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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Report Review FBMortgage Professionals Canada released its spring report on mortgages and housing this week. More so than in previous reports, this one was opinion-heavy on the overall affordability and sustainability of housing.

MPC’s Chief Economist Will Dunning has long held that mortgage rule tightening could trip up the economy, noting that “…the greatest risk to the housing market (and consequently to the broader economy) is not reckless consumers or lenders – it is needless policy changes.”

That position has been well covered by the media so we won’t belabour it here. Instead, here are four other quotes that deserve attention — this author’s feedback is in italics.

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  • “Our review of housing market data convinces us that changes in housing prices are fully respective of interest rates.”
    • Affordability is a forceful lever and falling mortgage rates have been the fulcrum for that lever. Nonetheless, home prices also hinge on things like shortages of detached homes (in certain major metros), urbanization, income/jobs gains, natural population growth and immigration. Prices will continue reacting to these factors regardless of modest rate changes and policy tweaks.
  • “…a few senior executives in the financial services sector claim to see increased risk and are calling for tighter lending criteria. We would be interested in seeing the supporting data.”
    • Everyone should join in agreement on this one. Using a public podium to advocate housing changes (with potentially significant economic impacts) should obligate one to support that advocacy with hard data. 
    • Dunning goes on to say: “Mortgage lenders who are concerned about current risk-taking could very easily and very usefully add to the discussions by publishing data from their own businesses, especially with regard to Gross Debt Service Ratios and Total Debt Service (TDS) Ratios.”
    • Plotting debt service ratios over time is vital for housing risk analysis because it tracks how capable people are of making their payments. It’s especially telling if you know how many people have high debt ratios. Industry resources like CMHC and OSFI have had aggregate TDS data like this for ages but refuse to make it publicly available.
  • Will Dunning“The gap between posted versus actual rates has gotten increasingly large over time, and that change has implications for the reliability of any analysis that uses posted rates.”
    • Dunning is correct here as well. Few useful conclusions can be derived from posted mortgage rates, since almost nobody pays them. The Bank of Canada has ample discounted mortgage rate data but declines to make it publicly available. That’s a disservice to housing analysts across the country. Hopefully Mr. Dunning makes his discounted rate data available as well.
  • “At today’s typical mortgage interest rate (2.5%), and assuming an amortization period of 25 years: for the first payment, more than half (53%) is repayment of principal or forced savings.”
    • This “guaranteed savings plan” is one reason why, each and every day, more people view home ownership as their retirement saviour. Over one-third of Canadians expected to rely on home equity to fund their old age, according to Scotiabank in 2012. With inadequate savings and meagre investment returns, that number has likely grown, and will continue to grow. Ottawa best take care to balance its desire to slow and de-risk housing with preserving this critical retirement safety net for millions of Canadians.
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First quarter 2016 was one of the most unexpected quarters in memory for broker channel market share.

If you had to sum it up in one sentence: the largest players ceded a fat slice of the pie to smaller lenders.

In fact, the top five broker lenders combined posted their lowest market share reading since we began tracking this data six years ago.


READ MORE

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Brexit FBWhat a day in the markets. Britain surprised the world and walked out on the European Union.

In response, markets crashed around the globe—sovereign bonds aside.

Here’s a quick rundown of the Canadian implications…

It’s Not the End for the UK/EU

UK’s parliament must still vote to exit the union, albeit that’s expected to be a formality. Britain must then remain in the EU for two more years, and it’s not impossible for the country to change its mind in that time. Barring that, there’s the possibility that the EU and UK negotiate an alternative trade deal. After all, roughly half of UK trade is with the European bloc.

More Accommodative Central Banks

The UK’s Treasury expects its GDP to be a whopping 3.6% lower in two years. Economic fallout and uncertainty (including uncertainty about who might leave the EU next) will curb foreign investment and slow monetary tightening worldwide. That includes in the U.S. where rate hikes are now improbable for much longer. At the very least, “This dramatically lowers the probability of a hike this year,” said TD earlier.

Canada’s Bonds More Appealing

A more dovish Fed, the downgrade in Britain’s credit rating and economic aftershocks all give Canadian bond yields more leash to run—lower, that is.

But mortgage rates are likely not about to fall off a cliff near-term. Canada’s inflation outlook will be more greatly impacted by things like negative sentiment and falling oil than any deterioration of UK trade. And those rate drivers could take time to play out.

