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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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.

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Market share FBThe Globe and Mail reports that “unregulated lenders” now own a 15% share of Canada’s mortgage market, according to a Finance Department memo it obtained. That sounds somewhat concerning as a layperson, doesn’t it?

It sounds like Canada has some drunken, unrestrained Wild West lending going on. You can hear Joe Public thinking, “These yahoos must be selling those insidious teaser rates and doling out those NINJA (no income, no job, no assets) mortgages that sunk the U.S. market in 2008.”

That’s unfortunate…because it’s not true.

Right off the bat, let’s dispense with the term “unregulated” as it applies to prime mortgage lending. It’s complete baloney (I’d rather use another term but kids might be reading).

Virtually all prime non-bank lenders are regulated. They must conform to:

  • Federal regulations that apply to the banks providing their funding
  • Federal regulations that apply to insurers providing their default insurance and securitization
  • Provincial regulations applying to mortgage brokerages, administrators, etc.

On top of this, non-deposit-taking lenders must withstand the regular audits and scrutiny of their OSFI-regulated bank funders and investors.

All told, this puts them under a microscope that’s just as intense as the major banks, if not more so. Anyone who thinks banks would risk their capital and reputation by funding them otherwise is woefully misinformed.

Note, of course, that the aforementioned regulations do not generally apply to private subprime lenders. Those lenders account for roughly 1 in 16 mortgage originations, according to CIBC (see its chart below). Yet, they present arguably no material systemic risk because they’re predominately investor- and self-funded, require higher borrower equity, and price and underwrite commensurate with their risk appetite. (Incidentally, the rise in private lending is directly attributable to policy-maker’s own actions — i.e., stricter federal lending guidelines.)

Source: CIBC, Teranet

Source: CIBC, Teranet

The Globe further reports, “The government memo estimated that about 90 per cent of the business of unregulated lenders is subject to federal mortgage rules, which include meeting the strict underwriting standards set by CMHC and the Office of the Superintendent of Financial Institutions, Canada’s banking regulator.”

The message here is that non-deposit-taking lenders have countless checks and balances and ample supervision to assure their stability. That’s vital because, as the Department of Finance is quick to point out, they’re “enhancing competition in the mortgage market.” Moreover, they account for roughly half of broker originations.

So let’s not allow news stories without context to send the wrong idea about non-traditionally regulated lenders. They and their mortgage broker partners are overwhelmingly responsible for keeping rates and prepayment penalties down, and that keeps more money in Canadians’ pockets.

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With home prices rocketing into new galaxies, one might think that loan-to-values are surging. After all, we’re bombarded with headlines about under-capitalized homebuyers struggling to get into the market.

In fact, loan-to-values have held steady for at least nine years running.

From March 2007—as far back as our mortgage balance data goes—to spring this year, Canada’s average home price jumped 70% to $508,567. (Source: CREA)

In that same time-frame, the average residential mortgage surged by a similar percentage: 71%, to $181,000. (Sources: RBC, 2007; Manulife, 2016)

Looking at this another way, the mean equity in a Canadian home nine years ago was 65% (in homes with mortgages). Today, it’s about the same.

Interestingly though, the average mortgage amount has risen $75,443 over the last nine years. But the mean value of a Canadian home has surged almost 2.8 times that, or $209,190. That’s a sizeable net gain in nominal dollar equity.

Of course, what the market giveth the market can taketh away. But that net equity growth, if it holds up longer-term, could be an essential store of wealth for so many with insufficient retirement savings.

Only 1 in 5 middle-income Canadians who are retiring without an employer pension have saved enough to retire comfortably, reports CBC. Imagine if they lost $100,000 to $200,000 of home equity to boot.

This is just one more reason why it’s so utterly essential that policy-makers stack housing policies carefully. It would be one thing for mortgage tightening to cause a correction, but it would be absolutely calamitous if it ever triggered a crash.


Sidebar: These are the average mortgage balances in Canada’s largest cities. How noteworthy that high-priced Toronto is only 7% above average. (Source: Manulife Bank)

$259,000 — Vancouver
$217,000 — Calgary and Edmonton
$194,000 — Toronto
$156,000 — Montreal

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Laptop Online FBThe growth of rate comparison sites over the last six years has paralleled the surge in online mortgage shopping.

