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For the first time in forever, D+H has a major threat to its mortgage software dominance.

Newton Connectivity Systems—the old Marlborough Stirling Canada, and a Dominion Lending Group company—is launching “Velocity.”

Velocity is a cloud-based desktop for mortgage brokers. In a nutshell, it lets brokers send applications to lenders, pull credit reports, store client documents securely, email conditions updates to applicants, route documents to lenders and send automated marketing emails and newsletters.

The platform launches March 1 and basic connectivity and deal submission is free to all brokers. A CRM add-on will sell later for $50 a month. The new front-end is built partly on Otto, technology that CEO Geoff Willis’s old firm brought to Newton. 

The biggest pain about the software’s predecessor (MorWeb) was that it didn’t connect to all lenders. But DLC President Gary Mauris says that prior holdouts (e.g., TD, Home Trust & CMLS) “are all fast tracking integration” and should be on the system in a matter of months—in some cases, year-end at the latest.

The other criticism, mainly from non-DLC Group brokers, is that they don’t trust DLC to not spy on their client data. We asked Willis about this point blank. He offered this assurance:

“The goal with Newton is to have it stand as its own company and we want to service the entire mortgage industry—not just DLC or a handful of other networks. It would be short sighted and morally—and perhaps legally—wrong for us to pass along identifying information to DLC or any other organization.

We are here to build long-lasting relationships with brokerages and lenders. So let me plainly say, Newton WILL NOT look at a user’s client information or use it in any way without the consent of that user.

The safe collection, transmission and permitted use of data is the key to effectively operating Newton, we take that obligation very seriously. In our terms of service found right on the Newton website now, there are restrictions with how we share client data both internally and externally. If a broker or brokerage is a Velocity user or a user of another third-party point-of-sale system, we will be making provisions in the future to remove that client data post completion, as you will have it in your database and our role of providing the connection bridge has been completed.”

“It is our intention to migrate all $38 billion [of DLC Group origination] over to Newton within the next 30 months,” says Mauris. (If that’s not a shot across D+H’s bow, we don’t know what is.)

D+H, not to be outdone, and probably not coincidentally, emailed this to the broker industry today:

“…D+H has made a strategic decision to strengthen its commitment to the mortgage business in Canada, which you’ll be hearing more about in the coming months. This commitment will be particularly relevant to individual mortgage broker professionals, especially as the digital transformation takes hold in our industry.”

The company goes on to say: “The lending experience of 2020, just 3 years on, will look drastically different than we know it today…”


Sidebar: Coming Newton enhancements include: calendar syncing, production statistics, reporting based on virtually any client data, automated rate sheets for Realtors and email click-tracking. In 2018, Newton plans to add automated NOA and bank statement retrieval (to verify income and down payment funds), Teranet Purview integration, a client portal for doc uploads, e-signatures and payroll.

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If you thought Parliament’s hearings on the new mortgage rules was boring, you missed last week’s exchange between MP Ron Liepert and CMHC head, Evan Siddall.

This 4-minute video captures the tension…

Never, to our recollection, has there been such animosity towards the regulatory 3-Amigos: CMHC, OSFI and the Department of Finance. The trio’s insurance policies have ravaged mortgage competition, jacked up borrowing costs and are destined to cost consumers billions (literally billions)…if they’re not overturned. 

With most industry professionals we speak to, there’s an almost palpable loss of respect for federal regulators. It’s unhealthy, it’s unnecessary and it could have all been avoided. 

How? By conferring with industry experts before decreeing their policies, and by preserving sacred competition in Canada’s oligopoly-dominated mortgage market. These two reasonable measures would not have prevented rulemakers from achieving their goal, mitigating consumer debt risk. 

In his testimony, Siddall acknowledged making recommendations to the Finance Minister. Those recommendations resulted in the withdrawal of vital insurance and securitization options for:

  1. refinances
  2. average-priced houses in Toronto and Vancouver
  3. rental properties
  4. amortizations over 25 years, and
  5. low-ratio mortgages qualified at the contract rate.

Had officials justified these specific edicts in their testimony (with relevant data), it might have disarmed their critics. Instead, government representatives unapologetically demonstrated how little they thought about the wake of destruction they’ve left for lenders and consumers.

What follows is a sampling of testimony from one who many consider to be Canada’s biggest promoter of the new rules, Evan Siddall.

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Siddall on why the mortgage industry was never consulted:

“…More often than not our advice and analysis is provided confidentially, given that housing finance policy decisions can affect the marketplace…Broad consultations are not always appropriate.”

