3%. By contrast, there’s “a congressionally mandated 2% capital target for the FHA in the US,” says BofAML, a capital level that must cover “an arguably weaker borrower credit profile.”


Our thanks to Bank of America Merrill Lynch for making this report available to CMT.

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Canada’s banking regulator has released revised capital guidelines for mortgage lenders. Just what every lender loves to hear, right?

Once implemented, federally regulated lenders will have to set aside more capital in certain cases to shield them from a potential market blowup. The new rules kick in November 1 for the big banks.

“Under the proposed revised guideline, the amount of capital required to be held by the institutions is not expected to change significantly,” assured a spokesperson. “These changes aim to ensure that capital requirements continue to reflect underlying risks and developments in the financial industry.”

One interesting change is OSFI’s new “countercyclical buffer” policy. That’s where banks must put aside more capital if the market gets abnormally risky. OSFI says the Bank of Canada’s Financial System Review (FSR) will, in part, help determine if such buffers are necessary. Banks will get 6-12 months’ notice before these countercyclical buffer increases take effect.

“…in Canada, under the current requirements we do not require financial institutions to have a countercyclical buffer,” the spokesperson said. “OSFI does not feel it is necessary to activate a countercyclical buffer based on the principles outlined in the Capital Adequacy Requirements Guideline (CAR).”

In terms of securitization, an issue near and dear to broker lenders, OSFI says, “The revisions to…CAR should not have an impact on mortgage lenders’ securitization abilities.”

As for underwriting, OSFI told CMT, “Through the revised CAR guideline, OSFI is clarifying the conditions under which risk mitigation benefits of mortgage insurance are recognized for regulatory capital purposes.” In other words, if lenders don’t carefully heed insurers’ underwriting and loan requirements, that could “require OSFI to ask financial institutions to implement remedial measures,” which could include coughing up even more capital, suggests the regulator.

OSFIOSFI has been keeping busy in the past year. On July 7, it announced it was tightening its “supervisory expectations for mortgage underwriting in light of the evolving housing market.”

It also made clear that it “will be placing a greater emphasis on confirming that controls and risk management practices of mortgage lenders and mortgage insurers are sound and consistent with the principles underpinned by OSFI Guideline B-20: Residential Mortgage Underwriting Practices and Procedures (and, where applicable, OSFI Guideline B-21 – Residential Mortgage Insurance Underwriting Practices and Procedures).”

In April, OSFI introduced a higher floor on capital requirements to “take into account periods where the value of properties pledged as collateral becomes less certain.” Those changes are meant to be “risk sensitive and therefore reflective of regional variation in risk,” it said in December.

What’s the goal of all this? To strengthen the measurement of capital held by the major banks, and better position them to withstand potential losses.

The net effect to mortgage shoppers remains to be seen. Our money is on banks incrementally tightening lending qualifications and slightly increasing mortgage rates to offset their cost of compliance.

 

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“In essence, bank loyalty is not a factor for borrowers in shopping for a mortgage loan.”

That was the conclusion of Accenture in last year’s Digital Banking Survey (an excellent report we haven’t had the opportunity to cover until now). 

The consulting firm elaborated by stating:

  • “…Banks are in the unenviable position of competing in a commoditizing industry.”
  • “Differentiation based on price or products and services is a zero-sum game for many banks. They get trapped in an endless loop of one-upping and matching each other on discounts and product offers where no one wins.”
  • “Brands ultimately become interchangeable in customers’ eyes.”
  • “Borrowers tend to select a mortgage originator based on product price and their expectation for an easy, speedy transaction process.”
  • “Consumer perceptions that switching is hard have eased…”

Accenture listed an assortment of strategies that banks can use to win over today’s new breed of customers. It just so happens that all of those ideas can also be adopted by forward-thinking mortgage brokers and non-bank lenders.

Many of its recommendations are online related, which is not coincidental. Last year, Accenture found that, “For the first time in our research, consumers ranked online banking services as the number one reason for staying with their bank, ahead of branch locations and low fees.”

Among other things, the firm suggested that banks:

  • Add robust mortgage research tools to their websites.
  • Automate back-end systems to provide real-time approval and closing updates.
  • Incent borrowers to download the bank’s mobile app.
  • Develop self-serve interfaces so borrowers can submit documents, track deal status and electronically close mortgages via their computer or smartphone. (The goal: cut back-office staffing and fulfillment costs.)
  • Provide term and product advice to borrowers via video chat.
  • Securely share mortgage closing statuses with realtors (if the client consents).
  • Facilitate connections between borrowers and service providers (e.g.,  home inspectors, renovators, handymen, movers, lawn services, furniture retailers, lawyers and so on).