As for specific numbers, “The economic ramifications for Canada are challenging to estimate,” says Bank of America Merrill Lynch, “…For now we have trimmed 2017 GDP growth by 0.2 percentage points to 1.7%.”

Mortgage Rate Path Altered Slightly

There’s a possibility we could see higher risk/liquidity premiums built into mortgage rates, especially variable rates. But make no mistake, there’s nothing long-term bullish for rates in this news.

For us to see any material fixed rate cuts, the 5-year yield will need to drop closer to its all-time low of 0.40%, or below.

As for the prime rate, Brexit talk will surely inspire more economists to push rate-hike projections into 2018. At the moment, OIS prices imply a 1 in 3 chance we’ll see a BoC cut this year.

More Fuel for Canadian Real Estate?

UK instability could boost international demand for Canadian housing, believes Mortgage Professionals Canada CEO Paul Taylor. “…The uncertainty it causes in the European marketplace now only exacerbates the Toronto and Vancouver foreign investment elements of the overheating housing market.”

A cheaper loonie could add even more fuel to that fire.

“Hopefully policy-makers will move quickly to address this issue and not delay for the full StatsCan study to be completed,” he says. “I fear at that point it may be too late.”

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Broker Share

Source: CMHC

CMHC pinpointed some encouraging trends for brokers in its recently released 2016 Mortgage Consumer Survey (MCS).

Among other gains, brokers boosted their market share noticeably among renewers and refinancers. Part of those gains are thanks to increasingly informed consumers. In other words, folks are becoming less likely to merely accept lender renewal offers at face value.

But CMHC’s report wasn’t all rosy for brokers. For one thing, they lost four points of share among their core first-time buyer segment. That’s a number we’ll be keeping very close tabs on in upcoming Mortgage Professionals Canada and CMHC data.

Below are 10 other MCS stats that matter, in no particular order…

 

  1. Lender loyalty is dropping — 81% of those renewing remained loyal to their lender, down from 86% in 2015; 73% of repeat buyers stayed with their lender, down from 77% in 2015. The main reason people switched mortgage providers, says CMHC, was to get a better interest rate.
  2. Brokers seized more renewal business — 26% of those renewing used the services of a mortgage broker, versus 21% in 2015.
  3. Brokers won more refinance business — 38% of those refinancing used the services of a mortgage broker, versus 33% in 2015.
  4. Renewals spell opportunity — In the past year mortgages were split three ways as follows: 62% renewals, 18% refinances and 20% purchases. Brokers and bankers alike are working harder than ever to woo renewers. Expect lenders to make earlier renewal offers at better rates to counter this trend.
  5. First-time buyers still vital — Of the 20% of mortgages that were for purchases, the majority (11%) were first-time buyers and 9% were repeat buyers. Young buyers are most concerned by unforeseen closing costs and overpaying for a home, says CMHC. These are two areas where sound professional guidance creates loyalty.
  6. 2016 CMHC Mortgage Consumer SurveyRate site traffic surges — 44% of those researching mortgages online used a mortgage comparison website. That compares to just 16% of all mortgage consumers a few years ago, according to Mortgage Professionals Canada.
  7. Social media gains — 29% of consumers used social media to gather mortgage information (vs. 20% in 2015).
  8. Online ads work — Almost one-third (32%) of consumers said they found their broker website through online advertising. That’s about half as many as the number who are referred, but it’s growing.
  9. Satisfaction levels diverge — 83% of recent buyers were satisfied with their lender versus 77% who were satisfied with their broker. This is the first time in a while that we remember these numbers deviating materially.
  10. Quality advice pays — Providing advice on long-term mortgage strategies can lead to an 85% increase in the likelihood of new business (from consumers who recommend their mortgage professional to family and friends). Why not provide clients a personalized written mortgage plan with every mortgage? Some of the country’s most successful mortgage brokers do just that.

Survey background: CMHC’s survey was conducted online and polled 3,006 recent mortgage consumers who had undertaken a mortgage transaction in the preceding 12 months. CMHC has conducted this survey since 1999.

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Bank earnings_sq

Canada’s Big 6 banks have wrapped up another earnings season, raking in more than $8.5 billion in the second quarter.

Among the highlights:

  • Most of the banks anticipated losses from the Fort McMurray wildfire, but nothing headline-making.
  • Scotia and TD both reported small declines in their residential mortgage portfolios.
  • Net interest margins dropped almost across the board.