Counterpoint:  Industry was consulted countless times before on pending regulation. Given the gravity of these particular rules, this time should not have been an exception. The fed’s defence seems to be that traders might have shorted lenders’ stocks if the government tipped its hand before announcing the rules. But banks are public companies and they were consulted, noted MP Dan Albas. Why did policy-makers find it appropriate to solicit feedback from banks (but virtually no other lenders) before decreeing the most devastating rule changes the non-bank industry has ever seen. With no one to counterbalance regulators’ proposals, the mortgage industry got rash bank-biased policy. Canadian families will now bear layers of new costs, for possibly years to come. (Side note: There’s no reason to blame banks for these rules but, relatively speaking, they do benefit from them.)

Siddall on the damage to mortgage competition:

“…The results of these policy changes were fully intended…We did expect lower levels of competition in certain areas as well as a modest increase in mortgage rates…In our judgment the mortgage insurance regime was providing undesirable stimulus in the marketplace so indeed we sought to remove distortion…”

Counterpoint:  So the government picked favourites. It chose to cripple non-banks instead of raising qualification standards on all lenders equally. Siddall supported these changes despite non-banks demonstrating 50% lower delinquency rates than banks, based on his (CMHC’s) own data. Non-banks, and the brokers they distribute through, have been a primary reason why consumers get bigger discounts on mortgages today than they did two decades ago. But now they’ve been marginalized and consumers will pay the price. By the way, regulators’ idea of “modest” rate increases is up to “50″ bps. That’s up to $6,800 of extra interest on a $300,000 mortgage, over just the first five years. That money could pay someone’s university tuition for a year, or cover a family’s child-care expenses, or pay a homeowner’s hydro bill for four years—all of which are better uses of a family’s hard-earned income than government-imposed interest costs.

Siddall on the government’s key concern:

“…Action, we thought, was…needed to address the level of household indebtedness in Canada…The Bank of Canada calls this factor the greatest vulnerability to our economic outlook”

Counterpoint:  No one can argue that surging consumer debt isn’t dangerous. It is. And the government is reasonable for wanting to take action. But Siddall and his cohorts didn’t just take action. They cut off a leg to treat a gangrenous toe. There were multiple alternative treatments they could have prescribed to keep fringe borrowers from O.D.-ing on debt. (Examples). And all of those methods would have left the patient—Canada’s world-class competitive mortgage market—intact. 

Part II will follow this week…


Sidebar: Here’s a link to all of the Finance Committee’s hearings on mortgage policy.

Commentaries reflect the views of the author and not necessarily the views of this publication’s parent.


 

 

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Homebuyers with less than 20% down are going to pay more.

CMHC is hiking mortgage insurance rates for the third time in three years. Premiums are jumping up to 0.65 percentage points on the highest LTV mortgages, effective March 17, 2017. Here’s the new premium table:

But high-ratio hikes aren’t the only story. Premiums on mortgages between 65.01 and 80% LTV are soaring too.

At 80% LTV, the premium is almost doubling to 2.40%. That will push up interest rates among lenders who currently pay this premium for their customers in order to securitize the mortgage.

CMHC had a conference call this morning about the increases. Here were some takeaways:

  • It says these premium hikes are due mainly to OSFI’s capital requirement changes, which took effect January 1.
  • OSFI’s new capital requirements include a formula based on LTV, credit score, location and other things. Oddly, this formula disproportionately targets (increases the costs for) mortgages in the conservative 65.01 to 80% LTV bracket.
  • Bulk insurance premiums have increased similar to the low-ratio transactional premiums, says CMHC.
  • The insurer says it has communicated bulk pricing criteria to lenders (although the securitizing lenders I’ve spoken with cite considerable obscurity in bulk pricing, which has led many of them to transactionally insure their mortgages instead).
  • Roughly two-thirds of CMHC’s business is in the 95% LTV category, said CMHC, and about 4% of its transactional insurance is used for low-ratio customers.

Steven Mennill, Senior Vice-President, Insurance, said that CMHC is “Not doing this to affect housing markets…” and doesn’t think it will have a significant effect on competition.

Mortgage finance companies would vehemently disagree. Higher premiums have already limited competition in the low-ratio market where MFCs must charge rates that are up to ¼ point higher on 80% LTV deals (compared to last fall).