In 2015, almost 7 in 10 Canadians surveyed preferred to get their mortgage from their primary bank, says Accenture. But change is in the air.

The firm asked that same group how they’d categorize the relationship with their bank. Three out of four (75%) characterized it as merely “transactional,” as opposed to an “advice-driven” relationship. (That was up 10 percentage points from the prior year.)

Meanwhile, close to half (46%) of consumers said they’d be willing to receive robo-advice in lieu of human advice. People cited speed and convenience as the #1 reason why. What an eye-opening stat given that mortgage advisors’ raison d’être is personal guidance.

“The digital borrower’s need for a loan officer can be satisfied via call centre and online chat capabilities,” Accenture added.

That said, we’re still far from the point where the Internet replaces face-to-face contact throughout the mortgage process. A full 79% of borrowers still get mortgages in a branch or office. Canada’s major banks and their armies of mortgage specialists and branch reps remain dominant, but dominance is not insurmountable. In the U.S., despite its structural banking differences, only 44% of borrowers get a mortgage through a branch/office location.

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If you live in Vancouver and were thinking of refinancing to 80% loan-to-value, you might want to accelerate those plans.

Perhaps you’ve seen this tipsy little chart of Vancouver average home prices. In the case of detached homes—which spark the biggest headlines and arguably contribute the most to market psychology—prices have just collapsed $294,000 (17%) in one month.

Vancouver Average Price

Source: rebgv.org

 

Now, Couver’s ever-optimistic home bulls contend that averages are skewed thanks to high-value sales. They urge us to concentrate on the HPI index, not average prices. Whatever.

All this author can say after 18 years of studying price charts is that this one is scarytown. It’s more than enough to make some skittish homeowners hit bids, at least in the short term.

Hence, the advice: If you need to tap your equity (refinance) to the tune of 80% loan-to-value, or get an 80% LTV credit line for future borrowing needs, you should be filling out your application as you read this.

When home prices do what they did last month, appraisers become more conservative. Anecdotally we’re already hearing about North Shore and West End/West Side appraisals coming in softer than expected. And lenders and insurers could also be fast to react, by tightening up internal underwriting criteria and cutting back loan sizes.

Now, lest anyone get the wrong idea, nobody reading this should run out and refinance for refinancing’s sake. This is solely an alert for prudent Vancouver owners who A) must refinance anyway, and B) plan to live in their home a long time. For those folks, waiting a few extra months to close could potentially result in their loan amount being cut back by the lender.

Of course, this discussion is academic if the GVA quickly rebounds. Stranger things have happened. In fact, in the back of my mind I almost wondered if Vancouver’s real estate board misplaced a decimal point when publishing that historic $294k print.

A stunning one-month move like that can scare the bejesus out of weak-handed homeowners. So, watch the number of new listings and expedite your refinances, Vancouverites…just to be safe.

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One of the most touted value propositions we express as mortgage brokers is choice. Brokers can compare dozens of lenders whereby lender reps push only one brand: their own.

Having a wide array of lenders allows broker clients to enjoy more customized financing solutions. That’s important because one lender doesn’t fit all. A given bank, monoline or credit union may have punitive penalties, restrictive porting policies, poor blend and increase options and so on. Customers need choice, and our industry depends on it.

That’s why I’ve always found stats like this—from FSCO, Ontario’s broker regulator—to be surprising: Roughly one in five brokerages finance more than 50% of their mortgages with just one lender.

Now, some of this can be explained in cases where licensees must register as brokers under the Act, but essentially act as lenders. But many are just everyday brokers who choose to funnel the bulk of their mortgage volume to one supplier.

Maritz discovered a similarly eye-opening stat in 2011 when it found that 90% of the typical broker’s volume goes to just three lenders. That’s profound for an industry that promotes consumer choice.

This raises important issues:

  • Firstly, if you’re a broker who does over half your business with one lender and/or 90% of your business with three lenders, and you boast something like “We have access to more than 40 lenders” on your website, your marketing is deceptive at best.
  • It’s a sad commentary when full-time brokers are forced to route their volume mainly to 1-3 lenders in order to access competitive pricing and service. Most brokers would prefer to sell the best product and rate for each unique client, if they could. But too many can’t. They don’t have the deal flow to get those rates and products.
  • This reinforces how critical it is for lenders to embrace deal desks (a.k.a., Central underwriting hubs), so that up-and-coming brokers can access status pricing/products while ensuring lender efficiency.
  • Similarly, it underlines how vital it is that ALL brokerage networks operate professional deal hubs. It’s unbelievable that some national firms still don’t have them. Those who don’t are doing a massive disservice to their small and mid-sized broker members who are handicapped by their volumes.