With the burgeoning demographic of web-savvy mortgage consumers comes greater demand for decision support tools. More than a few firms in our space are presently developing technology to help borrowers compare rates, costs, features and terms.

The latest example comes from RateHub.ca, which just got a grant from the National Research Council of Canada’s Industrial Assistance Program (NRC-IRAP). RateHub will receive up to half a million dollars to develop personalized online product recommendations for its site users. (By the way, this funding is available to other industry participants as well, but the qualification process is not easy.)

RateHub says its technology will allow users, among other things, to enter detailed financial information and receive personalized mortgage product recommendations. The site will develop tools for credit card, savings account and insurance comparisons as well.

“The benefit to the mortgage shopper is being able to go online at their convenience and find a product that is suited to their individual situation,” RateHub CEO Alyssa Furtado told us. “It will make the at-home, online research process much more accurate and seamless. As mortgage brokers know, not all borrowers are created equal. We want to improve the online experience, and take specific borrowing circumstances into consideration, such as investment properties, those with income from freelance work, etc., to help the user find what they are looking for and deliver a tailored rate and product.”

This naturally begs the question: Could automated mortgage recommendations ever replace the advice of a mortgage professional?”

Furtado doesn’t go that far, at least publicly. She sees the increasing range of tools available to web-based consumers as complementary to the services of a broker rather than being in direct competition. alyssa-furtado

“They can and do work hand-in-hand,” she said. “We know most consumers start their mortgage research online, and there is an expectation by the average user to be able to find the information they are searching for [online].”

“A mortgage broker will always have offline experience and be able to offer offline services that benefit the (more knowledgeable) mortgage buyer, like being able to negotiate on behalf of the customer.”

The risk is that consumers blindly gravitate to the lowest rate, or that the comparison technology leaves out key contract considerations.

Those concerns aside, the ability to better filter mortgage options online saves people time and makes for smarter borrowers. That’s clearly a win for consumers as information power leads to more effective negotiating and lower borrowing costs. 


Sidebar: Here’s some technical research if you want to read more on the cost of information asymmetry in Canada’s mortgage market.


By Steve Huebl & Robert McLister

 

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Broker channel mortgage volumes continue to grow, but somewhat slower than the industry average. Overall broker-originated mortgages rose 4.4% in Q2 versus the same quarter in 2015.

Bank share of the broker market fell another 4.1% y/y. That’s on top of the 3.4% y/y decline in Q1. Banks now hold just 30.8% of the broker segment, the least since we began covering this survey (and down from almost 60% in 2010).


READ MORE

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Rising house prices FBMany an armchair analyst has speculated on the factors behind Toronto and Vancouver’s runaway home values. And now, a recent study by RBC Capital Markets brings more data to the table.

According to its report, home prices increased at a compound rate of 5.6% annually from 1999 to 2015 in Toronto and 6.2% in Vancouver, outperforming the S&P/TSX Composite total return of 5.3%.

RBC’s analysis found that four factors accounted for between 85% and 90% of those price increases since 1999:

  1. Lower interest rates
  2. Higher incomes
  3. An increase in the percentage of incomes used to make mortgage payments
  4. Larger down payment gifts from family members.

The remaining 10-15% can be explained by influences that are more “difficult to quantify,” RBC says, such as geographic constraints and foreign buying. Noteable is the fact that the first two variables account for almost three quarters of price appreciation, its authors claim.

Interestingly, this data doesn’t cleanly mesh with earlier studies from the likes of the Bank of Canada. A 2012 BoC research paper found that the jump in real house prices between the fourth quarter of 2001 and the third quarter of 2010 were driven by:

  • Increasing population: 33%
  • Rising real household disposable income: 24%
  • Declining real effective mortgage rates: 13%
  • Other factors, including “recovery from the sluggish price growth of the 1990s”:  29%.

Whatever the actual numbers, if the floor falls out in the housing market, RBC says that changes in home prices are not good predictors of mortgage loan losses in Canada. “…Job losses (not price declines) are the better leading indicator of potential future losses for lenders/insurers,” it notes. That’s some consolation for Toronto and Vancouver, which have “amongst the best economic and employment growth rates within Canada.”