Big banks, which don’t need to rely on insured mortgages for securitization purposes, now have more pricing power than ever—at least since the dawn of NHA-MBS. And no one should blame banks. They’re not writing these rules. But from a consumer standpoint, Joe Borrower is getting the shaft, which leads us to the legislated purpose of the National Housing Act:

“The purpose of this Act, in relation to financing for housing, is to promote housing affordability and choice, to facilitate access to, and competition and efficiency in the provision of, housing finance, to protect the availability of adequate funding for housing at low cost, and generally to contribute to the well-being of the housing sector in the national economy.” (emphasis ours)

The recent decisions by the Department of Finance, OSFI and CMHC appear to twist or flout these essential provisions of the National Housing Act.

Policymakers argue that such measures are warranted for the stability of the market. That’s a whole other debate, one that’s not well supported by any publicly available mortgage risk data (default rates, overall credit quality, equity levels, etc.).

Suffice it to say, Canada’s mortgage industry never required an unlevel competitive playing field to create stability. But that’s what these new premiums have now given us.

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Nearly half of Ontario’s first-time buyers say they’ll delay their home purchase as a result of the federal government’s new mortgage rules introduced in October.

As part of the government’s new stress-testing measures, buyers with less than a 20% down payment must now prove they can afford a payment at the BoC benchmark rate (currently 4.64%).

That change alone will force approximately 45% of first-time homebuyers to postpone their purchase while they continue building up their down payment, according to a recent Ipsos poll conducted for the Ontario Real Estate Association (OREA).

“It’s important to remember who’s being affected by measures that curb housing demand–a young family looking for more space, [or] a 20-something trying to get out of his parents’ basement…,” said OREA CEO Tim Hudak. “Rather than focusing on policies aimed at curbing demand, let’s consider boosting the housing supply or enforcing measures that make home ownership more affordable…”

Overall, the more stringent rules are expected to impact the plans of 79% of all first-time homebuyers in Ontario. Those who won’t be delaying their purchase say they’ll have to find additional funds to cover the larger down payment (27% of respondents), look for a less expensive home (34%) or look for a home in a less desirable city (22%).


Story by Steve Huebl & Rob McLister

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It’s been a long time coming but D+H finally has real competition for Expert, the system that over 90% of brokers use to send applications to lenders.

DLC Group, a subsidiary of Founders Advantage Capital Corp., has purchased D+H’s competitor, Marlborough Stirling Canada Limited (MSC), for $5.5 million. MSC produces MorWeb software, a web-based order-entry platform for mortgage brokers.

DLC is purchasing 70% of MSC and another group, led by Geoff Willis, is buying the other 30%. Willis currently runs OTTO Mortgage Systems, which also makes software that automates the mortgage origination process.

Chris Pornaras is expected to remain president with Willis also joining the management team in some capacity. As such, we suspect that Otto—or at least much of its best functionality—will be merged with MorWeb sometime next year.

DLC “anticipates it can increase MSC’s market share by having more DLC mortgage brokers use the MSC platform,” says the company’s press release. That shouldn’t be too hard, given DLC’s 5,000 agents comprise 40% of the mortgage broker market and fund $37 billion a year. By this author’s back-of-the-napkin math, if DLC gets even half of those brokers using MorWeb it could pay for the purchase in 24 months or less.

Albeit, while DLC Group has ample volume to make MorWeb viable, it will take time to shift a critical mass of agents from Expert to MorWeb. “Changing peoples’ habits is dependent on user experience,” says DLC President Gary Mauris. “Users want better access to their data, integration to the CRM of their choice and a slick mobile platform, so these things will all be on the drawing board in coming months.”

Regardless of this deal, however, Mauris says “MSC and D+H will both remain key partners for DLC.

Speaking to CMT about his MSC growth plans, Mauris said, “We’re reviewing options and potential opportunities for additional partnerships. We’re also looking for ways to more economically serve our lender partners.”

Regarding third-party brokerage partnerships, some will question whether brokerages would ever use software run by a competitor. Clearly, however, DLC would be crazy to misappropriate its customers’ data—so those criticisms probably aren’t valid.

“We’ve never held broker data hostage and marketed to past agents’ clients,” says Mauris. “A broker’s client data is their data.”

The other consideration will be getting all lenders connected to MorWeb. TD and a few smaller lenders are conspicuously absent. Without TD, many brokers simply won’t use the platform. That should be a top 2017 priority for Mauris, Willis & co. as they invest in their new platform.

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National-BankWhen it rains it pours. On the heels of Ottawa’s broker-unfriendly insurance rules comes word that National Bank will no longer sell its branded mortgages through brokers.