One more thing on that topic. For you brokerages who run these desks, please don’t fleece your agents by pocketing the volume bonus and efficiency bonuses. Charge a flat, transparent and fair fee (e.g., 5-7 bps, minimum $100) that’s commensurate with your actual processing costs.

Lender access is sacred. Deal desks should be a service to agents, not a fat profit centre for broker networks, which already earn splits and/or franchise fees. If you superbroker owners out there want the bottom 80% of your agents to prosper, and you want to support young brokers entering the business, start thinking long-term and strategically on this issue.

Brokers may someday lose the rate war, but if we play our cards right, one battle we’ll never lose is product selection. We have to use this benefit to our advantage as an industry by helping smaller/newer brokers access more products efficiently, and with fewer volume commitments.

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Bank earnings_sq

Another bank earnings season has just wrapped up, giving us insight into how Canada’s Big 6 banks are monitoring and reacting to housing market risks, most notably runaway prices in Toronto and Vancouver.

Here’s some of what we learned from Big Banks’ third-quarter reports:

  • While credit card and personal lending delinquencies are rising, particularly in oil-producing provinces, loss rates on uninsured mortgage and HELOCs remain low and stable overall.
  • During the conference calls, a number of analysts openly pondered whether moderating growth in the banks’ mortgage portfolios may actually be prudent, given current market conditions.
  • There are clear signs of an industry-wide move towards a lower ratio of insured mortgages and lower loan-to-values on uninsured mortgages.

In keeping with CMT’s quarterly tradition, we’ve picked through the Big Banks’ quarterly earnings reports, presentations and conference calls, and compiled all the mortgage-related goodies. Notable tidbits are highlighted in blue.

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READ MORE

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Credit application FBPeople who apply for mortgages are up to three times more likely to seek additional credit in the 12 months that follow.

That stat comes from TransUnion Financial Services, which ran a study a few months back surveying U.S. mortgage applicants with a prime or better credit rating.

(Side note: TransUnion didn’t report any Canadian-specific data in this survey, but it’s a fair bet that things aren’t drastically different up here.)

The finding is important because “it quantitatively confirms the conventional wisdom,” said Ezra Becker, co-author of the study and senior vice president of research and consulting for TransUnion. The report also found that mortgage applicants were:

  • 50% more likely to open a credit card over the next 12 months following their mortgage inquiry
  • Up to three times more likely to seek a car loan compared to overall consumers.

This proclivity to borrow (more) is partly why lenders covet mortgage borrowers. Such customers are ripe for cross-selling and in the broker space, probably no one does that better than Scotiabank. Hopefully TD and other deposit-taking lenders in our channel take the same opportunity to offer financial services promos to new broker-referred clients. And for all the brokers who complain about branch signings, think about how much you’d complain if banks deemed our channel unprofitable (because of insufficient cross-sell opportunity) and pulled out entirely.

TransUnion’s study also found something else somewhat curious. Credit card spending actually rises just before a mortgage is about to be paid off. In fact, in the month prior to discharge, consumers were found to increase credit card spending up to three times the level they spent just six months earlier.

“A long held assumption among lenders is that new mortgage applicants spend less on their credit cards prior to their mortgage closing event – either to ensure their credit picture does not change or simply because they anticipate spending more once they move into their new home,” said Charlie Wise, VP at TransUnion and study co-author. “Our research indicates that millions of consumers actually increase their card spending in the months before the new mortgage origination. Whether it’s to purchase furnishings or make updates to their existing property, many consumers who move increase their spending before moving into their new residence.”

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Second quarter earnings from Canada’s biggest non-bank lenders are now in the bag.

We learned (no surprise) that improving customer retention rates continues to be a priority for at least two of the lenders, and that Home Capital is making a concerted effort to improve service levels to mortgage brokers.

“Service levels are not where we think they should be for the mortgage broker, with slower turnaround times on commitments and verification of income, however, we are improving the process and momentum is picking up,” CEO Martin Reid said during the conference call.

We’ve pulled all these and many more tidbits from the transcripts of three non-bank leaders, First National, Home Capital and Street Capital. Here’s a rundown of it all, with highlights in blue.