In keeping with CMT’s quarterly ritual, we’ve sifted through the Big Banks’ quarterly earnings reports, presentations and conference calls, and compiled all the mortgage-related goodies. We have to admit though, this quarter was really kind of dull. Whatever was notable is in blue.

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READ MORE

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TNM Store FBTrue North Mortgage (TNM) has been an innovator since the company began in 1999. It was the first independent mortgage broker to create a national footprint of retail mortgage stores, an early leader in targeting online consumers through rate comparison websites and one of the first to leverage the buydown rate model.

It has now made another first as a discount broker by launching its own CMHC-approved lender. Named THINK Financial, the company sells insured mortgages exclusively to True North Mortgage customers. The Calgary-based lender approved its first deal on May 24 and has five full-time employees.

We caught up with the company’s CEO, Dan Eisner, for a rundown on this new project.

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CMT: So, Dan, do tell, why did you want to go through all the trouble to start your own lender?

Dan: The same reason we do anything. To improve the customer experience while providing ever lower rates. This is not to say that our current lenders don’t provide a good customer experience or poor rates. But as a lender/broker combo we can control the customer experience to a greater extent and thus ensure a superior experience for the good credit clients we attract. In the past, much of TNM’s success hinged on hiring salaried high-quality mortgage specialists and Realtors. The majority of TNM employees are former mortgage underwriters with years of experience in the mortgage industry. This means we can operate without the need for BDM teams, tradeshows, sponsorships and other costly broker promotions.

Think Financial MortgageCMT: How long did it take you from the time you first decided to implement the idea to the first approval?

Dan: That’s a hard answer to pin down. We first starting tackling the problem in 2013. We didn’t get really serious about it until the end of 2014. Our submission to CMHC took place in 2015.

CMT: Knowing all that you do about the process, how happy are you with the decision? Will the rate savings be worth it?

Dan: We are happy so far, but these are very early days. Things like this can take years to play out.

CMT: Who is servicing THINK Financial’s mortgages after closing?

Dan: MCAP.

CMT: As a CMHC-approved lender, you need at least two funders (one primary and one backup), correct? Can you talk about the funding model a bit?

Dan: Yes, we are a CMHC-approved lender, and yes, we have more than one funder as required. This designation we have allows us to underwrite and sell mortgage directly to funders/investors. Any mortgage issued by THINK Financial is sold to a funder in much the same way as First National or MCAP operates. In the end, something like 90% of the mortgages in Canada end up sitting on the balance sheet of one of the big banks in Canada.

CMT: What kind of capital did you have to put up to make this lender possible? Did this require bringing on new investors?

Dan: We exceeded the CMHC and Canada Guaranty required $5 million in capital by a good margin. Less than 10% of the shares of True North Mortgage are owned by third parties and we are proud to say that greater than 40% of the employees in True North Mortgage are owners.

CMT: At the moment, you can only submit high- and low-ratio transactionally insured mortgages to CMHC—no bulk insured business—correct?

Dan: True.

CMT: How long until you can submit bulk insured deals to CMHC?

Dan: Two to three years in regards to CMHC, however, we have already commenced low-ratio portfolio insured deals with Canada Guaranty. Right from the start Canada Guaranty has been a strong supporter. They took the initiative to review the historical performance of deals brokered by True North Mortgage and judge us by the results. Clearly they were pleased with what they found and thus offered us low-ratio bulk insurance at launch, along with high-ratio.

CMT: What type of challenge does it present when a new lender has to wait two years to submit bulk deals to CMHC?

Dan Eisner2Dan: It is a significant hurdle for a typical new lender entering the market. From my understanding, the private insurers rarely work with brand new lenders…until they have seen [multiple years of] strong audit results. As a result, a typical new lender is left with CMHC as their only option. Although it is possible to submit low-ratio deals to CMHC while on probation, the transactional cost of doing so is prohibitive. Thus most new lenders are left to offer high-ratio deals only. Being a high-ratio only [broker channel] lender does not put you in good stead with many mortgage brokers and thus the resulting submissions will be of lower quality. In the case of Think Financial, we were able to provide both high- and low-ratio by having two insurer partners.

CMT: Thanks, Dan. Anything else you’d like to add?

Dan: Although it is very early we are pleased to see that our new lender has driven substantially more calls and many of these clients are ending up with mortgages from our current stable of lenders outside of THINK Financial. Of the $63 million we got approved in the last two weeks, less than 15% ended up at THINK Financial.