National Bank had 2.5% share of the broker market as of last quarter, according to D+H. Brokers represented about a quarter of its mortgage production. This now leaves Scotiabank and TD as the last Big 6 banks to distribute through brokers.

But there’s some good news:

  • National will ramp up its funding of Paradigm Quest, which is a huge vote of confidence in the mortgage process outsourcing firm.
    • This will generate billions in new mortgage originations for PQ brands like Merix Financial. “Our goal is to fund a similar volume of mortgages in this new third-party model as we do currently,” the bank says.
    • “It’s a natural extension of a great partnership that we’ve had for several years with National Bank,” said Kathy Gregory, President of Paradigm Quest Inc. 
    • Merix Financial CEO Boris Bozic added, “We’re delighted the bank had this confidence in us. It adds to our list of institutional partners, lets Merix offer new products and lets us support mortgage brokers more than ever….”
  • It’s a testament to the quality of broker-originated mortgages given the bank’s own treasury will continue standing behind them.
    • The bank confirmed that “this is a business decision driven by economics, not by any concerns about the health of the channel or risks in the channel.”
  • Other “balance-sheet” broker channel lenders should immediately benefit from National’s departure, including Scotiabank, TD, B2B and Manulife Bank.
    • We see Manulife Bank in particular as a big winner here since its Manulife One product resembles National’s All-in-One, and since Manulife is reportedly launching key balance sheet products, including a potential replacement for National’s equity-focused “net worth” mortgage.
    • TD could also see soaring volumes if it launches its HELOC in the broker channel. B2B could also be a winner if it makes its HELOC automatically readvanceable. I believe both of these scenarios are real possibilities. And lastly, MCAP and its Fusion HELOC will see more volume, especially if it opens it up to non-top-tier brokers.

Here’s the bad news:

  • No matter how you spin it, it’s never great PR for our industry when consumers hear that a bank has pulled its broker products.
  • Brokers are reportedly losing National’s popular All-in-One, Net Worth and rental programs. We hear the bank will not be funding these products at third-party lenders.
  • I fear that NBC will provide competitive funding mainly for vanilla fixed-rate products (hopefully I’m wrong on this.) Given NBC’s deposit-raising challenges and cruddy variable-rate pricing this year, we’re not overly optimistic about its 3rd-party floating-rate offerings.
  • There’s no telling how long the bank will continue funding 3rd-party mortgages. Once it ramps up its online channel it may need some or all of that funding back.
  • Some of National Bank’s branches outside of Quebec could wither. Many of them relied on brokers for the majority of their new customers (broker-originated customers were typically referred to a local branch). It’ll be interesting to hear if NBC is closing branches on its analyst conference call tomorrow.

What led to this decision:

  • Big Investment: To thrive in the broker space, National would have had to invest tens or hundreds of millions in systems and infrastructure. Its legacy technology and workflow was simply not effective in delivering the prompt service that brokers and customers demand.
  • e-Channel: CEO Louis Vachon wants to shift resources online. He recently stated: “…We feel that in the relative near future that online origination of mortgages will be a fourth distribution segment…We feel that over time, [selling mortgages online is] going to be as attractive, if not more attractive…than the traditional third-party brokers market.” 
  • Compensation: The bank paid brokers too much. When your commissions are double or triple the industry-standard on HELOCs, and 30-50% more on mortgages, what do you expect to happen to profitability?
  • Cross-sell: Brokers don’t cross-sell National Bank’s non-mortgage products, and apparently its branches weren’t doing a bang-up job of it either. Meanwhile, Scotiabank is reportedly quite pleased with its new broker cross-sell strategy. So this factor was clearly not insurmountable.
  • Renewals: National enjoys higher retention of customers at maturity if the customer comes to National directly.

Parting Thoughts

For full disclosure, my firm did over $30 million in mortgages with National Bank last year, so I know them and their service “challenges” well. But the bank always respected brokers and its top-tier management (i.e., Mark Squire), genuinely tried to deliver better rates and service to brokers, despite the tight constraints he was under from HQ.

Our industry will miss National and the amazing people we’ve come to know there. It’s a stinging blow to be sure, but nowhere near as painful as FirstLine’s exit.

“FirstLine took more than $13 billion right out of the marketplace,” notes Bozic. “But NBC is still actively involved in the broker space, just not through their brand.” That’s key, he says, because “Monoline support and growth is vital for mortgage brokers,” as is broker lender liquidity.

