Mortgage Rates & Mortgage Broker News in Canada

More on BMO’s Low-Rate Mortgage

BMO launched its Low-Rate mortgage on March 2, 2010 and no other bank has routinely advertised rates as low on a 5-year term.

That makes this product a visible differentiator for the country’s fourth largest bank and, as a result, Frank Techar, BMO’s President and Chief Executive Officer, Personal and Commercial Banking Canada, says BMO continues to see strong demand for it.

“The reaction from Canadians to this mortgage has been fantastic,” he told CMT.

“Over the past two years, we have built a portfolio of $6 billion in low-rate mortgages...and we expect demand to remain strong."

One-on-One with MonCana Bank's James Clayton

With the official arrival of Canada’s newest bank, MonCana Bank of Canada, we went to President, James Clayton, for a rundown of how it will do business and what it'll offer consumers.

Clayton graciously sat down with CMT to explain the Calgary-based bank’s dedication to the brokerage industry, its product types and its future product plans. Clayton also offered up his thoughts on the importance of rates vs. a greater package.

One thing that caught our attention is that MonCana will offer 40-year amortizations on conventional mortgages, a rarity these days.

One-on-One with Xceed's Michael Jones

With Xceed Mortgage Corporation recently returning to the broker channel, it seemed like a good time to sit down with President and CEO Michael Jones and ask some questions.

During this audio one-on-one, Jones talks about the mortgages Xceed now offers, its return to the broker channel, and its growth strategy and roadmap for the future. He also covers Xceed's funding strategies and the status of its bank licence application. (Length: 7 min., 54 sec.)

Click to Play 

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Interview Transcript:  Xceed Mortgage - President, Michael Jones

Prior related story: Xceed Back in Broker Channel

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Rob McLister, CMT

Bozic on Rates, Strategy & Competition

The future of variable rate pricing; value versus rate; and competing to win.

These are topics that Merix Financial CEO Boris Bozic hit on in an informative webinar hosted Thursday by 180 Degrees Coaching’s Greg Williamson.

Boris’s position as head of a major non-bank lender keeps his finger on the pulse of broker performance, lender practices, capital markets and rate trends. He shared several candid perspectives and these were some of the important quotes and takeaways (our comments in italics):

Mortgage Rates

• “We’re going to be in an environment very shortly where we’ll be prime-plus on variable-rate mortgages,” Bozic said.
• “This is the new normal for the foreseeable future.”
• “The days of [prime – 0.60% or better] are behind us.”

1-on-1 With Geoff Parkin

We spoke recently with Geoff Parkin, President of the Mortgage Brokers Association of British Columbia. Geoff is a guy we have a lot of respect for because he’s been a lender, a broker, a brokerage owner, and an industry association head.

He’s also a CFA and CGA and has significant experience in treasury with Coast Capital, one of the nation’s largest credit unions. As a result, his understanding of mortgage market dynamics is second to few.

We threw a lot of questions at him about mortgage competition, rates, and mortgage disclosure. He answered very graciously and shared several meaningful insights.

Inside Mortgage Investment Corporations (MICs) – Part II

It’s a pleasure to present part two of CMT’s series on Mortgage Investment Companies (MICs).

Wayne Strandlund, founder and CEO of $250 million Fisgard Capital Corporation, is once again our guide through this unique investment class.

In our second chat with Wayne, he shares his thoughts on how MICs work, their investment potential and management fees, and how to improve the MIC structure going forward.

Here is the conclusion of that interview…

Interview—CAAMP’s Joe Pinheiro

There is always something changing in the mortgage brokerage industry. As Chairman of the Canadian Association of Accredited Mortgage Professionals (CAAMP), Joe Pinheiro is keenly aware of how change is shaping our business.

We had the pleasure of chatting recently with Joe about a variety of current industry topics.

Below is that interview…

The Bank Threat

Coast Capital is a credit union that makes banks look over their shoulder.

It’s one of the few financial institutions that “get it” (i.e. realize what customers want and deliver it without games).

