First quarter 2016 was one of the most unexpected quarters in memory for broker channel market share.

If you had to sum it up in one sentence: the largest players ceded a fat slice of the pie to smaller lenders.

In fact, the top five broker lenders combined posted their lowest market share reading since we began tracking this data six years ago.



Brexit FBWhat a day in the markets. Britain surprised the world and walked out on the European Union.

In response, markets crashed around the globe—sovereign bonds aside.

Here’s a quick rundown of the Canadian implications…

It’s Not the End for the UK/EU

UK’s parliament must still vote to exit the union, albeit that’s expected to be a formality. Britain must then remain in the EU for two more years, and it’s not impossible for the country to change its mind in that time. Barring that, there’s the possibility that the EU and UK negotiate an alternative trade deal. After all, roughly half of UK trade is with the European bloc.

More Accommodative Central Banks

The UK’s Treasury expects its GDP to be a whopping 3.6% lower in two years. Economic fallout and uncertainty (including uncertainty about who might leave the EU next) will curb foreign investment and slow monetary tightening worldwide. That includes in the U.S. where rate hikes are now improbable for much longer. At the very least, “This dramatically lowers the probability of a hike this year,” said TD earlier.

Canada’s Bonds More Appealing

A more dovish Fed, the downgrade in Britain’s credit rating and economic aftershocks all give Canadian bond yields more leash to run—lower, that is.

But mortgage rates are likely not about to fall off a cliff near-term. Canada’s inflation outlook will be more greatly impacted by things like negative sentiment and falling oil than any deterioration of UK trade. And those rate drivers could take time to play out.

As for specific numbers, “The economic ramifications for Canada are challenging to estimate,” says Bank of America Merrill Lynch, “…For now we have trimmed 2017 GDP growth by 0.2 percentage points to 1.7%.”

Mortgage Rate Path Altered Slightly

There’s a possibility we could see higher risk/liquidity premiums built into mortgage rates, especially variable rates. But make no mistake, there’s nothing long-term bullish for rates in this news.

For us to see any material fixed rate cuts, the 5-year yield will need to drop closer to its all-time low of 0.40%, or below.

As for the prime rate, Brexit talk will surely inspire more economists to push rate-hike projections into 2018. At the moment, OIS prices imply a 1 in 3 chance we’ll see a BoC cut this year.

More Fuel for Canadian Real Estate?

UK instability could boost international demand for Canadian housing, believes Mortgage Professionals Canada CEO Paul Taylor. “…The uncertainty it causes in the European marketplace now only exacerbates the Toronto and Vancouver foreign investment elements of the overheating housing market.”

A cheaper loonie could add even more fuel to that fire.

“Hopefully policy-makers will move quickly to address this issue and not delay for the full StatsCan study to be completed,” he says. “I fear at that point it may be too late.”


TNM Store FBTrue North Mortgage (TNM) has been an innovator since the company began in 1999. It was the first independent mortgage broker to create a national footprint of retail mortgage stores, an early leader in targeting online consumers through rate comparison websites and one of the first to leverage the buydown rate model.

It has now made another first as a discount broker by launching its own CMHC-approved lender. Named THINK Financial, the company sells insured mortgages exclusively to True North Mortgage customers. The Calgary-based lender approved its first deal on May 24 and has five full-time employees.

We caught up with the company’s CEO, Dan Eisner, for a rundown on this new project.


CMT: So, Dan, do tell, why did you want to go through all the trouble to start your own lender?

Dan: The same reason we do anything. To improve the customer experience while providing ever lower rates. This is not to say that our current lenders don’t provide a good customer experience or poor rates. But as a lender/broker combo we can control the customer experience to a greater extent and thus ensure a superior experience for the good credit clients we attract. In the past, much of TNM’s success hinged on hiring salaried high-quality mortgage specialists and Realtors. The majority of TNM employees are former mortgage underwriters with years of experience in the mortgage industry. This means we can operate without the need for BDM teams, tradeshows, sponsorships and other costly broker promotions.

Think Financial MortgageCMT: How long did it take you from the time you first decided to implement the idea to the first approval?

Dan: That’s a hard answer to pin down. We first starting tackling the problem in 2013. We didn’t get really serious about it until the end of 2014. Our submission to CMHC took place in 2015.

