Interview: James Clayton, President, MonCana Bank of Canada
Date Published: December 7, 2011
CMT: We’re speaking with James Clayton, President of the country’s newest bank, MonCana Bank of Canada. James, thanks for being with us today.
JAMES: It’s my pleasure. I appreciate this opportunity.
CMT: Let’s jump right into it. As a mortgage consumer, what will MonCana Bank offer me that’s unique compared to other lenders?
JAMES: Well, what’s unique is that MonCana is a Schedule 1 Charter Bank, but we’re completely focused on the broker community, both mortgages and deposits. So, the benefit to the consumer is that MonCana is a huge supporter of the brokers, and this we feel is important because consumers really don’t get independent, unbiased mortgage advice from the big financial institutions. So we believe that consumers need mortgage brokers and MonCana can punt with the broker.
CMT: What kind of products will MonCana offer from the get-go?
JAMES: Well, our initial product line is going to be pretty vanilla. We will have some high-ratio, 1-5 year terms, a variable 5-year term, conventional 1- 5-year terms. Soon, later in December we will have a cash-back program, and a re-finance program in January. More products such as rentals and equity lending will be introduced in the future.
CMT: So let me ask you this: with rate competition so intense these days, how important do you think it is for a lender to offer extremely competitive rates as opposed to just average rates and how does MonCana’s rate strategy fit in with that?
JAMES: Good question. Certainly, rates are an important aspect of a mortgage. Our rates are and will continue to be quite competitive. But just for a moment, to put rates into perspective, a 10 BPS difference in rate, lets say between 3.39% and 3.49% on a $100,000 mortgage, will change the monthly payment by $5.00, about the price of a visit to Starbucks. So, rate is certainly important, but we also feel that excellent service with the borrower during the term of the mortgage, ensuring the borrower doesn’t get nickeled and dimed to death for any little change they make to the mortgage, good pre-payment privileges, working with the borrower if there are some problems during the term. We think this is the package that a mortgage should be. Not all about rate, but certainly rate is important. But everything has to be considered .
CMT: Now, does MonCana offer extended amortizations like a 35- or 40-year amortization?
JAMES: We do on loans that are less than 80%; so on loans less than 80% loan-to-value (LTV), we can go up to 40 years on those. But for normal high ratio lending, we’re a 30-year amortization.
CMT: Good to hear, there’s not, obviously, a lot of options in the lending space that go up to 40 years even on conventional.
Brokers today, everyone wants a piece of their volume. Lenders are asking for certain commitments to reach status and what not, so if I’m a broker looking at MonCana Bank, a new bank, why should I divert some of my volume to MonCana?
JAMES: There’s a couple of reasons here. The first thing is that MonCana is developing a strong partnership with the brokers. We will be providing value to the brokers through co-branding. For example, all our correspondence, annual statements, etc., that are sent out to the borrowers will have our name, our logo, the broker’s name, the broker’s logo on it, so the borrower, all the way, knows where he got the deal and who helped him get it.
And we want to move away from the adversarial situation that occurs when a lender encourages a broker to bring in a deal, and when it comes to renewal time, they’re fighting over the deal. So we’re encouraging the broker to maintain the relationship with the borrower and with us, and we’re going to pay the broker up to 50 bps when the borrower renews with us.
And rather than pay volume bonus and things, we’re going to pay our brokers full freight from the beginning. We have confidence that our broker partners will give us strong volumes.
CMT: Good to hear. Is there anything else you wanted to add? Sorry if I cut you off there.
JAMES: No, that’s fine, that’s good thanks.
CMT: How does MonCana fund most of its mortgages? Through deposits, the CMB market, or how do you do it?
JAMES: As I mentioned before, we’re a Schedule 1 Charter Bank, and we have the ability to raise deposits that are eligible for CDIC insurance, so these deposits will provide funding for the mortgages or some of them. Beyond that, mortgages have become very much a commodity in the market, so fixed income investors, maybe some insurance companies, pension funds, they’ve got a choice between investing in a Canada bond, or for an equivalent risk, investing in an insured mortgage and getting a noticeable increase in the yield they earn. And we’ll be a key provider to some of these investors. So for us, funding mortgages through a combination of deposit-taking and whole loan sales, is a very efficient use of capital for us.
CMT: OK. And then how does selling mortgages, or rather whole loan sales, compare to funding through the CMB market or MBS market?
JAMES: Well, the accounting and regulatory requirements have changed a lot over the last couple of years with some new accounting guidelines in. Also, private securitization and ABC paper really got a bad name recently, especially in the U.S. where assets of different quality were blended into a pool and disclosure (was) not as good as it might have been. We feel that by selling whole loans, the investor knows exactly what they’re buying. And we’ve found that to be true.
CMT: Gotcha. And is the funding cost comparable with whole loan sales versus funding direct through CMB or MBS market?
JAMES: It’s reasonably comparable. It’s not exactly the same. It’s very much a changing world, but we find it works well for us.
CMT: Now you have the strategy, I guess that entails servicing your own mortgages coupled with the cross-selling of things like GICs, or what have you. To what extent do those extra revenue sources for a broker-centric lender, to what extent do those help MonCana offer more competitive mortgage rates or products or services for consumers?
JAMES: Well, we feel that servicing the mortgages we create and sell gives the broker and the borrower end-to-end service and comfort knowing who they are dealing with. And we just think it’s going to be a more positive experience for the borrower than having their mortgage outsourced to servicing by a third party. Also, some of the brokers are set up to provide their clients with GICs, RSPs and TFSAs and the like and we want to be able to work with those brokers so we can provide both sides for their clients, both mortgages and deposits.
Certainly, additional revenue will help with offering competitive rates with the banks, of course, who have similar strategies.
CMT: Well, hey listen James, I appreciate the time today, and I wish you all the best at MonCana and thanks for being with us.
JAMES: Rob, I appreciate that. Thanks very much.