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Our Take…

On the Product: The company’s primary product is a full-featured 5-year fixed called “The Works.” It’s currently marketed at 2.29% (according to the website) and has a normal penalty and 20/20 prepayments. All of the firm’s mortgages are registered as standard charges.

THINK Financial also plans to roll out a no-frills mortgage (called “The Skinny”). The product will feature aggressive pricing and be portable, but it will have no prepayment privileges and come with a penalty that’s the higher of 2.75%, the IRD or 3-months’ interest. With those limitations, the rate will have to be exceptionally low as it will be easy to sell against. Then again, in the online arena it often only takes a 1 bps lower rate to generate phone calls. Some customers completely overlook the rate details in the beginning.

On Other Brokers Trying the Same: True North Mortgage originated $1.1 billion in mortgages in the last 12 months. It has the scale necessary to pull off its own lender. For other brokers considering such a move, note that funders may be hesitant to support direct broker relationships unless they can expect hundreds of millions in annual originations (although some may entertain less initially, if there’s a big upside).

On the Lenders’ Perspective: This isn’t something that thrills lenders as they’d prefer brokers don’t compete head on. One worry is that they’ll get a lower quality of insured business from brokers who have their own lenders. The thinking is that a broker will keep its best deals in-house, since insurers put new lenders under intense scrutiny for arrears. But in True North’s case, the quality of business is above industry norms to begin with. Moreover, we suspect that Eisner, clearly an astute operator, is not about to jeopardize the company’s valuable lender relationships.

On What This Signifies: In this author’s view, True North would not have done this if it couldn’t price at least 5-10 bps lower than its existing lender relationships allow. Client experience aside, this move is mainly an answer to severe online price competition, a factor that’s becoming more pronounced with 44% of online consumers now using rate comparison sites. Other big brokers also see this writing on the wall. So, while this may not be a major industry trend, expect a handful of other $1 billion+ independents to follow the same path.

 

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Andy CharlesI had a chat with Canada Guaranty CEO Andy Charles today. Like most industry leaders, he’s concerned with maintaining stability in Canada’s high-value housing markets.

As a mortgage default insurer, Charles knows a thing or two about risk mitigation. So we asked him for his take on raising minimum down payments in order to create a risk buffer and slow real estate valuations. He made three points of note:

  1. Regulatory changes over the last several years have made the first-time homebuyer a modest player in the overall housing market:“The changes made to the high-ratio mortgages (first-time homebuyers) the past several years (reduced amortizations, debt servicing restrictions, etc.) have served to significantly reduce the size of the first-time homebuyer segment. It now represents just 30% of Canada’s housing market with the significant majority of home financing utilizing conventional mortgages.”
  2. Increasing the minimum down payment would materially hurt Canada’s smaller urban housing markets:“Raising the minimum down payment to 10% would have the unintended consequence of negatively impacting housing markets in almost all other areas of the country. Home prices are soft and either flat or moderately decreasing in almost every city in Canada other than Toronto/Hamilton and Vancouver/Victoria. Housing markets and first-time homebuyers in Montreal, Halifax, Calgary, Edmonton, Winnipeg, Regina, and Saskatoon, not to mention other smaller cities, would very likely experience negative economic impacts due to increasing the minimum down payment at a national level.”
  3. GTA/GVA price increases are not being driven by the first-time homebuyer:“The large increases in single-family home prices in the GTA/GVA markets are not being driven by the first-time homebuyer with a 5% down payment. The 5% down payment segment of borrowers are generally not purchasing single-family dwellings in the GTA and GVA markets, as a very significant portion of these homes are priced above the $1 million value restriction for high-ratio purchases. Raising the minimum down payment in these markets would have very little, if any, impact on the trajectory of GVA/GTA single-family house prices in the foreseeable future. The average mortgage size of the first-time homebuyer is approximately $300,000.”

Charles added in closing:

“While I share the concerns regarding these specific markets, we take the view that raising the minimum down payment will penalize the first-time homebuyer, risk dampening already soft housing markets in most of the country, and will do little to help achieve the desired public policy of moderating the price growth in the GTA and GVA markets.”

Charles is one of an increasing number of industry leaders publicly weighing in on mortgage policy as of late.

