More first-time buyers are arranging mortgages through brokers than ever before (48%). That will surprise some, given all the discounting and sales hiring going on at banks and credit unions.
That statistic and many others are in the just-released 2011 CMHC Mortgage Consumer Survey.
Among other things, the report also highlights emerging trends in online mortgage research. CMHC reports that over one in five consumers are now using the Internet as their sole source of mortgage information. That trend is still unfolding but as we’ve written before, the ratio of people who feel they can go it alone will grow—just as it’s grown in the online investing market.
Here’s a sampling of other key findings (italics ours):
Mortgage Research
- 65%: of all mortgage consumers use the Internet for mortgage research
- 75%: of home buyers use the Internet to research mortgages
Generally speaking, home buyers do more mortgage research than renewers (who sometimes just sign their lender’s renewal letter) - 80%: of first time buyers use the Internet to research mortgages
Down from 90% in last year’s survey - 51%: of recent mortgage consumers used a mortgage or financial professional to begin gathering information on their mortgage options
49%: started with family or friends, the Internet, or a real estate agent - 81%: of recent buyers relied on a mortgage professional (a mortgage broker or lender rep) at some point for advice and consultation
- 22%: of borrowers relied solely on the Internet for mortgage information gathering
CMHC’s VP Insurance and Business Development, Pierre Serre, tells us “This statistic has to do with how people do their research. These are people who didn’t bother to go into a bricks and mortar location like a branch. They just stayed online…These are people that feel that interacting with people is not the way they want to [research their mortgage].” - 35%: exclusively used off-line resources to research their mortgage
- 43%: reported using both on-line and off-line resources
Online Tools
- 67%: of respondents who used online resources said they visited web sites of specific mortgage lenders
- 1 in 2: online consumers reported using an Internet search engine during their mortgage research
Wow. Only half? - Of people using search engines to research mortgages:
- 85% searched for interest rates.
- 72% searched for mortgage options
- 66% searched for a mortgage calculator
- 38% searched for general information about mortgages
Other Online Activities
- Among mortgage consumers who used the Internet for mortgage research:
- 75%: used an on-line mortgage calculator
- 76%: researched terms and conditions
- 65%: independently compared the costs of different interest rate scenarios on different amortization or payment schedules
- 60%: negotiated a better interest rate than the posted rate
- 48%: considered other mortgage offers before deciding on their mortgage
- 11%: of recent first time buyers used social media platforms for researching mortgages
Up from 3% the previous year
Decision Timeframes
- 5 weeks: the average time it took recent buyers to make a final mortgage decision
- 7 weeks: the average time it took recent first-time buyers to make a final mortgage decision
- 11 months: the average time it took homebuyers to plan their purchase
Consumer Satisfaction
- 84%: of recent mortgagors were confident they got the best mortgage deal for their needs
- 82%: of recent buyers indicated that their mortgage professional—either a mortgage lender or mortgage broker—took the time to fully understand their financial situation and mortgage needs
Customer Follow-up
- 68%: of lender clients who received a follow-up “totally agree” they “will likely contact this lender to get advice concerning their future mortgage needs”
vs. 45% of those who had not received follow-up contact - 62%: of lender clients who had follow-up contact totally agree they “will likely recommend this mortgage lender to a family member or friend”
vs. 39% of those who had not received follow-up contact - 69%: of broker clients who had follow-up contact totally agree they “will likely recommend this mortgage broker to a family member or friend”
vs. 35% of those who had not received follow-up contact - 68%: of broker clients who had follow-up contact totally agree “this mortgage broker took the time to fully understand their financial situation and mortgage needs”
vs. 39% of those who had not received follow-up contact
Lenders Loyalty
- 89%: of renewers did not change lenders
Up 1% from CMHC’s 2010 survey - 68%: of refinancers did not change lenders
CMHC says the lender retention rates for renewers and refinancers have remained relatively consistent over the past few years. Serre says, “Looking back at past surveys we know that people stay because of service, rate and convenience. People move for rate. That’s usually the reason if you look back over time.”
- 57%: of first-time buyers got their mortgage with the institution they were dealing with at the time
This is up big from 46% last year. Just for fun, try saying the word “mortgage” to a bank teller. Faster than you can blink they’ll offer a consultation with a mortgage specialist. Almost everyone in the branch is trained and incentivized to generate mortgage business - 69%: of repeat buyers did not change lenders when obtaining their most recent mortgage
Up from 58% last year
Mortgage broker share
- 23%: overall broker share of the mortgage market
The all-time high was 24% in 2009, says CMHC. CAAMP’s data shows the record high at 26% in 2009 - 48%: mortgage broker share for first-time buyers
This is a record high according to CMHC. This figure has been on a steady uptrend since 2006 when it was just 30%. With all the talk of falling broker share this is a bright spot, and one of the more notable stats in this report - 32%: mortgage broker share of repeat buyers
A whopping 54% of buyers in British Columbia used a mortgage broker - 25%: mortgage broker share of refinances
- 15%: mortgage broker share of renewals
If you’re wondering why broker share is only 23% overall, it’s because most mortgages are renewals. Serre says “First time buyers and repeat buyers accounted for 21% of the survey, renewers were about half the survey, and 31% of respondents had refinanced.”
