If you look at all the people still in the mortgage business, few have changed the lending landscape like Gerald Soloway.
A former lawyer, Mr. Soloway built a small savings and loan company with 12 employees into Canada’s largest alternative lender with 700+ employees. In the process, he created over $2 billion of shareholder value.
Gerry was a trailblazer in lending to self-employed borrowers and those with meagre credit histories. His Home Capital Group is a testament to the successes possible in non-prime lending.
We were thankful to have a few minutes of Gerry’s time last week for some Q&A. He shared thoughts on industry regulation, Home’s risk-management improvements and the changes brokers can expect in the years to come.
Here is that interview…
CMT: Gerry, it’s been almost three decades since you started Home Trust. If you had to look back and pick the two or three biggest changes you’ve seen in the mortgage industry since then, what would they be?
Gerry: There have been many changes to the mortgage industry over the years, but if I were to narrow it down to just a handful of the events that I believe have had the greatest impact, I would say it is the tremendous increase in the use of mortgage brokers. As more borrowers discover the benefits of working with a mortgage broker, I expect we will see an even greater number of individuals bypassing their financial institution in favour of dealing with a broker.
This rise in the use of brokers goes hand-in-hand with the increase in the number of responsible borrowers who, despite having an adequate down payment, and who have the ability to manage their payments, still get turned down by the major banks. These individuals deserve greater consideration and this is where mortgage brokers working with lenders like Home Trust provide an invaluable service.
It goes without saying that there has been tremendous regulatory change in the 30 years that I’ve been in the business and there is little doubt that more changes are coming to our industry. I see this as an opportunity for the broker community as borrowers will need the specialized services and knowledge of a mortgage broker to help them navigate the requirements.
And of course, I must mention the extremely low benchmark interest rates and the effect this has had on the industry for close to a decade now. I know there are many out there that are too young to remember the sky-high rates of the early 1980s, but it was not all that long ago that rates touched 20% and remained in the double digits through the 80s and well into the 90s.
CMT: Why was now the right time to retire as CEO?
Gerry: I would have thought that for someone approaching their 78th birthday this summer, that it would not be any great surprise to be contemplating retirement. My wife of 56 years and I are both in good health and it just seems that now is a good time to not be working full time.
This decision was very easy to make knowing that Home Trust is in good hands with Martin Reid at the helm supported by an extraordinary team of talented professionals. Martin has been president for six years and both the board of directors and I have the greatest confidence that he will lead the company to even greater success in the coming years.
Of course, I’m not retiring entirely; I will have the opportunity to continue to serve Home as a director and I am looking forward to working closely with the board and the senior management team.
CMT: In hindsight, what would you have done differently to mitigate the fraudulent applications sent to Home Trust in 2014-2015?
We do acknowledge that the issue with the suspended brokers highlighted a need to improve our process around income verification. Although our practices at the time were consistent with industry standards and requirements, this event has underscored the importance of continually reviewing and evaluating risk-management controls.
Risk management is critical to our business and Home Trust has always had well-defined protocols in place. We have been particularly diligent in our appraisal process and we use a group of outside appraisers who have proven themselves to be very careful and accurate in their evaluations. We also have our own in-house appraisers who review this work and on the rare occasion where there is any concern regarding the accuracy of the original appraisal, one of our Home Trust appraisers will conduct a follow-up.
As part of our credit check on all applicants, we pull credit bureau reports directly so we can ensure that all borrowers have a solid credit history. This is also a critical step in validating the credit worthiness and background of all our borrowers.
As a result of this experience, we have since enhanced our processes and strengthened controls including the direct confirmation of income before advancing the mortgage on all applications. I believe it’s worth mentioning that our response to this situation was widely supported by the broker community.
CMT: What’s your prediction for how industry competition will evolve by 2020?
Gerry: I expect there will be a number of changes in the industry over the next few years but these are really just a continuation of the events we are seeing now. I strongly believe that the number of clients requiring the services of a mortgage broker will continue to increase in the years ahead. This will be due largely to the regulatory changes that have tightened the lending criteria thereby making it more difficult for individuals to qualify for an insured mortgage.
In fact, I think it is entirely possible that requirements for insured loans could see a further tightening. I would not be surprised to see the minimum 10% down payment now required on the portion of the price exceeding $500,000 to be extended to the full price of the property.
Because of the regulatory burdens placed on regulated deposit-taking lenders, I do not anticipate an increase in the number of regulated lenders; in fact, there may well be a consolidation in the numbers as small companies may find it too difficult to be profitable on a small-scale basis. This was precisely what led to Home Capital’s purchase of CFF Bank last year and we are well on the way to fully integrating CFF Bank into Home’s operations.
Finally, it is a certainty that the Internet will continue to play an increasing role in our industry. The ease with which lenders and brokers can connect and transfer information has revolutionized the way we manage our business and has led to a dramatic increase in efficiencies. Home Trust continues to leverage these technologies with the development of tools like our new online broker portal, Loft, which greatly improves the ease with which our team interacts with the broker community. Of course, nothing will ever replace the personalized service and the individual relationships we have developed over the years.
CMT: Many thanks, Gerry.
Coming Soon: CMT will feature its chat with Martin Reid, Home Capital’s upcoming CEO, later this week.
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