Street Capital

Notables from its call (source):

  • Street sold $2.54 billion of mortgages in Q2 vs. $3 billion last year.
  • Street says it renewed nearly 75% of its mortgages that were available for renewal
  • The company’s market share was at 8.4% in the quarter, making it the fourth largest non-bank lender.
  • As of the end of June, the average beacon score on its portfolio was 749, the average loan-to-value ratio was 81.2% and the average total debt service ratio was 36.1%.
  • “This year we are focused on putting the pieces in place to drive revenue growth starting in 2017,” said CEO Ed Gettings. “We have three primary objectives in 2016. Our first objective is to advance our Schedule I bank application through to completion… Our second objective is to grow mortgages under administration and hold our market share in the mortgage broker channel. Originations were lower than what we would have liked during the quarter, as the underwriting adjustments we made in Q1 2016 had some spillover effects in the second quarter of 2016… Our third objective for 2016 is to continue to generate renewal volumes of 75 to 80% of loans eligible for renewal.”
  • “We continue to expect that on a full-year basis, gains as a percentage of mortgages sold will be in the range of 178 to 182 basis points,” said Marissa Lauder, Chief Financial Officer. “Our acquisition expense ratio was 106 basis points in the quarter; this compares to 102 basis points last year. The increase reflects lower relative renewal volume year-over-year and a broker incentive program we launched late in Q1 2016 that increased the acquisition cost in the quarter.”
  • Lauder added: “We continue to expect 2016 renewal volumes that are approximately 15% lower compared to (last year). But in 2017… we expect the upper trend in renewal volumes to resume. With renewal volumes expected to exceed to 2015 renewal volumes by 10% to 15% and 2018 renewal volumes (that) are expected to increase by 30% to 40% over a strong 2017 providing a real revenue boost in these years.”
  • Speaking on the quality of Street’s credit quality, President Lazaro DaRocha said, “… the serious arrears rate on our portfolio of mortgages was 11 basis points, well below the CBA performance. This is also well below last year which had 16 basis points..”
  • Asked to explain Street’s forecast for 2016 originations to match 2015, Gettings said: “…we’re looking at our current pipeline and we’re feeling good about the fact that we think we have turned the corner on those operational issues that we were dealing with in Q1 and Q2. Market share during the quarter went up as well from 7.6% in Q1 to 8.45%… so we believe that we are building momentum, and we’re clearly headed in the right direction.”
  • Asked whether there was any indication of declining demand overall or from first-time buyers in the heated Toronto and Vancouver markets, Gettings replied, “The broker channel itself is growing at between 4% and 5% year-over-year on a year-to-date basis. For first-time buyers, yes, the price points are being stretched for them. And what I understand is happening is that instead of buying houses they’re focusing on condominiums because the price point’s more attractive for them.”
  • In the last quarter, staff levels rose to 241 from 215 and was “primarily, if not all, within our underwriting and QA area,” said DaRocha.
  • On Street’s now discontinued broker incentive program, CFO Marissa Lauder said the program increased acquisition costs on a net basis by 5 bps for certain products. DaRocha added the program was a reaction to what Street’s competitors had in the market at the time. “We’re never the lowest rate or the highest commission, but we need to be competitive. So this was a reaction to others’ moves.”
  • On Alberta origination volumes, Gettings said: “It’s a slight decline on year-to-date originations. We would have had 15% of the book in Alberta last year; it’s dropped down to 14%. So it’s definitely a function of the market in Alberta, as well as some of our underwriting guidelines.”
  • Asked what is behind Street’s 75-80% renewal target, Gettings replied: “We definitely have a retention team in place that if we see a customer calling in that has a desire for a payout statement or something like that, we’ll immediately flip them to an in-house retention team and we’ll have a dialogue with the customer to understand what their needs are. If they’re looking to negotiate a bit on rate, we’ll take that into account.”
  • Asked how Street is managing the hot B.C. market, Gettings answered: “…we are really not targeting that high-end segment of the marketplace. Like other lenders, we have a sliding scale. So as you go up in loan amount we reduce the loan-to-value that we’ll lend to you as a customer. You have to have more skin in the game.” He said, for example, a borrower looking to buy a $1-million home would have to put down 20%, or $200,000. “We might consider lending you that full amount, depending on a number of underwriting criteria…the maximum that I will lend is in the $1.8, $1.9 (million) range, which takes our loan-to-value down into the 60% to 65% range. So we’ve got lots of capital protection in case of a default or a downturn in the marketplace. Our average loan size is in the $375,000 range.