CMT: Knowing all that you do about the process, how happy are you with the decision? Will the rate savings be worth it?

Dan: We are happy so far, but these are very early days. Things like this can take years to play out.

CMT: Who is servicing THINK Financial’s mortgages after closing?

Dan: MCAP.

CMT: As a CMHC-approved lender, you need at least two funders (one primary and one backup), correct? Can you talk about the funding model a bit?

Dan: Yes, we are a CMHC-approved lender, and yes, we have more than one funder as required. This designation we have allows us to underwrite and sell mortgage directly to funders/investors. Any mortgage issued by THINK Financial is sold to a funder in much the same way as First National or MCAP operates. In the end, something like 90% of the mortgages in Canada end up sitting on the balance sheet of one of the big banks in Canada.

CMT: What kind of capital did you have to put up to make this lender possible? Did this require bringing on new investors?

Dan: We exceeded the CMHC and Canada Guaranty required $5 million in capital by a good margin. Less than 10% of the shares of True North Mortgage are owned by third parties and we are proud to say that greater than 40% of the employees in True North Mortgage are owners.

CMT: At the moment, you can only submit high- and low-ratio transactionally insured mortgages to CMHC—no bulk insured business—correct?

Dan: True.

CMT: How long until you can submit bulk insured deals to CMHC?

Dan: Two to three years in regards to CMHC, however, we have already commenced low-ratio portfolio insured deals with Canada Guaranty. Right from the start Canada Guaranty has been a strong supporter. They took the initiative to review the historical performance of deals brokered by True North Mortgage and judge us by the results. Clearly they were pleased with what they found and thus offered us low-ratio bulk insurance at launch, along with high-ratio.

CMT: What type of challenge does it present when a new lender has to wait two years to submit bulk deals to CMHC?

Dan Eisner2Dan: It is a significant hurdle for a typical new lender entering the market. From my understanding, the private insurers rarely work with brand new lenders…until they have seen [multiple years of] strong audit results. As a result, a typical new lender is left with CMHC as their only option. Although it is possible to submit low-ratio deals to CMHC while on probation, the transactional cost of doing so is prohibitive. Thus most new lenders are left to offer high-ratio deals only. Being a high-ratio only [broker channel] lender does not put you in good stead with many mortgage brokers and thus the resulting submissions will be of lower quality. In the case of Think Financial, we were able to provide both high- and low-ratio by having two insurer partners.

CMT: Thanks, Dan. Anything else you’d like to add?

Dan: Although it is very early we are pleased to see that our new lender has driven substantially more calls and many of these clients are ending up with mortgages from our current stable of lenders outside of THINK Financial. Of the $63 million we got approved in the last two weeks, less than 15% ended up at THINK Financial.


Our Take…

On the Product: The company’s primary product is a full-featured 5-year fixed called “The Works.” It’s currently marketed at 2.29% (according to the website) and has a normal penalty and 20/20 prepayments. All of the firm’s mortgages are registered as standard charges.

THINK Financial also plans to roll out a no-frills mortgage (called “The Skinny”). The product will feature aggressive pricing and be portable, but it will have no prepayment privileges and come with a penalty that’s the higher of 2.75%, the IRD or 3-months’ interest. With those limitations, the rate will have to be exceptionally low as it will be easy to sell against. Then again, in the online arena it often only takes a 1 bps lower rate to generate phone calls. Some customers completely overlook the rate details in the beginning.

On Other Brokers Trying the Same: True North Mortgage originated $1.1 billion in mortgages in the last 12 months. It has the scale necessary to pull off its own lender. For other brokers considering such a move, note that funders may be hesitant to support direct broker relationships unless they can expect hundreds of millions in annual originations (although some may entertain less initially, if there’s a big upside).

On the Lenders’ Perspective: This isn’t something that thrills lenders as they’d prefer brokers don’t compete head on. One worry is that they’ll get a lower quality of insured business from brokers who have their own lenders. The thinking is that a broker will keep its best deals in-house, since insurers put new lenders under intense scrutiny for arrears. But in True North’s case, the quality of business is above industry norms to begin with. Moreover, we suspect that Eisner, clearly an astute operator, is not about to jeopardize the company’s valuable lender relationships.