As a result of management’s mortgage strategy in 2010, Coast Capital posted $6.2 billion in mortgage volume, a 10.7% jump from 2009. During the same period, membership surged by 29,000 to 454,000.

That is thanks in part to rates that are among the best in British Columbia, and flexible products like the popular You’re the Boss Mortgage.

For a deeper look at what makes Coast tick, we spoke with President/CEO Tracy Redies…

Inside Mortgage Investment Corporations (MICs)

Some believe Mortgage Investment Corporations (MICs) are one of the best undiscovered income-producing investments in Canada.

We wanted to investigate that a bit, so we took the opportunity to chat with one of the pioneers of the Canadian MIC industry, Wayne Strandlund.

Wayne is the founder and CEO of $250 million Fisgard Capital Corporation. Fisgard is one of Canada’s larger MICs. Over the past 16 years, Fisgard has placed over $50 million in mortgages each year, and paid dividends averaging 10.79% net per year to its investors.

Wayne is also the author of this very practical checklist of what to look for in a MIC before making an investment. See: Pic-A-Mic

Here’s part one of our two-part interview…

True North Mortgage’s Dan Eisner

In 2007, Dan Eisner appeared on Dragons' Den. His idea was to expand his well-branded, high-traffic retail mortgage outlets, and staff them with salaried mortgage advisors. The Dragons thought it was a great idea and made him an offer.

That deal didn’t end up working out (more on that) but Dan’s firm, Calgary-based True North Mortgage (TNM), has come a long way in a short time.

The company presently has four storefronts. On February 28, TNM will open its fifth and sixth locations in:

• Vancouver, BC: On 1055 West Georgia Street
• Halifax, NS: On 1949 Upper Water Street

This expansion is further validation of TNM’s model, which is a fair bit different than the industry norm. More on that below.

In speaking with Dan, it’s clear he’s a laser-focused entrepreneur. He’s got an Ivey MBA and an acute understanding of branding and service. In the interview that follows, Dan shares some atypical insights about TNM’s model and Canada’s mortgage industry as a whole.

On The Record With Andrew Moor

We recently chatted with Andrew Moor on a variety of issues that included the subprime market, competition for deposits, and prospects for mortgage brokers.

Andrew is President and CEO of Equitable Trust, a federally regulated lender in the alternative mortgage market since 1970. Prior to joining Equitable, Andrew was President and CEO of Invis Inc., one of Canada's largest mortgage brokerages, as well as Chairman of the Canadian Association of Accredited Mortgage Professionals (CAAMP).

Andrew’s diverse experience and industry prominence always make his viewpoints noteworthy.

More…  On The Record With Andrew Moor

Interest Rate Catalysts

We’ll likely see no further Bank of Canada rate hikes till spring, and probably no more US rate increases "before 2012..."

That summarizes Desjardins’ interest rate call from its latest Economic and Financial Outlook.

Yves St-Maurice, Desjardins’ Director and Deputy Chief Economist, elaborated on that view, and provided some excellent background on factors which shape the direction of Canadian interest rates.  If you’re a student of interest rate behaviour, this interview is worth a read.

See:  Yves St-Maurice Interview

Talking With John Webster

Scotia Mortgage Authority (SMA) is the broker division of Scotiabank, and it currently originates more than 50% of Scotiabank's residential mortgages.

Last week, SMA became the top-volume lender in the broker channel, based on Davis + Henderson’s first-half 2010 origination statistics. It’s the first time SMA has achieved this ranking on a year-to-date basis.

The company is obviously doing something pretty well to attract the business it has. To find out what, we connected with John Webster, President/CEO, Scotia Mortgage Authority. John is an interesting individual to talk with because he truly knows the business inside out. He was kind enough to share his perspectives here:

John Webster Interview

Sal Guatieri On Interest Rate Forecasts

Canada’s major economists exert a large influence on rate expectations in this country. So, it’s always interesting to hear an economist's own take on the value of economic forecasting and rate projections.

For thoughts on this and more, we turned to Sal Guatieri. Sal has been forecasting the economy for over 15 years. Formerly with the Bank of Canada, he’s now Senior Economist at BMO Capital Markets. Sal is a frequent media commentator and an authority on North America’s economies, foreign exchange markets, and interest rates.