 

Home Capital

HCG-LOGONotables from its call (source):

  • Home Capital reported net non-performing loans of 0.33% of gross loans as of year-end, unchanged from Q2 of last year.
  • It also reported combined traditional and Ace Plus and insured single-family residential mortgage originations of $1.37 billion for the quarter, up 5.7% from last year.
  • Noting that 2014 was Home Capital’s “high water mark” for originations, CEO Martin Reid said: “On a total origination basis, we are ahead of 2014, showing we are on the right track and within our different product lines there is room for improvement and we are working hard towards those improvements, particularly as it relates to our traditional mortgage product.”
  • He added: “Service levels are not where we think they should be for the mortgage broker, with slower turnaround times on commitments and verification of income, however, we are improving the process and momentum is picking up. We believe this is our biggest impairment to greater success on the residential side and a number one priority for management. Our investment and broker portal and digitization of internal process will help to address those issues and we hope to see the positive impact of that in the coming quarters.”
  • Talking about Home’s new uninsured product, Ace Plus, which is geared towards borrowers who just miss qualifying for a prime mortgage, Reid said: “We moved quickly to serve these borrowers by rolling out Ace Plus late last year and we are seeing the positive results. We originated $115 million of Ace Plus last quarter, significantly higher than we what we did in the first quarter.”
  • “We have launched our new broker portal and loyalty program to improve service and turnaround times in the mortgage origination process,” Reid said. “…This is a major effort that will improve how we do business. We will be able to process more business, more correctly with more control and a better customer and broker experience. The benefits will really start to flow toward the end of the year and into 2017…”
  • “…we are not seeing any unusual credit issues with the mortgages related to the 45 suspended brokers. We are now over 90% through our review of the portfolio originated by these brokers, so we are well on our way to finishing that up before the year end as we have previously stated,” Reid said.
  • Offering his take on current market conditions, Reid said, “We see a much more moderate market ahead of us rather than the double-digit price increases that have characterized Toronto and Vancouver recently with the better balance between supply and demand. We don’t see any significant move lower in prices.”
  • Responding to a question about an increase in run-off of mortgage originations, Reid said, “we were probably under-resourced in addressing some of that runoff. So we’ve addressed that…brokers like to sort of turn over their clients and they are very quick to try and sort of move clients from one institution to another and what we will do there is look for the early warning signs and then address it and try and keep that customer. So we have addressed that. We think we are going to get a little bit better traction, so I am not sure I would look at that runoff in the last couple of quarters as being indicative of future quarters.”
  • Asked about Home Capital’s plan to increase net profit, in the face of several quarters of continued year-over-year declines in net income, Reid answered: “…we had started doing some changes internally as it relates to our residential business and then we had the fraud situation, which accelerated a lot of those changes, so we spent a lot of time, a lot of money and a lot of energy from our employees in terms of implementing those changes. In the process of that I would say the biggest downfall has been our service level to the mortgage broker. So that’s really what’s impacted originations the most I think is that service levels of the mortgage broker, and these are mortgage brokers that we always dealt with and still deal with today. So for us… we continue to invest in technology, redefine process and do it in a way that we are putting the right risk and control framework in place, but trying to get that customer service to the mortgage broker back to where it needs to be. And that’s where we are seeing progress on originations if you look at the residential, consecutively we’re up about 25% from Q1 to Q2 and we do see that continuing to improve as we improve our service levels for the mortgage broker.”

First National

First-National.gifNotables from its call:

  • Mortgage originations in Q2 were up year-over-year by 8% to $5.5 billion.
  • Mortgages Under Administration or “MUA” increased another 7% year-over-year to a record $96.6 billion. This increase was attributed to “success in mortgage originations and renewal retention,” said CEO Stephen Smith.
  • “The only moderating factor was lower activity levels for our Calgary office, which was to be expected given the economic slowdown in Alberta,” Smith noted.
  • “Mortgage servicing income was 23% higher in the second quarter, reflecting higher revenue earned from First National’s third-party underwriting and fulfillment processing business,” said Rob Inglis, Chief Financial Officer.
  • Moray Tawse, Executive Vice President, spoke about the areas of focus going forward: “As we look ahead, we have significant renewal opportunities to take care of this year and that is one area of particular focus. Another is our underwriting and fulfillment processing business. We have an opportunity to continue to add to First National’s earnings by sustaining high levels of mortgage broker service in this area and we believe we have the resources in place to deliver.”
  • “…we will keep an eye out for changes in the landscape including government policy changes, but from our vantage point right now, it’s business as usual,” Tawse added.
  • Asked for his take on B.C.’s new foreign buyer tax, and the prospect of a similar tax being adopted in Ontario, Smith said: “…our average mortgage size is in the $300,000 range. We’re not particularly lending in the range of properties that are targeted by this tax. The issue of taxes both here and potentially in Ontario, that starts to be a more public policy issue. I think there’s a concern in B.C. A legitimate policy concern is that you don’t want your housing stock in your major cities to start to become a store of value for people outside the country. And that has overreaching policy concerns that probably just don’t necessarily affect us as a mortgage lender. I think we’ve always been prudent in the way we lend. And we make sure that the people have the down payment; the down payment comes from identifiable sources, that the people have the income and have a job to be able to support that income. Do I think [B.C.’s new tax] is going to affect the market particularly? I think it’ll have an effect in the market. You’ve just (increased) the prices by 15% for foreign buyers. But I don’t think it’s going to have a material effect at First National.”