 

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Rising down payments FBThe CEOs of National Bank & Scotiabank, Louis Vachon and Brian Porter, made headlines this past week by suggesting that Ottawa raise the minimum down payment. Reportedly, they want people to put down at least 10% on all homes under $1 million.

Today, Canadians must lay out at least 5% on purchases up to $500,000, plus 10% on any amounts between $500,000.01 and $999,999.99. It’s a reasonable policy that lessens risk on higher-priced homes in torrid housing markets.

When hearing bank bigwigs opine on down payments, one has to wonder how long it’s been since they were first-time homebuyers. Today, the number one reason young Canadians don’t buy homes sooner is the current equity requirements. Over two-thirds of CMHC insured buyers, for example, can only scrounge up 5.00% to 9.99% down payments.

Were regulators to heed these bankers, it would force untold thousands of young Canadians to rent (or keep their parents company) significantly longer. That’s despite their qualifications as borrowers and despite any social/economic ramifications. And for what? To protect banks’ earnings? To curb Toronto / Vancouver housing while setting back buyers in the other two-thirds of the country where values are stable or falling?

How about these banks mitigate their own risk? They can do that by continuing to approve people who can clearly service their debt, irrespective of equity. It’s a crazy concept, but it might just work.

Take someone who earns a stable income, has demonstrated their ability and willingness to maintain pristine credit and is not over-extended with debt. That person has earned the right to own. The fact that they’ve saved only 5%, and not 10%, does not make them a high-risk borrower. Any systemic risk they do pose is mitigated with default insurance, which they pay for.

A flat 10% down payment is not the answer. It doesn’t achieve the correct goal. The goal of further regulation should be to keep higher-risk borrowers out of the market, not to keep all borrowers without an arbitrarily set down payment out of the market.

The Department of Finance should really be targeting borrowers who finance higher-value properties (non-starter homes) with smaller-than-average down payments, higher-than-average debt ratios and lower-than-average credit scores. One way to do that is by lowering the maximum allowable debt ratios on those borrowers—i.e., on borrowers exhibiting “layered risk.” If another economic shock does come along, these are the folks most likely to stop making their mortgage payments.

It would be so much more productive if the Porters and Vachons of the world elaborated on their logic when making public statements about mortgage rules. One would think (hope) they have internal numbers—like stress test results, arrears trends, etc.—to back up their arguments. As it stands, today’s publicly available data does not support Canada-wide down payment hikes for well-qualified young buyers.

When policy-makers see their subjects (bankers) asking for tighter equity requirements, they listen. In this case, hopefully they don’t listen too closely.

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CIBC-Mortgage-AppYesterday we looked at Hello Home, CIBC’s new mobile mortgage app. That story touched on how and why CIBC built it.

Today we’ll examine what this technology means for the bank and for others in the mortgage business. Once again, we spoke with CIBC’s in-house tech sage, Aayaz Pira, VP of Digital Channels.

Here were his thoughts…

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On how realistic it is to expect full completed applications from a smartphone

  • “…What we’ve done is streamline how many [fields] you have to fill out with your thumbs,” Pira says. “We’re grabbing a lot of the [required] information from the pictures of documents [clients are] sending to us.”
  • Note: CIBC employees manually extract information from these photographed documents and enter it into the client’s database record to save the client time.
  • “When we did our analysis…I think we said that out of the 6-8 documents you have to submit…they already have 75% of the information that’s required in a mortgage application. So why [ask]…people to duplicate that information? We should just grab that information from the documentation versus asking them to fill out a massive form.”
  • “So we’re getting 75% of the information from the documents and we’re only asking for the 25% that we need in addition to that” (making the new phone app much more abbreviated than CIBC’s normal mortgage application).

On how long it takes to complete its smartphone application

  • “…When we did our focus groups it took about 15 minutes end to end…if you had all your documents with you…”
  • “But typically that’s not how people complete a mortgage application.”
  • “We built in ‘save and resume’ because, if you need an employment letter (for example), you’re going to need to get that, and if you need your T4 from last year, you’ll need to find that.”
  • “When we did our focus groups and client sessions…we didn’t see clients who wanted to sit there and do it end to end right away. There are logical steps. [People] wanted to come in and out of the app.”
  • “Typically today, if you’re applying for a mortgage [by telephone] you have to listen to 20 minutes of [CIBC’s] terms and conditions and accept via the phone.” With the app, you simply read those terms and electronically consent, which can be a big time saver.