Other specifics from the report:

Over the period from 1999 to 2015, RBC says:

  • Interest rates are estimated to account for 39% of the increase in home prices in Toronto and 34% in Vancouver;
  • Higher after-tax incomes are estimated to account for 29% of the increase in home prices in Toronto and 40% in Vancouver;
  • The tendency of borrowers to set aside a slightly higher percentage of after-tax income to make mortgage payments is estimated to account for 17% of the increase in home prices in Toronto and only 4% in Vancouver;
  • Larger down payment gifts from family members are thought to account for 5% of the increase in home prices in Toronto and Vancouver;
  • Geographic constraints, such as scarcity of buildable land, have limited residential development and densification. That too has contributed to rising home prices—as have higher municipal charges, labour and materials costs;
  • “Foreigners are likely small in number, but arguably significant in impact,” says RBC. “Although it is likely that ‘foreigners’ do not comprise a significant percentage of home sales, they are arguably the marginal buyer…for those buying in the high end of the market.” Contrary to some other economists, RBC says, “…They likely drag up home prices in the mid- and low-end of the market” and impact everyone (although, the report doesn’t speculate on how much, and cautions that its data on this is anecdotal and unclear);
  • Immigration is yet another home appreciation catalyst, “particularly the investor immigrant program for wealthy applicants.” International buyers also love our weaker loonie, which makes Canadian homes appear “on sale.”

The report makes one other interesting point about Chinese buyers. RBC states that, “If launched, China’s Qualified Domestic Individual Investor program (QDII2) has the potential to be a material driver of further home price appreciation in Toronto and Vancouver.” This is a factor that hasn’t made a lot of headlines. Although, RBC notes that the program’s launch date is still unclear.

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Protecting housing smThe B.C. government’s “blame non-resident homeowners” campaign is now officially out of control.

Provincial leaders have just molested international homebuyers with a savage 15% land transfer tax. Worse, and incomprehensibly, they’ve applied it retroactively and with no compunction to purchasers already locked into contracts, people with no other way out besides losing their deposit. This is how the premier wants B.C. to be judged by those outside our borders.

Of course, there are other countries with protectionist real estate practices. But there are also other countries that levy 80% marginal tax rates and jail women because they forgot their burkas. Taking cues from other nations is not, by default, sound.

Given the knee-jerk nature of this tax (the market got all of eight days’ notice to prepare for it), one wonders if B.C.’s premier ever pondered its hypocrisy.

Yesterday I asked a personal finance “guru,” who shall remain nameless thanks to her vulgar response, whether the U.S. should retaliate and force onerous taxes on Canadian snowbirds. It’s a legitimate question.

Those who exclaim, “Yes! Protect hapless local Americans from marauding Canadian purchasers,” should think about that response for a moment. For if Canada snubs international buyers, we can’t argue against the same treatment for Canadians abroad. We have no basis to complain if other countries erect tax fences to shut our people out.

As important as it may be to stabilize home values, before exhausting other options and branding ourselves real estate protectionists, important questions should be considered:

  • How would we feel if the Americans slapped a demoralizing new retroactive tax on the half-million+ Canadians who own down south, and the millions more that will someday buy there?
  • How just is it for officials in Florida or Arizona or California to disadvantage and displace Canadians so locals enjoy cheaper homes?
  • How wise is it to discourage global investment in a country like ours, with its insufficiently diversified economy, and whose outlook deteriorates every time commodity prices drop 10%? (Note that many international investors and their executives, who invest and work in Canada, need second homes here.)
  • How much should pandering politicians put equity at risk for the 70% of Canadians who own homes, and the one in four seniors who depend primarily on home equity for survival?
  • Given the myriad of supply/demand factors driving home prices, to what extent does legal foreign buying (which likely accounts for just 1 out of 20 purchases long-term, most being high-end properties) really push up prices for working-class Vancouverites?

A key word there is “legal.” Fraudsters, money launderers and other criminal buyers must be chased down, fined, spend time in a 6’x9′ box and/or have their properties confiscated. 

By contrast, overseas buyers who respect our rules and buy a second home here should be welcomed with wide open arms, for their diversity, capital and contributions can be a net benefit to this great country. In so many cases they invest here, spend here, help fund the educational system here and support Canadian jobs here (and let’s not let student mansion owners distract from that message).

