The RMG Mortgage — 2013 Mortgage of the Year

RMG-MortgagesThere are so few mortgages that are unique, widely available and serve essential niches, and RMG Mortgages has one of them.

To appreciate the uniqueness of its product, we have to travel back to March 2011. That’s when 35-year amortizations were banned on high-ratio mortgages. By summer 2012, 35-year amortizations were eradicated on most conventional mortgages as well.

But a few lenders held strong including RMG Mortgages, a division of MCAP. RMG has maintained a 35-year amortization option for those with 20% equity or more. And that’s been easier said than done.

“If a financial institution is regulated by OSFI, they generally cannot offer 35-year amortizations,” says Bruno Valko, RMG’s Director of National Sales. “Furthermore, if the investor buying the mortgage is regulated by OSFI, again a 35-year amortization is not available. It’s the ability to not be OSFI-regulated while establishing a non-regulated investor interested in purchasing the mortgage that allows RMG to offer 35-year ams.”

RMG fills an important void with its extended amortization, a feature that gets more negative press than it deserves. Longer amortizations were conceived to help Canadians increase their buying power, but that’s never been their wisest use.

They’re best suited to folks who can afford a home with a shorter amortization, but who prefer lower payments so they can divert cash to better uses. That may include paying down higher-interest debt, building a tax-free savings account for retirement or emergencies, funding educational expenses, building a business, financing renovations, offsetting childcare or medical expenses, and so on.

Many Canadians have a perception that 35-year amortizations, in and of themselves, are high risk. But the data suggests otherwise.

Bruno-Valko“There is no indication that a 35-year amortization is riskier from a default perspective,” says Valko. “Many people choose 35-year ams and then immediately increase their payments to a 25-year am post-funding.” The assurance of knowing they can always fall back to 35-year amortized payments is important for some people, like those with variable commissions or self-employed income.

But offering 35-year amortizations isn’t RMG’s only edge. The company has built a reputation in the mortgage broker channel for below-market pricing.

“I’m sure the majority of brokers agree that consumers are far more educated on rates today than they were, say, five years ago,” notes Valko. “…Many show up at the broker’s office with their expected rate already in mind.”

RMG serves those clients with scaled pricing that permits deep discounts, plus a “Low Rate Basic” option that trades flexibility for even better rates. “…It’s important to be competitive first and then allow brokers the ability to discount further when in competitive situations by reducing their commissions,” Valko states.

RMG’s Low Rate Basic (LRB) option is 10 bps cheaper than its already competitively priced standard mortgage. But the tradeoff is a very high penalty (3% of principal) and limited port, blend & increase ability. These limitations don’t suit most people, but the LRB remains an important product option for borrowers who insist on bigger discounts. (Note: RMG rebates some of its penalties when clients refinance with RMG.)

Besides reduced rates and extended amortizations, RMG mortgages have other perks:

  • Unlike the major banks, RMG’s standard mortgage comes with fair penalties based on discounted rates. On fixed-rate mortgages, the difference versus bank penalties can sometimes amount to thousands of dollars.
  • The company’s prepayment privileges are ample at 20% per year lump-sum, plus an annual 20% payment increase option
  • RMG is one of few lenders to pay another lender’s discharge fee (up to $250) when a client transfers in
  • On mortgages of $150,000 or more, RMG covers appraisal costs up to $300 depending on mortgage size
  • For insured borrowers who are salaried, RMG has an expedited approval process that requires no more than a recent pay stub for income confirmation
  • RMG has no restricted lending areas in most provinces

In 2013, it was hard to find a newer mortgage product which offered more uniqueness, overall value and utility than RMG’s mortgage. And for that reason, it is this year’s Canadian Mortgage Trends’ Mortgage of the Year.

About CMT’s Mortgage of the Year:

Canadian Mortgage Trends grants the Mortgage of the Year award each January to the mortgage product that has offered the greatest innovation, flexibility, and/or cost savings to homeowners in the prior year. This is the sixth year that the award has been presented.

Recipients to date include:

  1. All in all a good choice for this award. I wonder if Bruno gets a little statue like an Oscar?? Maybe a little gold figure that looks vaguely like Brendan Calder with a calculator in it’s hands?
    RMG provides three great elements, 35 year amortization, highly competitive rates and very strong underwriting turnaround times
    I would like to thank Bruno and Michel and their team for bring some creativity and product differentiation to our channel.

