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CMLS Enters the Residential Mortgage Market

CMLSConsumers and brokers have a new mortgage lender to choose from. CMLS Financial launches today in Ontario, and Monday in Alberta and B.C.

CMLS is a broker-only lender that should get a warm industry welcome, given the recent departures of FirstLine and ING from our channel. But we have to admit, when we heard last year that CMLS was entering the market, one thing came to mind, “Another non-bank lender with the same old insured products.”

It turns out that CMLS brings some legitimate advantages to market. Here are some of them:

Benefits from a broker’s standpoint:

  1. Funding Relationships — CMLS has broad institutional funding relationships and direct access to the Canada Mortgage Bond (CMB) program, a potential funding cost edge possessed by only a minority of non-bank lenders. Mind you, it won’t sell mortgages directly into the CMB market in the beginning, preferring instead to fund through investors.
  2. Renewal Fees — CMLS pays 30-50% of its normal finder’s fees to brokers at renewal. That cuts down on churn, which benefits consumers. (Churn is when a broker moves a client to a different lender at maturity, mainly to get paid another finder’s fee.) And from a broker’s standpoint, renewal fees are increasingly important given that lenders—even some supposedly broker-friendly lenders—have been offering shockingly low rates to cut out brokers at renewal. (Those rates are great for the consumer of course, assuming the lender and product still suit them.)
  3. Dan-PutnamNo Status Programs — Brokers don’t need to promise big volumes to get CMLS’s best rates. “All these status programs make brokers game the game, and funnel deals through one person (for better rates),” says Dan Putnam, Senior VP, Business Development at CMLS. CMLS simply asks brokers to meet a reasonable 55% funding ratio (i.e., 55% of deals submitted must close).

Here are some other notables:

  • Rates — CMLS’s rates at launch are not overly fantastic, but they’re respectable (e.g., 2.99% for a 5-year fixed). All terms come with a 120-day rate hold and no insurance premiums on regular conventional mortgages. Rental deals incur a 5 bps rate surcharge.
  • Features — CMLS sells standard mortgages with:
    • A full range of terms
    • 20% lump-sum prepayment privileges (Multiple payments allowed; $100 min.)
    • Optional 20% payment increases annually
    • Optional mortgage increases (When new money is added to a mortgage, it gets CMLS’s discounted rate at the time, which is then blended with the client’s existing rate. The maturity date stays the same and there is no breakage penalty.)
    • 30-year amortizations on conventional mortgages; 25-year on high-ratio
    • Portability
    • Reasonable breakage penalties (based on discount rates, not posted rates like the Big 6 banks).
  • Pre-approvals — CMLS offers its best rates on pre-approvals. Many lenders don’t. It also fully underwrites each file to minimize surprises when the deal “goes live”—i.e., when the customer signs a purchase agreement. Some lenders simply hold a rate and underwrite the file later, which adds uncertainty for the borrower.
  • Commercial — CMLS is a significant player in commercial lending, and brokers will get paid for referring commercial deals.
  • Service — The company aims to meet a 4-hour turnaround time on approvals, thanks largely to a customized and extensively automated underwriting system.
  • Documents — CMLS underwriters review all documents on a file. Among other benefits, that means brokers have only one person to track down for deal statuses.

A wish-list:

  • Online mortgage access — CMLS offers no way for clients to check their balance or make prepayments online, a notable omission for the Internet generation.
  • No line of credit (LOC) — To be fair, few non-deposit taking lenders offer LOCs, but it sure would be an edge if CMLS had one that’s fully readvanceable.
  • Longer Ports — When porting, CMLS gives you 30 days to close on a new property in order to receive a refund on your penalty. Many lenders offer up to 90-120 days.

Like many of its competitors, CMLS is starting out as a Pareto Principal lender. In other words, it’s focusing on the minority of brokers (about 2,000 so far) who do the majority of volume. That number will rise when it launches in the Prairies and Atlantic Canada by year-end.


chris-brossardCMLS has reached the market pretty quickly. CEO Chris Brossard, says, “We think to build what we have built in less than a year is quite an accomplishment and is a credit to the team we assembled: Dan Putnam, SVP Sales, Kevin Fettig, SVP Risk, and Cheryl Preston, SVP Servicing.”

kevin-fettigCMLS has a strong securitization and capital markets team, including Kevin Fettig. Fettig is a Bank of Canada and CMHC vet who’s done everything from managing swap and debt programs, to developing MBS and securitization structures, to launching the Canada Mortgage Bond. “His experience will be valuable for CMLS in maximizing the value of its MBS issuance and CMB capabilities, as well as developing other structures to fund residential mortgages,” says Brossard.

“Last year, we were one of only two issuers in all of Canada who re-opened the domestic CMBS market. We hope we can build a product or two for our broker clients that are, shall we say, ‘beyond B-20’.”

When asked how non-banks will compete long-term if banks tighten the funding tap, Brossard replied: “At the end of the day, we believe we, the non-banks, serve an important niche in the mortgage space in Canada and that as long as Canadians find what we do valuable, we’ll find a way.” CMLS has certainly proven it can “find a way” in the commercial mortgage market, if that’s any indication.

Rob McLister, CMT