In cases where non-residents leave “affordable housing” vacant and don’t invest in and foster employment, perhaps that specific practice should be discouraged. But how short-sighted it is to lump all non-nationals into that same boat. 

At first blush, most people support higher taxes on Chinese, Korean, U.S., UK, Indian, Taiwanese and other non-Canadian buyers, and you can understand why. People are frustrated. They love Vancouver and they want a comfortable, affordable place to live in or near the city.

Heck, my wife and I lived in Vancouver for five years and we often wished we had enough money to buy a nice house near our workplace. But clearly, owning in a beautiful high-demand area in one of the world’s greatest cities was not our God-given right. Nor is it anyone’s.

Sometimes people who can’t afford something have to make hard decisions, like commuting an extra 45 minutes, changing jobs, living in a condo, migrating or otherwise improving their lot in life.

Without fail, however, both people and economies ultimately adapt to affordability challenges. But it takes forethought and time, and politicians focused on upcoming elections don’t feel they have that time. So we get short-term mindsets creating long-term policy—a bona fide travesty.

B.C.’s new land tax reeks of hypocrisy. If this country’s leaders want to be open members of the global community, and benefit from international trade, and protect our ownership privileges abroad, and attract foreign investment, we simply cannot send a message to non-Canadians that they’re less valuable to our society than we are. 


The views and opinions expressed herein are solely the views and expressions of the author and/or contributors to this site and do not necessarily represent the views of Mortgage Professionals Canada, or its advertisers or stakeholders.

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RMA and BFGBroker Financial Group (BFG) and Real Mortgage Associates Inc. (RMA) announced today that they plan to unite. The two brokerage companies say they’ll enter a joint share purchase agreement and take ownership in the other.

The reported benefits of the deal are sharing of technology, administrative resources, payroll, compliance and corporate relationships. Of course, with mortgage revenue being volume-based, the combination should also help the two garner slightly better compensation from certain lenders. “The industry pays on volume,” says BFG CEO Joe Rosati.

Both firms are relatively small as far as broker networks go. The companies haven’t disclosed their volume but we hear it’s in the $1.5 to $2 billion neighbourhood, combined. By teaming up, the two will also improve their economics with financial partners for greater cross-sell opportunities.

Both organizations will continue to operate their separate brands. Some might think that focusing finite resources on one brand would be wiser, but Rosati says the two firms don’t want to disrupt their brokers’ branding and operations.

The advantage that BFG heralds most is its “Scarlett” broker technology, with its CRM, digital marketing and back-office functionality. (Here’s a look at “Scarlett.”) “A partnership with BFG gives RMA access to a piece of technology that is vital to the future growth of our organizations,” said RMA President David Yuzpe in the company’s release today.

Brokerage consolidation is well underway in the mortgage business. This deal is just the latest example and the trend will only intensify. In a thin-margin industry that measures profits in basis points, scale can make or break a business model. The big boys (e.g., DLC, VERICO, Mortgage Alliance, TMG, etc.) are all looking to capture the highest producing agents. Hence, smaller shops may increasingly try to protect themselves and bulk up, to make their offerings more compelling. In that vein, this combination appears to be a sound move for both BFG and RMA.

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Divorce FB The nation’s biggest credit union, Vancity, is pulling out of the mortgage broker channel.

The Vancouver-based company sent an email to notify brokers this morning. It has been in the mortgage broker channel since 1991, when it acquired Citizens Trust Company. The channel was administered through Vancity’s subsidiary, Citizens Bank, until 2007 when it was transferred directly to Vancity.

When asked why it was leaving, John Derose, Vancity’s Director of Mobile Sales, explained:

As a member-owned financial co-operative we place a high priority on building strong relationships with our members. The business we generate through our mortgage broker channel often does not allow the best opportunity to build these relationships and we want to focus on those channels that do.

We are able to make this move in large part because our mobile [sales force] capacity has grown significantly since the 1990s. Historically, people have used brokers to get mortgage support and advice at the times and locations that suit them best. Now, with our mobile capacity, we have an expert capability to do this in-house.

Finally, the industry as a whole has been moving towards greater transparency and our members and prospective members can always see our rates posted on Vancity.com. This allows people to determine the best rates without necessarily having to use a mortgage broker.

Vancity did have some success with brokers. Reportedly its Victoria, B.C. market penetration was thanks in large part to broker-originated customers.