  2. And if not, why? If we are to believe the statement of no increased risk (this is of course impossible to determine given how little time they have been around) then there should be more competition. After all the lender makes more on 35 year terms (modulo acc payments)

  3. @Kathy
    B2B and a few credit unions have 35 year amortizations.
    You are dead wrong. In their latest incarnation, 35 year amortizations have been around for almost 8 years. Before that they were part of the AHOP program in the 70s. On top of that, other countries have had amortizations over 25 years for decades.
    There is plenty of track record to judge them by, especially given that most defaults occur in the first few years.

  4. My 3 votes go to;
    CMLS – New entry brought fully featured mortgages, with all the terms, as well as high payouts and renewal commissions.
    Street – Renewal commissions along with all the insurers under one roof. Did I say renewal commissions ?
    Xceed – Competitive commission payouts with options for unlimited buydowns. I think they will be a bigger player in the coming years. They changed with the times since 2007 and survived…they will thrive and create their own niche market moving forward.
    Want to talk products ? CMLS, Street, and Xceed had our agents and customers smiling.
    Honourable mentions
    Equitable and Home Trust for continuing the solid offerings to our broker marketplace. When all else fails, we can always count on these two players.

  5. Hi LS,
    Regarding: “After all, the lender makes more on 35 year terms…”
    Given equal interest rates, the present value of cash flows for a 25 year amortization and 35 year amortization are actually the same.
    As for the risk question, I’d echo the point that more than sufficient data exists to assess default rates on extended amortizations. Were it not for regulatory intervention, which establishes nothing with respect to default risk, many more lenders (and investors) would support 35-year amortizations. And, barring further regulatory interference, we’ll see a few more lenders roll out 35-year ams down the road.

  6. Of course the present value of a 25 and 35 year amortization are the same. How could it be any different if the same interest rate is used?
    The present value of a cash flow after 25 years on a 35 year amortization is not the same either.
    There is no higher risk of default in a longer amortization mortgage. In theory the only increase in risk is the higher principal amount remaining that would result in a higher severity of loss at time of default. That is unavoidable when comparing the risk of a 25 vs 35 year mortgage.

  7. “just a guy”…
    Perhaps you don’t appreciate the balance of commission payouts, and a good product, as much as I do.
    As Mr. McLister pointed out in his article, the RMG Low Rate Basic comes with great rates, yet the restrictions make it less suitable for certain borrowers.
    CMLS and Street provide more terms, and approvability.
    I can’t be alone in my opinion, as my choices are all in the top 10 lenders, in the broker marketplace.

  8. There aren’t many monolines truly deserving of awards. Most of them sell the same flavour of ice cream in a different cone. I bet that half the monolines today could disappear and it wouldn’t make a dent in broker market share.
    That being said, RMG is a pretty good choice if you have to pick one.

  9. Hi Just sayin,
    Thanks for the post.
    Regarding your first question, some folks aren’t aware of that fact about present value. That’s why I stated what is apparently obvious to you.
    As for the present value of cash flows after 25 years (on a 35-year mortgage), that entails a discussion of discount rates, the term structure of interest rates, and other factors–a different topic for a different day. Suffice it to say, we make some basic assumptions to keep things apples to apples. Among them, we assume that after 25 years, rates will stay reasonably constant and the lender will keep reinvesting its cash flows in 5-year mortgage terms (or shorter), regardless of people’s amortizations.
    Concerning default risk on longer amortizations, in some cases the lower payments could actually result in modestly lower default risk on a borrower level. That depends on things like the chances of unemployment, what the borrower does with their payment savings (i.e., spend it, save it, invest it, etc.), and so on.
    And finally, one quick point about severity. With 20% starting equity, continuous amortization and theoretically rising home values (this of course is a wild card), the dollar amount of losses in a default situation may be practically similar in both cases–at least up to the 25 year mark. Thereafter, in years 26-35, the risk of default would be significantly lower as the borrower would try hard not to lose a house with 60-70%+ equity.

