CMT: We’re speaking with Michael Jones, President and CEO of Xceed Mortgage Corporation. Michael, thanks for being with us today.
MICHAEL: You’re welcome.
CMT: Let’s jump right into it, if I may. Competition in the mortgage market, as you know, is as intense as ever. What edges does Xceed bring to the table as a mortgage lender? So in other words, what really separates you from other lenders?
MICHAEL: Well, I think today what separates us, and with our return to the broker channel, is that we’re going to focus on the small- and medium-size broker. I think in the last several years, in the insured channel anyway, our focus was not as clear or as well- defined as it could have been. When I talk of the small- and medium-sized broker, I’m talking about the kinds of things that I believe matter to a broker of that nature, and they include, for example, obviously competitive rates and a competitive commission package; for example, today we have a competitive 5-year for 3.34%.
That rate can be reduced for our RRSP or PREP Mortgages to 3.29%, and further reduced if, for example, you’re buying an eco-efficient new home down to 3.24%. We think those are attractive. They may not always be the best rates in the market, but they are attractive rates.
The other thing that we’d like to focus on is the fact we don’t have any minimum volume requirements, we don’t have any status levels, so all brokers who deal with us get treated the same. We don’t have any funding ratio rules. As I already mentioned, all of our commission is paid up front and in cash. And we don’t use a BDM model. We use what we call a Broker Service Rep model, where those Broker Service Reps, desk-bound in Head Office [are] sitting next to Underwriting so when a broker needs an answer to a question, whether it be a general policy question or whether it be a question related to a specific transaction, they’re ready and waiting to take the call and they’re all armed with Blackberries and Twitter accounts and our goal is to make sure that nobody ever has to leave a voicemail.
CMT: Gotcha. OK. So you’re definitely targeting a seemingly underserved market more and more today, which is a small broker, which is good, and you’re adding efficiencies it seems. So how would you characterize Xceed’s growth strategy? Is the idea to ramp up broker originations, or create partnerships with non-brokers, or maybe go direct to consumers?
MICHAEL: No, our strategy for the moment: We recognize we are not very good at dealing with customers directly when it comes to originating new mortgages. That’s what brokers are good at. What we know our strength to be is in the underwriting, the processing, the funding, and the servicing through MCAP who’s our partner on the servicing side of mortgages. That’s what we do best.
What we want to do is to remind brokers that in the years 2002 and 2007 we were one of their biggest champions, when we were and we could fund non-conforming mortgage business. And we want to replicate that experience in the prime business.
CMT: Xceed obviously pulled out of the broker channel back in January, before re-entering again this past September. Can you talk a little bit about why that happened and how brokers should view Xceed’s financial position and dedication to the channel going forward?
MICHAEL: Sure, I think in doing so, I would also like to answer a questions you posed on your site and that is “How long do we intend to stay?” And the best way I can answer that is to say we will stay, and we will be active, and we will be competitive, as long as we can deliver value to our broker partners, and remain profitable as a company.
When we left, our products were not unique, we didn’t have the right strategy, and we weren’t profitable, and we needed to press the re-set button. As an example of that, unfortunately, some brokers, even though we tried to make it clear that we were now in the prime business and the insured business, still thought we were in the non-prime business. One of the consequences of that was we had very, very poor funding ratios, which, of course, only exacerbated the profitability problem.
Today, we believe our strategy is sound with focus on the small- to medium-size broker. We have a much better cost structure, and a very competitive rate and compensation package, plus some unique products. We think that should be a selling feature to the small- and medium-size broker.
CMT: I understand, ok. So, Xceed has funded most of its prime mortgages through the securitization market. Would that be correct to say?
MICHAEL: Just about all of them, yes.
CMT: So, is there sufficient access to low-cost funding in that market today to be competitive? Because, obviously, a lot of lenders rely on securitization, specifically non-bank lenders. What would you say in that respect?
MICHAEL: I think there is lots of room in the Canada Mortgage Bond program. I believe that to be the case. And I think that is likely to continue for the next little while. Where, of course, we all ran into problems in 2007 was when the private securitization market closed its doors and none of us were able to originate mortgages that didn’t qualify for insurance by one of the insurers in Canada. But, at this juncture, given the fact that our volumes in the past have been quite low, and therefore, we have a considerable amount of unused Canada mortgage bond room, we are ready to do business with mortgage brokers who want to send us prime mortgage transactions.
CMT: From a funding standpoint, generally speaking, is there still a pretty big gap between funding costs (for lenders), who are funding through the securitization market versus lenders who are funding through deposits?
MICHAEL: It’s very hard to know the answer to that question, because to do so, I would, for example, have to be much more familiar with the economics of how banks fund themselves than I am. What I can tell you today is that in the securitization market, there is sufficient profit for the broker, for the lender, and for the folks who arrange the access to the Canada Mortgage Bonds program so everyone can participate, and anybody can earn a reasonable profit, and that’s one of the reasons we got back into the channel, because we felt a better balance had been struck
CMT: Is Xceed still planning on obtaining its bank licence?
MICHAEL: No, that’s on hold. There were several issues with that application that related to Xceed’s past, shall we say, that needed to get resolved. And those are being resolved as we speak. Most of them have been resolved. And, whether or not we decide to rejuvenate that application remains to be seen.
CMT: And are there any plans underway to re-enter the non-prime market, where Xceed was once pretty successful?
MICHAEL: We wish we could. To do that though, we would need a funding solution, and whereas there are some green shoots, there are some very small signs of life, we don’t have a funding solution as of today. Believe me, it’s one of the things we continue to work on 7/24.
CMT: Are there any other interesting plans or anything you want to touch on that Xceed has in the works?
MICHAEL: No, I think we’ve covered everything. It’s our goal to be a provider, in the long run, of mortgage products to brokers that brokers and their customers find valuable. Whether that be an insured mortgage product, if we’re successful in finding a funding solution for non-conforming mortgages in that sphere as well.
CMT: Great. Well, that wraps it up for today. We appreciate you very much for being with us today.
MICHAEL: Thank you for the time.
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