Mortgage Paydown
- 39%: of recent buyers have their mortgage payment set higher than the minimum required
If you get a raise or have spare cash flow, it’s so easy to bump up your mortgage payment. Just call your lender’s customer service line. Prepaying a mortgage is one of the lowest-risk methods of generating a halfway decent after-tax return - 20%: of recent buyers have already made a lump sum prepayment since taking out their mortgage
- 39%: intend to reduce their amortization at their next mortgage renewal
Miscellaneous
- 81%: of mortgagors have some form of savings (RRSPs, TFSAs, non-registered investments, etc.)
- 1 in 8: did not have a good understanding of how much mortgage they could afford before buying
As a rough rule of thumb, lenders prefer not to see more than 40% of your pre-tax income allocated to monthly obligations. The maximum at most lenders is 44%. Serre says, “In our step-by step guide there is a budget which we recommend people do. You really need to be able to know how much you can afford. Do your budget and then take a look at the TDS (total debt service) ratio. For certain households [the ideal maximum] could be 35%, and just because its 40% (or less) doesn’t mean you should buy a home…”Different people have different risk appetites. Above 40% we start paying a lot more attention to the application as a whole, to the borrower’s credit and ability to repay, and the property they’re buying. 44% is very high.”
Survey background: CMHC’s survey was conducted online and polled 3,512 recent mortgage consumers who were the prime decision makers. The survey took place from Feb. 25 to March 25, 2011. The survey was limited to those who have had a mortgage transaction in the preceding 12 months. CMHC has conducted this survey since 1999.
Rob McLister & Steve Huebl, CMT
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Last modified: April 28, 2014
Hi Rob
Any comment on the article posted over at the Mises Institute examining CMHC’s balance sheet?
“The CMHC insures and guarantees mortgages as well as buys mortgages from banks in order to issue mortgage-backed securities that trade in the secondary market. In comparison to Fannie Mae though, the prognosis of the CMHC is notably worse. For instance, at the height of the housing boom in 2007 Fannie Mae had guaranteed over $2.3 trillion in mortgages[2], nearly a quarter of the market.[3] As of 2009 the CMHC guaranteed over $900 billion in mortgages, about 90% of the market.
Fannie Mae had approximately $44 billion in net assets to cover those guarantees, giving them a leverage ratio of about 50:1. The CMHC has about $9 billion in net assets to cover theirs, with the ratio working out to a staggering 100:1. To make matters even worse, 74% of the CMHC’s assets are invested in those very same mortgage-backed securities. If the Canadian housing market ever took a dive the CMHC would be bankrupt in the blink of an eye.”
Original article: http://www.mises.ca/posts/articles/the-canadian-moral-hazard-corporation/
And my take on it, as well as some questions regarding the role of CMHC in the mortgage market over on my site.
http://www.theeconomicanalyst.com/content/another-look-cmhc-canadian-moral-hazard-corporation
Your insight as someone in the industry is always appreciated.
Best,
Ben
Never in past history has the mortgage market been so fragmented with a confusing array of choice as well as growing misinformation on the Internet and media.
CMHC is a crown jewel of relevant and credible information and I welcome CMT, a trusted site of professionals taking the time to dissect this and other mortgage topics of the day.
I used a mortgage broker back in the day and thats why I was able to buy my house…the bank — my bank since I was 10 — wanted to ding me with a first, second, even a third mortgage…insane….those (bleep bleep)..thankful i didnt succumb to their greediness….
Hi Ben,
Thanks for the post. We’ve written volumes on CMHC’s role in housing (these stories accessible via the search function). For that reason, I’ll avoid any repetition.
A few quick points:
• Regarding the $900 billion CMHC insurance stat posted above: Last I looked, CMHC has about 70% of the mortgage insurance market, with roughly $519-billion in force. The government also guarantees qualifying privately-insured mortgages but charges a 10% deductible on those.
• 71% of CMHC-insured mortgages have significant equity [i.e. 20% or more].