On what happens after submitting the application

  • “You have a choice of when you want a callback from your mortgage specialist” for the next step.
  • “You never have to see the person or go into a banking centre.”
  • “We get your [ink] signature when you go in front of [your] lawyer.”

On whether there are security concerns about photographed documents

  • “No, not at this point. Our legal and privacy team…have been supportive.”
  • “Because we’ve developed a secure mechanism to fire the documents back to CIBC…we don’t see much risk.”
  • Some lenders balk at photographed documents but fax or email is no safer. Fraudulent document altering “can be done by fax (or email) as well.”

On whether downloading a phone app is a hindrance

  • “I think when clients find value in something that makes [a process] easy for them, I think they’re willing to download that.” (Here’s the Apple download link if you’re interested).
  • “We’re adding a lot of incentives into it…The rate we’re offering in the mobile app is a better rate (at least 5 bps better) than you can get by just calling into the contact centre. We also waive some of the fees associated with the mortgage process as well.”
Aayaz Pira, CIBC

Aayaz Pira, CIBC

On why CIBC didn’t add Hello Home functionality to its existing banking app

  • “Because we don’t know how this is going to work, quite honestly.”
  • “We are convinced that this is the right step forward but I didn’t want to entirely disrupt the mobile banking roadmap that we’re currently working on.” (One example of that roadmap is the ability to open a deposit account by smartphone. Deposit gathering is “more core” to CIBC’s business than mortgages, at least as of today.)
  • “If this becomes core to our business, we will definitely ingest it into our full mobile app.”
  • “This was a way that we could put something out in an agile, quick-to-market way.”

On CIBC’s Dedicated e-Mortgage Specialists

  • “We currently have a mortgage call centre…to initiate and adjudicate mortgages by telephone.”
  • A subset of those call centre advisors have been assigned to take mortgage applications from the app.
  • These are generally salaried CIBC employees versus commissioned salespeople (unlike CIBC’s 1,000+ mobile Mortgage Advisors).
  • “They sit in our contact centre” and work set hours each day and send auto-responses after-hours.

On whether this will cannibalize CIBC’s other channels, including its 1,100+ branches

  • “That’s not a concern [but] it’s always a topic of conversation…We have strong support from [management].”
  • “We believe this [app] can be a companion for our Mobile Mortgage Advisors in the future,” who can use it to keep in touch with clients by chat, let them upload documents, send them status updates, etc.
  • “We’re doing the same thing with our digital account opening capability for deposit accounts,” which is a “direct to consumer” technology.

On What’s Next

  • “We have a bunch of capabilities and use cases we want to build into future phases, but we want clients to tell us what they actually want. We’re going to build as we go along, while getting real-time feedback from our clients.”
  • “As we build future iterations we’ll start to automate more and more…reduce some of the overhead for our e-mortgage specialists and make it really easy for our clients.”
  • “We did tinker with machine learning and deep learning through taking a picture [of a document] and then actually grabbing all the information and populating a database with that information…We’re not doing that today but that technology exists, we know how it works, we know we want to use it.”

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This Author’s Take

I hesitate to use the word watershed, but that’s likely what this technology is. And it’s not so much coding brilliance (as functional as it is, the app isn’t overflowing with novel spellbinding technology).

Rather, it’s the fact that a major Canadian bank ignored potential cannibalization of its existing channels (our words, not CIBC’s) by going direct to online consumers. That underlines, bolds and italicizes the importance of e-mortgage channels in 2016.

This little app will push Canadian borrowers further along the online mortgage adoption curve. As more early adopters arrange their mortgages online, we’ll start to see front-runners in this space emerge, right before demand surges in (perhaps) two to three years.

CIBC’s CEO Victor Dodig has clearly articulated that the bank wants to drive more customers through digital channels. And who can blame him? Automation and salaried employees (versus commissioned salespeople) will become a necessity for maintaining margins. As long as the bank provides a killer user experience and maintains high cross-sell, the future looks bright for CIBC’s e-mortgage channel—especially given its first mover status among the Big 6.

Over the last year the mortgage industry has awakened to innovations like the Rocket Mortgage. Hello Home is potentially another such landmark that lending historians will look back on when debating the question, “What triggered the acceleration in online mortgage originations?”

 

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There’s a digital revolution underway in mortgages, and more people realize it every day.

But some believe that stodgy old banks are behind the Internet curve. They claim that big banks are slow to adapt, that they steer more like a supertanker than a speedboat and that banks would rather shelter their precious branch networks from the margin threat of online channels.