As one final note to those depressed by this news. Recall that after FirstLine’s departure in July 2012, it might have seemed like the beginning of the end. Broker share of the mortgage market back then was 25%.

Today, brokers own 30% of the market, five points more.

Our industry has always been good at bouncing back. That can’t be overstated. And it’s worth remembering, because we’ll need every ounce of that resilience in the years ahead.

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Business gift_FBHappily, it’s only taken six hours to update 183 rates and 25 lenders’ policies following today’s default insurance rule changes. I reckon I’ll be done combing through the rate sheets and policy updates by the weekend, just in time to question the grey matter of those responsible for this absurdity.

Here’s some of the results so far of the DoF’s mortgage insurance ban. These numbers are not exhaustive. They’re just from the banks, monolines and credit unions this author commonly uses:

  • Typical new rate surcharge on refinances: 15 bps
  • Number of broker lenders who have terminated prime refinances altogether: 6
  • Typical new rate surcharge on amortizations over 25 years: 10 bps
  • Number of lenders who have terminated amortizations over 25 years altogether: 7
  • Typical new rate surcharge on single-unit rentals: 15-25 bps
  • Number of lenders who have terminated rentals altogether: 6
  • Typical new rate surcharge on properties over $1 million: 15-25 bps
  • Number of lenders who have terminated lending on $1 million+ properties altogether: 5

Some of the lenders who pulled the plug on these products will be back in the game once they’ve arranged new funding. But they’ll be tacking on meaningful rate premiums, like almost every other lender.

But there’s more:

  • Number of lenders who raised all their rates in the last week (and no, not because of bond yields), instead of just raising refi, long-amortization, rental and $1 million+ rates: 4
  • Number of lenders with better rates on higher-defaulting low-equity insured mortgages than lower-defaulting 20%+ equity conventional mortgages: 18
  • Number of borrowers with 20%+ equity who default on their mortgages: Less than 1 in 300
  • Canadian taxpayer losses from a U.S.-style housing catastrophe: $0
    (Insurers’ capital would be drawn down ~$9 billion, says Moody’s. But that’s a fraction of their combined overall capital base, so a taxpayer bailout would be extraordinarily improbable.)

And that brings us to the most upsetting stat of all:

  • Estimated number of mortgagors who will unjustifiably get their pockets picked by those behind this, one of the most costly, reckless, ill-planned, non-consultative series of policy decisions in Canadian mortgage history: At least 6 million (half of current borrowers)…and more to come. 

 

 

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2016 ConferenceMortgage Professionals Canada’s National Conference has wrapped up in Vancouver. It’s the nation’s largest gathering of mortgage brokers and lenders.

One of the best MPC events is perennially the Expo. It’s kind of like Christmas for mortgage brokers because you always discover new products and services to improve your revenue. On that note, here’s some of the news we heard on the show floor:

  • B2B Bank: Is now the only national lender left who still offers a 35-year amortization.
  • Bridgewater Bank: Is reportedly considering re-entering the prime lending market.
  • Eclipse: Is one of the only B-lenders with its own MIC; it’s doing 85% LTV bundles again.
  • Home Trust: Will be announcing a new near-prime product for borrowers adversely affected by the new mortgage rules.
  • Kanetix: Launched a warm lead phone service for $150 a lead.
  • Lendesk: Launched a new broker loan origination system with integrated e-signatures, automated document reminders, APIs for data transfer, customized commitment letters and a borrower portal with a mobile-friendly application.
  • Manulife: Will reportedly be announcing a conventional product to 80% LTV, a BFS product to 65% LTV and an “equity” product to 50% LTV.
  • Mortgage Alliance: Now offers customers free credit scores and personalized property valuation updates (from Brookfield) in its mobile app.
  • MPP: Is working on a solution to help B.C. brokers meet FICOM’s updated guidelines on selling creditor life insurance; is considering launching job-loss insurance in 2017.
  • Scotiabank: Reaffirmed its commitment to the broker space. Is going national with its new cross-selling program, which promotes other Scotia products to broker-originated Scotiabank customers.
  • Street Capital: Is still awaiting its bank licence. Upon receipt, it reportedly plans on launching a new non-prime mortgage product.
  • TMG: Offers a new mobile app that can pump applications directly into D+H Expert.
  • VERICO: Has rolled out its new lender hub, powered by DealAssist, at a promotional rate of $99 per deal submitted.
  • Xceed: At long last has an online portal for mortgage customers.