Click here for the interview…

1-on-1 With Hank Cunningham

We have abundant respect for traders who stand the test of time. It’s so incredibly hard to be right more than you’re wrong in the financial markets—that is, right enough that you can generate consistent long-term returns. Hank is one of those people.

We spent a little time with him last week to get his take on rates and the Bank of Canada (BoC).

Here are some of the nuggets from our chat…

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On long-term interest rates…

Hank:  I don’t see much upward pressure on rates—not in the developed world. There’s no inflation to speak of. In fact, inflation continues to recede in most places if anything.

On the European debt crisis…

Hank:  The sovereign debt issue is a major problem, but it’s confined to a part of the globe where it’s not going to have a material impact on the rest of the world. Certainly not from a growth point of view.

On long-term rates one year from now…

Hank:  You’re going to see a flatter yield curve looking out a year. The spread between a 1-year mortgage and a 5-year mortgage is going to be a lot narrower. The yield curve is still steep right now. I think (mortgage) clients are still better off floating than they are fixing.

One of the other things you have to think about is the amount of debt coming due by governments. The U.S. has 40% of its debt maturing in the next three years. They don’t want higher inflation and interest rates.

On inflation risk…

Hank:  Inflation is just under 2% in Canada. In the U.S. it's under 1% actually.

There are 21 central banks with anti-inflation targets that are embedded in their legislation. You know they’re going to raise rates to beat back inflation and demand.  It almost defeats inflation before it starts. If the market sees central bankers acting aggressively to control inflation, the long end of the (yield) curve will come down. It becomes a self-fulfilling prophesy.

The good news is that, if inflation does become a problem, the Bank of Canada will accelerate increases in the overnight rate and dampen demand, which is actually bullish for bonds long-term because investors see that the Bank is going to fight inflation.

The 5-year rate might go up a bit, but the market will get anticipatory (and discount the Bank of Canada’s future rate increases)…and then, longer-term yields should come back down. People tend to underestimate the discounting nature of the market.

On a 2.40% to 2.50% floor in bond yields…

Hank:  That's going to be huge resistance for price—or support for yields—whichever way you want to look at it. I really can’t envision a situation for yields to drop below 2.40% for five years. This is probably as cheap as rates are going to be.

On economists’ forecasts of the Bank of Canada…

Hank:  Economists generally do straight line forecasting. They don’t allow a lot of room for (unexpected) changes in the marketplace. Rate forecasts depend on your view of the world. My view of the world is one of growth with very little inflation. In that scenario there is no need for serious tightening. Market rates will rise if the demand for money rises. The market really acts independently from the Bank of Canada, as you know.

On where we go from here…

Hank:  The BoC has already indicated that rates are going up. It (the hike in June) won’t be the last increase in the Bank rate. You’re going to see a flatter yield curve for sure.

The banks have been funding longer-term mortgages with short-term money. They pay nothing on savings and charge 4% for a mortgage. It’s been easy arbitrage. In 12-18 months that will be over.

In the meantime, people with mortgages will be “forced” to fix at the wrong time, right before rates come back down again. It happens, and it’s going to happen again. We’ve already had one false move in rates.

On going fixed or variable…

Money has been cheap. If people have fear of rates rising, you can fix right now and still have cheap money. I have no problem recommending that. But if you’re playing it close to the chest, I would stay floating right now.

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About Hank:  Hank Cunningham is the Fixed Income Strategist at Odlum Brown. Hank has more than 40 years of experience in fixed income markets. He has been a trader, institutional salesman, portfolio manager, and zero coupon specialist. Since 1988, he has specialized in the retail aspect of the investment business, building and managing three different retail fixed income trading desks for Dean Witter Canada, First Marathon Securities, and Blackmont Capital.

Hank is the author of "In Your Best Interest: the Ultimate Guide to the Canadian Bond Market" and a frequent guest on the Business News Network. (You can view his latest June 7 appearance by clicking here.)

The New Rules of Rental Financing, With Peter Kinch

Rental property financing will change dramatically on April 19.