Well, times are changing, my friends. When CIBC launched its mortgage app two weeks ago, it put the mortgage industry on notice that technological competition is en route, and it’s coming hard and fast.

Named “Hello Home,” CIBC’s new app is something you might expect from a nimble fintech startup. For a bank, it’s definitely counter-convention.

Before we go any further, let’s review what the app does. In brief, it lets borrowers:

  • Have a dedicated mortgage specialist assigned to them through the app
  • Message that specialist anytime with questions
  • Negotiate their mortgage rate with that specialist through chat, without ever speaking to them
  • Submit a streamlined mortgage application on their smartphone
  • Save and resume that application
  • Apply with a co-applicant, who can use their own smartphone
  • Take photos of all documents
  • Securely upload those documents to CIBC
  • Electronically agree to CIBC’s terms (no scanning or faxing a signature)
  • Get a special discounted mortgage rate.

We’ve seen some of this technology on broker and lender websites before, but not from a major Canadian bank, not in this slick of a package and not on a smartphone.

I spoke with CIBC’s VP of Digital Channels, Aayaz Pira, for the inside take on this important launch. Here’s what he shared…

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On What Prompted the App

  • “We get an incredible amount of traffic to our mortgage pages on cibc.com,” Pira said.
  • “What we used to do was use those as leads for our Mortgage Advisors.”
  • Management felt it important to let people who “self-initiate” the mortgage process, and who didn’t want to visit a branch, continue the mortgage sale online.
  • “Our executives visited a few banks in Europe and observed [how those banks were using] digital platforms to support the mortgage process.”
  • In particular, “Allied Irish Banks was doing something interesting with mortgages and that’s where some of our inspiration came from.”
  • “We wanted our [online platform] to be mobile first because we know…growth of mobile in our client base is exploding…[The customer’s] phone is in their pocket at all times, so why not make use of that?”
  • More than 80% of people use mobile phones in their home-buying journey, Pira added.
  • “Outside of mortgages, more than 85% of bill pays and transfers are already done digitally.”
  • “We know that clients who use our digital channel are happier clients and have deeper relationships with our bank.” (In addition to having a higher NPS, or net promoter score.)
  • Pulling all that together, we ran a six-week sprint to re-imagine the home-buying experience of our clients.”
  • Aayaz’s team developed a proof of concept and showed it to the bank’s executives. The mortgage team said, “This is amazing. We should definitely do something with this.”
  • “Once we got the executive buy-in and the sponsorship from the mortgage product team, we sent 10 people or more, a cross-functional team, into our lab and said, ‘You guys are going to stay here for the next three months and just build it. So we had developers, designers, product people, strategists…all co-located in a room, just bringing this to life.“

On what frictions exist in today’s mortgage processes

  • Pira cited three key frictions that CIBC wanted to overcome:
    • “The amount of paper.”
    • “Knowing where you are in the [mortgage] journey.”
    • “Having to go into a branch or banking centre…When you start the mortgage process, you speak to somebody or you go into a banking centre and there’s so much back and forth.”

On the App’s First Iteration

  • “The product we put out to market is…a minimum viable product.”
  • “We brought this to life in about four months.”
  • “It’s not [yet] the full set of use cases that we have imagined.”
  • The app was launched on the iPhone. An Android version is coming soon.
  • “What we’ve done is put a really beautiful and sexy digital front end on a [workflow] process that exists [already].”

On Some of the App’s Capabilities

  • “The mortgage process is obviously complex so having a human being…you can chat with is really important. So, in-app chat is a core feature—being able to speak to a mortgage advisor who is dedicated to you.”
  • The document imager is one of the coolest features. “What we’re doing…is using a camera to snap a picture [of a document] and securely send it over to the mortgage specialist.”
  • Keeping clients up to date is also vital. “What we’ve tried to do is show you that, these are the five steps. This is where you are in each of the steps. There are notifications and messaging back and forth to let you know when a step is completed, what the next step looks like, and when you can expect to have something back from the mortgage specialist.”

This rundown gives you a sense for the what and why behind CIBC’s new app. Tomorrow we’ll look at how it could change the bank’s business, some potential areas of concern and what this might mean for the rest of the mortgage industry. 

If you want to learn more in the meantime, CIBC and Scott McGillivray are showcasing the app at 7 p.m. May 31 on Facebook.