On What This Signifies: In this author’s view, True North would not have done this if it couldn’t price at least 5-10 bps lower than its existing lender relationships allow. Client experience aside, this move is mainly an answer to severe online price competition, a factor that’s becoming more pronounced with 44% of online consumers now using rate comparison sites. Other big brokers also see this writing on the wall. So, while this may not be a major industry trend, expect a handful of other $1 billion+ independents to follow the same path.



Andy CharlesI had a chat with Canada Guaranty CEO Andy Charles today. Like most industry leaders, he’s concerned with maintaining stability in Canada’s high-value housing markets.

As a mortgage default insurer, Charles knows a thing or two about risk mitigation. So we asked him for his take on raising minimum down payments in order to create a risk buffer and slow real estate valuations. He made three points of note:

  1. Regulatory changes over the last several years have made the first-time homebuyer a modest player in the overall housing market:“The changes made to the high-ratio mortgages (first-time homebuyers) the past several years (reduced amortizations, debt servicing restrictions, etc.) have served to significantly reduce the size of the first-time homebuyer segment. It now represents just 30% of Canada’s housing market with the significant majority of home financing utilizing conventional mortgages.”
  2. Increasing the minimum down payment would materially hurt Canada’s smaller urban housing markets:“Raising the minimum down payment to 10% would have the unintended consequence of negatively impacting housing markets in almost all other areas of the country. Home prices are soft and either flat or moderately decreasing in almost every city in Canada other than Toronto/Hamilton and Vancouver/Victoria. Housing markets and first-time homebuyers in Montreal, Halifax, Calgary, Edmonton, Winnipeg, Regina, and Saskatoon, not to mention other smaller cities, would very likely experience negative economic impacts due to increasing the minimum down payment at a national level.”
  3. GTA/GVA price increases are not being driven by the first-time homebuyer:“The large increases in single-family home prices in the GTA/GVA markets are not being driven by the first-time homebuyer with a 5% down payment. The 5% down payment segment of borrowers are generally not purchasing single-family dwellings in the GTA and GVA markets, as a very significant portion of these homes are priced above the $1 million value restriction for high-ratio purchases. Raising the minimum down payment in these markets would have very little, if any, impact on the trajectory of GVA/GTA single-family house prices in the foreseeable future. The average mortgage size of the first-time homebuyer is approximately $300,000.”

Charles added in closing:

“While I share the concerns regarding these specific markets, we take the view that raising the minimum down payment will penalize the first-time homebuyer, risk dampening already soft housing markets in most of the country, and will do little to help achieve the desired public policy of moderating the price growth in the GTA and GVA markets.”

Charles is one of an increasing number of industry leaders publicly weighing in on mortgage policy as of late.



Rising down payments FBThe CEOs of National Bank & Scotiabank, Louis Vachon and Brian Porter, made headlines this past week by suggesting that Ottawa raise the minimum down payment. Reportedly, they want people to put down at least 10% on all homes under $1 million.

Today, Canadians must lay out at least 5% on purchases up to $500,000, plus 10% on any amounts between $500,000.01 and $999,999.99. It’s a reasonable policy that lessens risk on higher-priced homes in torrid housing markets.

When hearing bank bigwigs opine on down payments, one has to wonder how long it’s been since they were first-time homebuyers. Today, the number one reason young Canadians don’t buy homes sooner is the current equity requirements. Over two-thirds of CMHC insured buyers, for example, can only scrounge up 5.00% to 9.99% down payments.

Were regulators to heed these bankers, it would force untold thousands of young Canadians to rent (or keep their parents company) significantly longer. That’s despite their qualifications as borrowers and despite any social/economic ramifications. And for what? To protect banks’ earnings? To curb Toronto / Vancouver housing while setting back buyers in the other two-thirds of the country where values are stable or falling?

How about these banks mitigate their own risk? They can do that by continuing to approve people who can clearly service their debt, irrespective of equity. It’s a crazy concept, but it might just work.

Take someone who earns a stable income, has demonstrated their ability and willingness to maintain pristine credit and is not over-extended with debt. That person has earned the right to own. The fact that they’ve saved only 5%, and not 10%, does not make them a high-risk borrower. Any systemic risk they do pose is mitigated with default insurance, which they pay for.