Here are the new rental mortgage rules, as decreed by the federal government.

For a take on these changes we spoke with mortgage planner, speaker, and author, Peter Kinch. Peter was the top Canadian broker in 2008 by volume, according to Canadian Mortgage Professional Magazine, and is a major participant in the rental financing market.

See --> Peter Kinch Interview…

Q&A With Invis’s Bryan Devries

After a long and successful tenure at mortgage lender, MCAP, Bryan Devries took a big leap over to the broker side of the business.

In November, Bryan was named Executive Vice President, Sales and Operations, at Invis and Mortgage Intelligence. 

We recently caught up with Bryan to chat about lenders, banks, and brokers.

Q&A - Bryan Devries

Inside CMHC

CMHC is the biggest mortgage default insurer in Canada, and one of Canada’s biggest companies in general.

The federal government mandates that CMHC create policies to support Canada’s housing market. Yet, with home prices getting lofty, these very policies have been under the media microscope.

Most journalists analyze the default insurance market with the best of intentions. Due to a lack of publicly available facts, however, it’s become more common for the media to mischaracterize certain policies.  Recent stories from the National Post and the Globe made industry claims that left readers with a variety of unanswered questions. It therefore seemed logical (to us) to contact CMHC directly, pose these questions, and clarify from the source.

The primary goal was to learn about what happens behind the scenes of mortgage insurance, and share what we learned.  In the end, the information that follows gave us a much better sense for how insurer policies impact Canada’s housing market. 

Along the way, we were fortunate enough to speak with Pierre Serré.  Pierre is CMHC's Vice-President of Insurance Products and Business Development.  Below you’ll find the interview we did with Pierre, sprinkled with “side notes” (the stuff in italics) that we collected throughout our research.

Inside CMHC…

Q&A With John Vogel

If you’re a student of the industry, it’s fun to learn about the inner workings of the mortgage business.  So, we try to chat with different people and get different perspectives.

Recently, we had our first chance to speak with John Vogel. John is Chairman of MyNext Mortgage, our firm’s (Mortgage Architects’) proprietary lender.

John has a somewhat unique view on the world thanks to his background in the fixed income markets. Prior to helping launch MyNext Mortgage, John created, sold, and traded various fixed income products for over 20 years. He’s worked on the fixed income desks at major Canadian and international banks in New York, Toronto and London, England.

In this first of a two-part interview, we speak with John about lending spreads, interest rate risk and more....

John Vogel Interview

A Lender’s View of the World

What’s on the minds of mortgage lenders these days?

Four of them sounded off at CAAMP’s lender panel last Monday.

The panel featured:

• Boris Bozic, President of Merix Financial
• Stephen Smith, Chairman & President of First National
• Ivan Wahl, Chairman & CEO of Xceed Mortgage
• John Webster, President of Scotia Mortgage Services

Here’s what they had to say… (Our thoughts in italics.)

On Canada’s mortgage market:

• Liquidity “was non-existent” for lenders a year ago, said John Webster, but it didn’t last as long as many predicted.
• Lenders expected a 30-35% drop in mortgage originations this year. Stephen Smith says: “It hasn’t happened.”
  
  (This year definitely exceeded expectations, but partly at the expense of 2010 volume. Many people accelerated their home buying and refinancing to this year. After rates eventually do rise, volume could fall noticeably.)
  
• “We were going down a slippery slope. Some of our products were getting pretty exotic.  Time saved us.” – Boris Bozic

On borrowers’ mindsets:

• For today’s home buyers, “dollar amount doesn’t matter anymore,” says Bozic.  Instead they’re concerned about, “What is my carrying cost?”

On advising homeowners:

• With the potential for rising rates, mortgage brokers should counsel borrowers to leave “a little wiggle room” with their debt ratios. – Wahl

On the risk of rates rising:

• “Refinance risk is certainly nothing I am concerned with,” said Smith. He believes, in 5 years, people will be earning more money. Moreover, debt ratio standards and personal covenants are being vigorously enforced, Smith said.