  10. @ Victor, as someone who uses all of the lenders you mentioned at pretty high volume levels; I can say definitively that you are right on the product restriction side of the RMG Low Basic Rate mortgage and Rob made that very clear in his article but I on the approvability side I must take issue. Street, CMLS are monolines just like RMG and there is frankly VERY little difference in how these files are underwritten. I would say approvability is a toss-up and I think the consumer deserves the access to low rates and 35 year amortization IF they want those features.

  11. Victor: For the record Street has Not always had nor has the 3 insurers in their back pockets. More diligence required…
    Xceed, gets deal approved by insurer, sends out approval & then sends out a realtor (appraiser wannabe) who kills the deal(s) by assessing the value lower than what the agreed upon purchase price was and even lower than the listed price on MLS.
    At least that is my experience.

  12. perhaps I am blind, but your “personal” list of preferred lender votes makes no mention of the Low Rate Basic product, only how much YOU get paid now and in the future.
    to quote – 1) high payouts and renewal commissions. 2) Renewal commissions along with all the insurers under one roof. Did I say renewal commissions ? 3)Competitive commission payouts

  13. Mr. Butler;
    Yes, I agree that they are all insured lenders and have the same restrictions when it comes to insured approvals.
    I was using the term approvability incorrectly, and meant closability. When approvals are in the mill at Street and CMLS, I find that I can change a term from closed to VRM, or even 1 year to 3 year and still be competitive WITHOUT having to go to another lender. The terms and full features at CMLS and Street, help closability.
    Just on another matter…
    I think the lenders now should cut us a break when it comes to closing ratios and approval ratios, as it’s one heckuva difficult time in the market the past 3 years. We went through guideline changes almost every year, and we are getting alot more declines than over the past 5 years.
    Agents that have high decline ratios are being painted as bad and inefficient. In the sales world though, agents that don’t give up on deals are called persistent, and that my friends is what makes a good long time mortgage agent.
    I think the lenders and BDMs in their towers forget what it takes to be an agent on the ground, sometimes.

  14. >> I’d echo the point that more than sufficient data exists to assess default rates on extended amortizations.
    Where is this data? Extended amortizations in Canada are pretty new and have not even existed in any real estate downturn. Data about default risk without a downturn isn’t going to help much.
    >> Were it not for regulatory intervention, which establishes nothing with respect to default risk, many more lenders (and investors) would support 35-year amortizations.
    This doesn’t hold up. Regulatory intervention doesn’t affect the non CMHC insured loans. So why aren’t many more lenders offering 35 year amorts for 20%+ down? If the data is as clear as you say and the demand is there there should be no reason you can’t get 35 or 40 year amortizations at most lenders. I suspect if they are turning down the opportunity to play in this market they have a good reason for it.

  15. >> 35 year amortizations have been around for almost 8 years.
    And there was no real estate downturn in those years (minus the very short blip in late 2008). You can’t judge default rates in a rising market.
    The proof is in the pudding. Most lenders don’t have this option. Explain why if there is no additional risk and potential market demand.

  16. LS, You’ll need to approach lenders and research firms, both domestic and foreign, to get all the data you’re after. There are also various international studies on extended amortization delinquencies, especially with respect to 30-year amortizations and interest-only mortgages. (I/O mortgages have theoretically infinite amortizations.)
    Regarding downturns, there have been numerous housing corrections and recessions that you can backtest. Don’t limit yourself to national data and Canadian data if you have a genuine interest in this topic.
    On your point that “Regulatory intervention doesn’t affect the non CMHC insured loans,” that would be incorrect. The move to 30-year amortizations on uninsured mortgages wasn’t exactly optional for OSFI-regulated prime lenders.
    As for why more lenders don’t offer 35yr ams, please refer to Mr. Valko’s comments above.

  17. I’ve worked with RMG and the service is impressive. Our team has a dedicated underwriter and we can provide firm commitment to a client within 2 hours. Good luck getting that at a bank. Moreover, the 35 years amortization with no rate premium is a great cash-flow selling tool.

  18. >> As for why more lenders don’t offer 35yr ams, please refer to Mr. Valko’s comments above.
    Sorry missed that comment.
    So it seems OSFI fundamentally does not agree with lenders that 35 year amortizations are not riskier than shorter ones.

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