A flat 10% down payment is not the answer. It doesn’t achieve the correct goal. The goal of further regulation should be to keep higher-risk borrowers out of the market, not to keep all borrowers without an arbitrarily set down payment out of the market.

The Department of Finance should really be targeting borrowers who finance higher-value properties (non-starter homes) with smaller-than-average down payments, higher-than-average debt ratios and lower-than-average credit scores. One way to do that is by lowering the maximum allowable debt ratios on those borrowers—i.e., on borrowers exhibiting “layered risk.” If another economic shock does come along, these are the folks most likely to stop making their mortgage payments.

It would be so much more productive if the Porters and Vachons of the world elaborated on their logic when making public statements about mortgage rules. One would think (hope) they have internal numbers—like stress test results, arrears trends, etc.—to back up their arguments. As it stands, today’s publicly available data does not support Canada-wide down payment hikes for well-qualified young buyers.

When policy-makers see their subjects (bankers) asking for tighter equity requirements, they listen. In this case, hopefully they don’t listen too closely.


Handshake 2 FBWhen it comes to mortgage origination volume, the most successful brokerage operation in Canada—hands down—is Dominion Lending Centres (DLC). In 10 years the company has gone from zero to 5,000+ agents, 650 locations and more than 40% market share in the broker space.

FCF Capital Inc. (FCF) saw that success and decided it wanted a piece of it. So it bought 60% of DLC for almost $74 million. That pegs the entire enterprise value of the company, if you include assumed debt, at roughly $139 million according to co-founder Gary Mauris.

We spoke with Gary and FCF CEO Stephen Reid this morning. Here’s the nitty gritty…

Purchase Specifics

  • DLC shareholders get $61+ million cash plus $12.5 million in stock. The stock has a 4-month lockup. (Source)
  • FCF says it paid a multiple of 8.4 times short-term EBITDA (earnings before interest, taxes, depreciation and amortization). 
  • DLC’s 2015 net earnings were $6.8 million (This does not include the millions agents pay into DLC’s advertising fund, of which 88% is spent directly on advertising and 12% goes to administrative expenses, like figuring out where/how to advertise.)
  • Based on DLC’s 2015 revenue of $26.9 million, the multiple FCF paid is about 2.75 times.
  • FCF did a capital raise three weeks ago to generate part of the capital it used for DLC, including investments from at least eight “billionaire families.”
  • The deal did not include DLC’s budding insurance arm. “…We didn’t want to haggle about a business that hasn’t ramped up yet,” says Reid.
  • The parties hope to close by June 30, 2016, or July 29, 2016 at the latest, subject to various approvals including that of shareholders and the TSX Venture Exchange (where FCF is listed).

Who runs the show?

  • DLC will have a new board consisting of co-founders Gary Mauris and Chris Kayat, plus Stephen Reid and two other FCF nominees.
  • “…We put money in passively and have no management rights, nor do we want any,” says Reid. “…We can’t force a sale, nor do we want to.”
  • If push came to shove, “We can make (operational) changes if we need to…but I don’t know what we have to contribute,” says Reid, who notes that FCF is investing millions in DLC because it’s already well managed.
  • Reid acknowledged that certain management can be replaced if they don’t hit targets.
  • “…We’ll always take 25-50% of the upside and contractually give it to the other side forever…We make more money by giving more…The management team wins first and we win second, and that’s how we’ve always invested,” Reid says.

DLC mergerWhy did Mauris and Kayat want to sell?

  • “There’s only so much you can do with a small number of partners,” Mauris said, which prompted the company to explore bringing in capital sources. “We started reaching out to bankers to find a combination where we still own it and control it, but have new capital to grow. We wanted a passive long term partner in the business.”
  • And then, there’s the personal side. “I’m 47 years old and I’ve been on an airplane 130 days a year. It was time to de-risk a little bit.” But Mauris is careful to stress, “This is a long-term play for us…I’m not going anywhere.”
  • “We’ve had 13-14 companies who wanted to buy us outright or partner with us. These guys (FCF) didn’t buy it to run it.”
  • DLC’s founders have a big carrot to increase earnings. It’s called an inverted revenue share. They get to pocket 40% of the first $14.6 million paid annually to shareholders, but get to keep 70% of anything above that.

