Despite challenging government regulations in recent years, the mortgage industry is showing strength like it hasn’t in a long time.
That’s the assessment from some of Canada’s top lender heads who participated in the lender panel at this year’s national mortgage conference in Toronto. But they also warn that more headwinds are coming…and likely not from government this time around.
Jason Ellis, First National’s new President and COO, said he believes the success and strength of the channel has to do with “a shift in the addressable market and a relative increase in the overall complexity of the mortgage space right now.”
Specifically, he noted that the new government rules have caused the biggest lenders, the schedule 1 banks, to adjust their underwriting practices. Where exceptions to deals may have been commonplace previously, that’s no longer the case, Ellis said.
“What [B-20] did, I think, is open up that gray area, that vacuum where maybe exceptions used to occur, and allowed smaller lenders…to step in and price mortgages now probably more appropriately considering our cost of funds and cost of capital,” he said. “I think it’s been that opening up of the space that’s really allowed us to grow as a mortgage channel.”
Home Capital President and CEO Yousry Bissada agreed, adding there has been an alignment of favourable conditions that have also helped the industry. He pointed to gen-Xers and millennials becoming a significant buying power in the market, growth in the business-for-self market, and strong economic conditions, including more jobs and lower unemployment.
“It’s healthy for sure,” he said of the channel.
Ellis added it’s “refreshing” that the panel has been able to spend the majority of its time this year speaking about opportunities, as opposed to challenges. “The last time it felt like we were all talking about the headwinds and all of the changes and how it was going to shrink that addressable market that we had as a community of mortgage brokers and lenders. Right now, I think the conversation has shifted to blue skies. We’re in as good a position that we’ve been in in a long time.”
Tech is the Next Big Threat…And Opportunity
The broker channel may have survived the onslaught of government regulations in recent years, but the next challenge will come from tech, say some of the lender heads.
“I think the challenges are Google, Amazon and Facebook,” said Bissada. “They are all shaping the minds of future mortgage holders in how the world should work and how they should expect service.”
The changing expectations of the consumer shouldn’t be something to be feared, though, Bissada added.
“I think it’s an amazing opportunity for lenders who are getting ready for that and an amazing opportunity for brokers because our world is becoming more complex,” he said.
One of those lenders preparing for this shift is MCAP, which is putting some serious investment dollars in the space.
“We are spending a lot of money on tech,” MCAP CEO Mark Aldridge told the audience.
He noted the company has just signed a 15-year lease on a new office next to Wilfred Laurier University in Waterloo, Ontario, “so we can get smart young minds that help build technology.”
Aldridge said MCAP wants to have the best technology in the industry, but that they also want to share it through widgets and mortgages.
“Our competitors of the past have been the banks and the credit unions. (But) ours and their competitors of the future are Google and Apple and Facebook. And if we don’t get our technology right, we’re going to be in trouble.”
The panel covered a range of other topics during the hour-long chat. Here are some of the highlights…
On RFA’s Acquisition of Street Capital
Ben Rodney, President of RFA Capital Holdings Inc., was also on the panel and provided some insight into the company’s acquisition of Street Capital this year.
He noted they had identified three or four companies that they thought would allow for an advantageous entry into the residential market, and “Street was the number one candidate on our list.”
Asked if the thinks consolidation in the industry is a good thing, Rodney replied: “I think so. It’s a benefit to have strong, well-capitalized groups in this channel to maintain stability through the ups and downs that always happen.”
Rodney acknowledged that, while MCAP owns no shares, it did play an important role in ensuring the acquisition closed.
Aldridge added: “One of the four objectives at MCAP is to be a relevant and constructive participant in the Canadian financial system. We don’t just say that, we actually believe it and we think we act that way.”
He cited examples, such as when MCAP funded renewals for lenders who didn’t have the capital to do so during the credit crisis. He said they stepped up with over a billion dollars to assist Maple Trust during its difficulties to ensure all customer renewals were funded. They also stepped in when Home Trust experienced challenges.
“Having better strength within the channel ultimately benefits everybody here,” he said.
On the FTHBI
The panel discussed CMHC’s First-Time Home Buyer Incentive, which has generally been met with criticism by the industry.
“I think there are other levers within all of the regulatory changes that could probably have been pulled more efficiently or that would have a more meaningful impact than creating this program,” said First National’s Ellis.
He added that the program appeared “more political than practical” when it was announced and had an unrealistic timeline for its implementation.
MCAP’s Aldridge said what many in the room were thinking: “I think they should bring back 30-year (amortizations),” which was followed by a round of applause.
“If you have 65% HELOCs, which we do, which effectively are infinite amortization, we can’t we have 30-year am(ortization)?” he asked. “I’m a father of three teenagers… and I think home ownership and a mortgage that you have to get used to paying every month, if you discipline yourself to pay it and it amortizes, is a very healthy thing for young Canadians. I’m not in favour of the government owning…equity in my kids’ houses.”
RFA’s Rodney said the missing piece of the equation is policy that promotes supply, particularly in Toronto and Vancouver.
“It’s easier sometimes to make those policy changes to create liquidity on one end, but it has to come part and parcel with promoting more supply in the marketplace, otherwise the supply/demand [issue] is still there.”