• In addition to the capital reserves you mention, it must be noted that CMHC (and private insurers) also have premium reserves for future losses
• CMHC and Fannie are similar in some respects (like their “affordable housing choices” mandate and certain pooling and securitization functions). There are also key differences:
o The underwriting quality and products insured by CMHC are night and day different from the unregulated garbage (ARMs qualified on teaser rates, negative amortizations, NINJA loans, high-ratio interest-only, etc.) Fannie was buying/backing pre-crash.
o Fannie is a shareholder-owned company whereby CMHC is a government owned crown corp. CMHC has never had the same profit motivations (and hence moral hazard) as publicly traded Fannie Mae.
o CMHC adheres to key OSFI guidelines. Anyone who knows OSFI knows it is extraordinarily conservative and vigilant—today more than ever. And now, thanks to Bill C-3, the Finance Minister is getting more power to oversee mortgage insurers. That should bring about further public reporting from CMHC.
Insolvency of any insurance company can never be ruled out, but in CMHC’s case, it is extremely well managed. It would take a disastrous and unforeseen series of events to cost taxpayers more than the profits CMHC has generated in recent years.
Cheers…
Robert,
In your opinion, why is the market share of the Mortgage Renewal Market so low for Mortgage Brokers (15%)? Are people signing their renewal statements without researching other options? Is it convenience to stay at the same institution at a higher rate? What are the strategies that banks use to retain their clients at such a high level 85%? Your input on this is highly appreciated!
If i may answer Camilo’s question- the problem is that banks payout so much $$$ the first term to the broker to setup the loan that it really doesn’t become profitable for them until the initial term is up and they can directly go after the client without a “middle man” to pay. this means also that come renewal time that the terms they can offer usually are more attractive and they are more likely to give a rate lower than what they are offering at that given time to the broker community. A lot of mono line lenders make a larger profit on the servicing of their loan portfolios when you factor in the u/w costs and finders they pay to initiate a loan.
The other problem is that most people will just negotiate with their banks out of the ease that is associated with just signing back a renewal vs. going elsewhere and redoing paperwork, documentation, appraisals, etc. Banks’ also will do much more in their power to keep an existing client as we all know the costs are much cheaper for them this time around.
But to me the biggest factor is the fact that most brokers are just not sophisticated enough to even track their client’s renewals and it shows. They don’t follow up even once after the mortgage closes and that takes the ownership of the client away from them and into the lender’s hands. If brokers did a better job of managing their database and proactively following up with renewals they would have a much higher #.
Jason, when speaking on others behalf, the golden rule is express facts, not personal opinion!
Your biggest factor, unsophisticated brokers who don’t follow up with clients? laughable!
Laughable? Joke is on you Ivory.
According to a CAAMP, 67% of clients receive less than 2 communications per year post-funding….
http://canadianmortgagetrends.com/canadian_mortgage_trends/Article_Files/Maritz-Broker-Report-2011.pdf
I’d say lender retention starts and ends with a client’s options – Brokers are notoriously poor at following up in this regard (not all, but MOST). This is due to several factors (cost, scale, a high industry turnover, clients updating contact information with the lender and not the broker, etc), but whatever the reason, Jason is bang-on.
Another issue that touches on Jason’s point is the support and education that brokerages offer their agents. Very few brokerages out there have a really comprehensive CRM system that the whole team can capitalize on (MA, for example, has one of the best ones). In the majority of the times CRM is left directly to the individual agent. Some do it religiously and think outside the box but most don’t do it because of the labour and costs involved (although I must say those two aren’t exactly valid excuses as CRM is a huge part of this business, any sales business for that matter).
“15%: mortgage broker share of renewals
If you’re wondering why broker share is only 23% overall, it’s because most mortgages are renewals. Serre says “First time buyers and repeat buyers accounted for 21% of the survey, renewers were about half the survey, and 31% of respondents had refinanced.””
Good to know. No wonder it remains stagnant. With 89% of consumers staying with the same lender, the banks’ strategy of using brokers to find clients and then take over the client (sic) at renewal is bound to pay big dividends. For the banks it’s far more economical to renew in-house than pay brokers trailers or commission for renewals. That’s why even renewal offers have been priced aggressively.
TD is matching rates to Scotia/RBC but ONLY if you ask. I called today for a request on my HELOC. I have to go in and sign for the 0.5% decrease. I didn’t get a clear answer but it was something to do with it not being an over the counter deal. If you have a HELOC at TD it would be worthwhile to march right in and express your leverage.
I was told it was because I was offered a better deal at Scotia and that this is their current policy to keep clients (you might be asked for proof, but since I have good relation with a teller, they didn’t require this). Also by word of my brother, they are actively sending outgoing calls offering the prime plus 0.5% to existing Scotia clients.
Hi Camilo,
The below posters provided some valid explanations for banks’ high retention rates. Convenience, change aversion, and rate-matching are key reasons that people stick with their lender.
Retention reps also seem to be getting better sales training nowadays. Their goals are to address your reasons for leaving, cast doubt on brokers, portray the transfer process as highly inconvenient, and convince the customer to give them the last crack at their business.
Yes, there are still borrowers who merely sign their renewal letters, but I think that will become less common as people find it easier to shop around. Lenders will increasingly have to interact to customers to convince them to stay.