Note: Transcripts are provided as-is from the companies and/or third-party source, and their accuracy cannot be 100% assured.

Steve Huebl & Robert McLister


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Outsource SMThe broker business is paperwork intensive, to put it mildly. You’ve got lender approvals, provincial disclosures, service agreements, client income documents, purchase agreements, and so on and so on.

Pushing all that paper can be tedious and time consuming. Anyone trying to scale their business has undoubtedly thought about how to streamline document processing and staff accordingly. That includes the founder of DocAssist, a new-ish broker service company that we came across recently.

CMT has looked at document outsourcing services (like Nexsys Financial) in the past but the price was never right. With DocAssist, it’s much righter.

DocAssist is essentially a virtual support team at the ready to assist small, medium and even top-producing brokerages. Its goal is to save brokers processing time so they can allocate more resources to marketing and mortgage planning.

“We work with brokers who see the value in expanding their operations, either to increase revenue and spend more time advising clients, or to improve their lifestyle and spend less time getting paper cuts,” says founder Jason Henneberry.

“Our partners believe, as we do, that they can be more effective at growing their businesses by outsourcing repeatable activities and processes that often keep them tied to their desk.”

Basic membership to DocAssist gives brokers access to a variety of on-demand document management services, including:

  • CRA Notice of Assessment retrieval;
  • Title and Corporate Registry searches;
  • Client document management (sorting and labelling all inbound documentation and delivery of receipt notifications to clients and referral sources);
  • Post-funding marketing support (personally signed thank-you cards, preparation and delivery of closing gifts, welcome packages, renewal letters and other custom client marketing).

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For document retrieval, brokers are charged about the same as what it would cost to get these documents directly. DocAssist makes its money on subscription and per-file fees. For example:

  • As low as $29 per month for 10 NOA retrievals.
  • $50 per file for client document management.
  • $100 per file for client document management plus preparation of closing packages (signature-ready lender forms, disclosures & closing documents) and uploading complete compliance documents to the brokerage.
  • Professional fulfillment services are also available starting at $249 per month and $250 per instance. This includes services such as initial file review, closing package preparation (cost of borrowing disclosures, lender forms, etc…), file completion and fulfillment (managing appraisals and working directly with lenders to satisfy conditions and complete the file for instruction), and even vacation coverage.

“There’s a common misconception in our industry that in order to provide the “best service,” a broker needs to be involved in the entire mortgage process,” Henneberry says. “This belief has so many of us justifying why we aren’t willing to let go and we try to do everything ourselves.”

Henneberry estimates that, on average, his 200+ clients save over five hours per file. “…This time can be re-allocated to more productive, business-generating activities,” he adds.

On the issue of security and confidentiality, Henneberry openly acknowledges that some have concerns about outsourcing sensitive information to a platform run by another brokerage. DocAssist operations are completely firewalled, he assures. The company carefully abides by all PIPEDA requirements and runs on a system separate from MortgagePal, the brokerage he also operates. After closing, all client information is stored with, and only accessible to, the brokerage that owns the client relationship.

At the end of the day, this type of service boils down to cost/benefit. The cost of a full-time documents fulfillment officer can range from $35,000 to $65,000 a year, and that cost is generally fixed. By contrast, DocAssist affords the benefits of variable pricing and outsourced HR headaches. For that reason, it’s probably worth a look for anyone (especially smaller shops) thinking of hiring an assistant.


Sidebar: Interested brokers can sign up for a 15-day free trial with unlimited NOA retrieval at docassist.ca.