On lender incentives to underwrite prudently:

• “Canadian lenders retain risk after they underwrite a mortgage,” said Smith. Therefore, unlike in the U.S. before the crisis, Canadian lenders have incentive to lend wisely.
• “Delinquencies have not been a big part of the industry.” – Webster

On the future of Canada’s broker industry:

• Four banks in Australia have 94% market share with brokers, according to Bozic. When non-bank competitors disappeared, broker compensation fell 40%.
• “We've seen a decrease in broker share because of the banks’ pricing policies.” - Bozic
• “We're going to see bank sales channels compete directly on price....Banks will use the strength of their balance sheets to gain back market share.” – Smith
• Webster disagreed. He said consumers want service when they need it, not during banks hours. "I am quite confident the broker channel will continue to gain market share."
• Smith agreed that broker share would rise in time, saying, “Mortgage brokers provide a phenomenal value proposition…In 10 years we see the mortgage broker share up to 70%.”
  
  (After watching banks retaliate these past few quarters, that seems very optimistic.)
  
• For younger people, mortgage brokers will be the "first call." – Smith
  
  (Industry stats bear this out. First-time homebuyers use brokers far more than the average homeowner. They have far less loyalty to banks and far more loyalty to quick service and “the best deal.”)
  
• The “shelf life is expiring” for volume bonus, said Bozic. He thinks broker bonuses will soon be based on portfolio performance.
  
  (At the time he said it, it was almost like Bozic was throwing out a trial balloon on this point. The truth is, it wasn’t the first time we’ve heard that traditional volume bonuses are “dead.”)

On broker/lender relationships:

• “Brokers can no longer do business with any lender they want,” said Wahl. His firm, Xceed, prefers to do business with the top 20% of brokers. 
  
  (How many times have we heard that lately. [Rhetorical question]  For you bottom 80%, thanks for coming out. Lenders are saying [indirectly]:  “Go find a super-agent to work under.”)
  
• Scotia wants the top 20% too. Webster says: “I don't think you have to be all things to all people.”
• To this, Bozic retorted: “It appears we're all after the same 750 brokers across the country. There is a subset of brokers who are being left out.” 
  
  (You can say that again…)
  
• Brokers feel "direct access to lenders is a problem,” continued Bozic.
  
  (This problem can’t be understated.  With all the status programs and “preferred lists,” lenders are handicapping a broker’s main advantage: choice. New or lower volume brokers are forced to funnel deal volume through big agents, or suffer with subpar pricing and service.)
  
• Smith drew loud applause when he said First National opens its doors to all brokers.  “Some of our best brokers started with us 3 years ago sending us one deal.”
  
  (God bless Stephen Smith. Lenders want efficiencies, and that’s understandable, but cutting off skilled brokers who don’t succumb to volume minimums is not in the industry’s long-term interests.)
  
• “We want mortgage brokers who do what they say, return calls, never lie on an application, and check things out seven ways to Sunday. There are too many people who take an easy way out (and don't fully disclose things on apps).” – Wahl
• Xceed, like more and more lenders, closely watches approval rates, funding ratios, and default ratios.

On capital sources:

• In the future, “the Canada Mortgage Bond is not going to be as attractive as banks’ balance sheets as a source of mortgage funding.” – Smith
• Nowadays, Canada’s capital markets are “awash with liquidity,” noted Webster. However, “for a lender going forward, you either need a balance sheet, or need to rent one."

(In other words, relying on traditional securitization avenues to raise funds (like the Canada Mortgage Bond market) may not provide lenders with cheap enough capital to compete. It will be interesting to see if non-deposit-taking lenders, like Street Capital, MyNext Mortgage [our in-house lender], and Merix, can diversify their funding sources.)

Moderator and financial expert, Michael Campbell, said: "The number one financial issue people have is with their mortgage."

If brokers are to fill that need successfully, lenders must open their doors a little wider—especially for low-volume brokers who send up good quality deals and don’t waste lender reps’ time.

The broker industry has heard a lot of dialog lately about what lenders want, and what lenders “need.”  Let’s also ensure we pay close attention to what clients and brokers need, because a successful industry depends on more than the top 750 brokers.