One of the perennial highlights is the lender panel, where leaders of the industry’s lender partners share their views and insights into the key issues of the day.
This year’s panel included: Mark Aldridge, President and CEO of MCAP; Janet Boyle, SVP, Real Estate Secured Lending at Scotiabank; Andrew Moor, President and CEO of Equitable Bank; and Hali Noble, SVP, Residential Mortgage Investments and Broker Relations at Fisgard Capital.
A Lender Panel Optimistic About the Future
Despite significant industry changes over the last year, including the introduction of the mortgage stress test on January 1 and its ramifications, the panelists said they remain optimistic about the future of the industry and its ability to adapt.
Much of the discussion centered on the B-20 underwriting guidelines and the impact on the industry. Here are some of the highlights…
On the Impact of B-20
Boyle said Scotia didn’t expect the level of pull-forward mortgage activity that took place in late 2017 and early 2018 as consumers rushed to enter the market ahead of the stress test. “That, for us, was a bit of a surprise. We did expect certainly a bit of a lift, but it was like a spring market in the middle of winter.”
Moor said they’re seeing people change their behaviour in response to the B-20 rules. “It’s interesting to see how many of our loans now have two borrowers as opposed to one,” he said, adding they’re also seeing people buying slightly smaller houses than before.
As a mortgage financing company, Aldridge noted that MCAP had already been impacted by the initial stress test implemented for high-ratio insured mortgages a year earlier. “From our perspective, [B-20] was a levelling of the playing field. We felt the playing field was unlevel for that year…We’re actually back [in terms of market share] to where we were before all the new regulations came into effect.”
Noble commented, “To be honest, our book of borrowers has never been so good [as it is now]. Is that the right thing? It’s great for investors. Is it great for the consumer? Probably not.”
On Continued Rate Hikes
Aldridge on the 2% stress test: “If a 2% stress test made sense when rates were 2.69%, why is it still 2% when rates are 4.5, 5%? …So, we would hope [OSFI] would look at that 2% and consider adjusting it based on where we are in the interest rate cycle.”
Boyle said given the prospect of another two or three rate hikes, the stress test would approach the level of private lending territory. “I think that’s really punitive and it’s not serving what the initial purpose was of implementing those rules changes. So, I would certainly hope OSFI would be examining that moving forward.”
Noble suggested rising rates and an elevated stress test would force private lender rates up as a result. “What we’re going to find is even our rates will go up. We don’t typically follow the Bank of Canada rate or bond rates, but frankly we need to have that gap, so everything is going to get tougher.”
Moor said he doesn’t foresee OSFI making any adjustments to its stress test formula. “There’s a certain confidence about what you need to do and what they’ve done to try and reduce the speed of consumer debt growing. Until we see a little bit more constraint in that area we’re not going to see any changes, frankly.”
On the B-20 Rules Forcing More Borrowers to Private Lenders
Moor noted the difficulty of measuring the growth of the private mortgage market. “It’s something, as an industry, we should try to get our arms around—how big is the private mortgage market growing? It potentially destabilizes the entire system, which is what we’re trying to avoid with all these changes.”
Aldridge disagreed, saying the private market still only comprises a small percentage of the overall $1.7-trillion mortgage market. “We can debate how big it is, but it’s still very, very small relative to the entire system. I actually don’t think it’s a threat to financial stability in Canada. Even if it was to double in size, I still don’t think it’s a threat.”
On the Digital Space and Disruptive Technologies
Aldridge: “I think as an industry the mortgage brokers have done a fantastic job. I think they were early adopters, even before some of the big financial institutions…“from an MCAP perspective, we obviously want to have very good systems to interact with our customers, whether it’s borrower customers or broker customers. But I will caveat it with this, I think there are a lot of digital companies out there who put out a solution looking for a problem. And you can spend an awful lot of money if you buy that solution trying to figure out what problem you’re solving. So, we’re a little bit cautious.”
Boyle: “From a back-office perspective, I think we’re all looking for ways to improve the customer experience and reduce pain points for the brokers, in terms of how can they more quickly turn these things around for their customers. So, we’ve been digitalizing different parts of the transaction [and will continue to do so].”
On the Risk of Mass Foreclosures
On whether there’s a risk of a major increase in foreclosures in Canada, Boyle said, “I don’t think so…there would have to be a fairly significant and sustained change in employment. Probably a number of existential factors would have to occur for us to actually see that as a material impact to our portfolio. That’s not something, for us, that we’re concerned about. We think the market is very healthy.”
Moor added that it’s all about employment. “As long as Canadians are employed, as long as we have an immigration policy that attracts people with talent to the country, then the mortgage market will generally be in pretty good shape.”
On the Future of the Traditional Broker
Aldridge on digital competition (e.g., mortgages arranged over Smartphones): “I think technology is an enabler and a tool and can allow any profession, brokers in this case, to deliver more efficient service, better service. But at the end of the day it’s the largest financial transaction most Canadians will do in their lives, so I’m not sure you should just email it in…There will be a small percentage of people who do a mortgage on their phone, but it will be a small percentage. An awful lot of business will be done by true professionals.”
Given the onslaught of changes to the industry that have largely confused consumers, Noble said, “this is probably one of the best times to be a mortgage professional…you’re the solution person.”
Boyle said “the secret sauce of the mortgage broker community is the experience and information and expertise they bring to the table, which you can’t replace. You can’t replace that human intervention and insight.”
A final thought from Aldridge on the fact there have been roughly 40 regulatory changes since 2004, and the fact the broker market is larger than it was then. “The good brokers who do their homework and understand what their clients need, they’re going to not just survive, but thrive. And it’s our job as lenders to give you the tools so you can do that.”