That aside, and while it’s sad to see a big brand name leave the market, Vancity was truly a marginal player in the broker space. It has been for a long time. As of the first quarter, it was only the 27th largest lender in the channel according to D+H data, a ranking it’s been more or less stuck at for years. Vancity’s overall broker market share was a mere speck at one-tenth of one percent.

Part of that is because of service issues, say Vancouver brokers we interviewed off record for this story. The other part is price competitiveness. Its broker rates have been absolutely horrendous in the last year. Its 5-year fixed, for example, has been over 3.00% for months. Meanwhile, it’s openly advertising 2.79% on its website for the general public.Vancity

Clearly the company didn’t want much broker business and we suspect this decision was in the back of its mind for a while. “The mortgage broker channel represents less than 5% of our overall mortgage portfolio,” said Derose. “We are confident we can replace this business through our branches, our call centre and through our mobile mortgage specialists.”

Naturally, brokers have a different take.

“I think it’s regrettable for a couple of reasons,” said Paul Taylor, CEO of Mortgage Professionals Canada, the country’s main broker industry association. “For our member brokers and the growing number of consumers who choose to use a mortgage broker, Vancity will no longer be an option to consider. With the difficulties many consumers are already facing in the real estate market in Vancouver, less financing options is not a good thing.”

Taylor went on to add, “It is also a disappointing that Vancity couldn’t find a way to make their broker relationships work for them…As other new entrants to the mortgage broker channel are finding, brokers offer a great way to access portions of the marketplace that direct marketing often doesn’t reach. Their individual customer relationships also ensure product suitability when presenting options, simplifying internal underwriting and approval processes.”

One of the new entrants Taylor is referring to is Manulife Bank. The bank invested millions of dollars to enter the broker channel earlier this year, and has reportedly been pleased with its performance to date. Brokers currently account for roughly one-third of all mortgage originations in Canada.

“I hope Vancity revisits this decision soon and reconsiders its position,” Taylor added. “As broker market share grows, it’s difficult to understand why any lender wouldn’t want to be a part of it.”

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…Robots are racing to replace mortgage brokers.”

Like it or not, we’re going to see more and more headlines like this.

This particular story comes from the UK, where British entrepreneurs have a head start on automating mortgage services.

On this side of the Atlantic, brokers seem largely unconvinced about robo-lenders eating their lunch. This recent ilovemortgagebrokering.com podcast is one example. “Am I concerned that I’m going to be disrupted out of a job by an app? I am not,” said co-host Dustan Woodhouse, arguing that a human touch is needed because mortgage clients have unique requirements and large sums of money at risk.

Co-host Scott Peckford added, “The people who focus on giving advice and can add value to a transaction are still going to have lots of work…Not everybody wants to do E*Trade.”

No doubt, most successful established brokers take comfort that their existing high-touch model and referral sources will continue streaming a fountain of business. But it’s a different future facing many newer agents. I’m talking about those who operate run-of-the-mill low-tech brokering practices without the benefit of large tappable client databases. For them, automated mortgage systems (and their deep-rate discounts and online decision support tools) may pose greater danger.

Then again, some in our business pooh pooh the entire premise of automation slashing rates and commissions. They hold that mortgages are too complex to be widely automated, suggesting that most consumers need (and will gladly pay a premium for) one-on-one advice.

Well, somehow firms like Betterment have figured out how to code self-serve platforms and amass up to $5 billion in customer assets. And they’re doing it in just as complex a business: investment management and asset allocation. They’d probably be the first to tell us that AI is easier to program for prime mortgages, where fewer variables go into product selection.

How much brokers worry about all this will vary on the uniqueness of their business model, their technology, their referral networks, their database size and so on. Fortunately for our profession, things like non-prime underwriting, lender follow-up and mortgage fulfillment (i.e., the closing process) are harder to automate, assuring a place at the table for traditional brokers with Alt-A files, “B” deals, time-sensitive conditional purchases, portfolio rental financing, commercial financing, etc.

If “A” business is your meat and potatoes, however, the world is about to get more interesting. “Your referral relationships aren’t going to dry up in the next 6 months,” writes mortgage technology expert Jesse Passafiume. “…but there will be an increasing number of digital savvy competitors that earn business—your business. The time to adapt is now.”