Why Did FCF Want DLC?

  • “We like the franchise industry and DLC is a 10 out of 10 in every single category,” Reid told CMT. “It has impeccable financials, great leadership, terrific partnerships and 650 franchisees, each of whom is a real business with a real owner who says, ‘I’m going to make my business work’.”
  • Unlike a normal venture capital firm that wants an exit (sale) in 5-7 years, FCF is in it for long-term cashflow. Its #1 objective is to pay out a low-risk, long-term yield to its investors, and it thinks DLC can spin off good cash to make that happen.

What’s Next for DLC?

  • “…We have owned up to invest more money for [DLC’s] targets and initiatives,” states Reid, who is enthused about further geographic growth in Canada and more ancillary offerings that could appeal to borrowers at the point of sale, like insurance, home inspections, etc. Even the U.S. “is being considered” as another growth avenue for DLC, he adds.
  • With FCF’s vast network of resources and M&A contacts, it will assist DLC in acquiring strategic targets, including more brokerages. “We’ll continue to buy competitors. If there are well-run broker networks who want to take money off the table, we’re a buyer,” says Mauris.
  • FCF plans to move to the TSX Exchange later this year, which will improve its (and DLC’s) access to capital.
  • “We have no plans to become a lender for the foreseable future,” says Mauris. “We have learned over the years the value of having close relationships with a range of lenders.” (“We still have a position in Canadiana,” he adds.)
  • Mauris still sees lots of organic growth potential in Canada and it’s largely a function of consumer awareness. “The value that brokers give to consumers is growing because consumers are starting to understand it.”
  • Client communication is also a growth opportunity. DLC is focusing on improving “touch points” with customers to keep its brokers top of mind. “Banks are staying in touch with their customers…[but] only 10% of brokers do it consistently,” Mauris says.
  • The broker industry is also quite fragmented, Kayat says. There is power in numbers and strength in joining forces. “When you look at the banks’ advertising budgets…there is hundreds of millions of dollars of ad spend every year. consumers get bombarded by bank marketing. It is hard [for individual brokers] to educate consumers about their value.”
  • Mauris says DLC has two other initiatives on the go, including “significant tech builds” currently underway. “We’re also going to get more involved in rate sites.”
  • When asked if he believes overall broker market share (currently about a third of the market) will ever exceed 50% in Canada, Mauris was quick to answer: “I absolutely do…We’re on our way,” he said, noting that 55% of first-time buyers use brokers already.

What are the risks?

  • “We don’t see many,” says Reid, who acknowledges potential risk in a housing slowdown and declining broker margins.
  • As for the Internet’s negative impact on margins, Reid says, “…Not only could it happen, it will happen…everyone wants to go on the web and get instant access to information. We all want efficiency. Shopping for a mortgage on my own [on the Internet] will erode the business somewhat,” but he’s confident DLC’s entrepreneurial ability will overcome that. “Some people like fast food and some people like a steak dinner…There are all kinds of different models [that can succeed],” including in the brokerage business.
  • Rate sites are a factor, but Mauris believes strongly in the value of human professional advice. “When you have a product like mortgages that must be tailor fit…one size does not fit all.” He says add-on products will offset shrinking broker margins and notes that rate competition doesn’t necessarily have to drive down agent commissions on a 1-for-1 basis.

Our take

This deal puts competing broker networks on alert. Their #1 competitor has just become all the more powerful. In a business where volume and scale increasingly matter, smaller players will have to carefully assess their long-term growth prospects. Some will undoubtedly choose to not take a risk with their future valuations and merge, be that with other firms or with DLC.

One thing’s for sure. Success breed success. The company is making plays that are making its agent stronger and more recognized by the public. Once DLC pierces 50% market share (which is a matter of time in our view), it could be a psychological tipping point in the industry. Not only will it have serious bargaining power with suppliers, further internal economies of scale and more revenue to reinvest in its business, but DLC Group’s ability to recruit agents attracted by its technology, rate buying power and marketing could reach another level.

“The next 5 years should be our best 5 years,” Mauris says. With the clout of his newfound partner, that could very well be.

Click here to listen to the conference call.


Rising rates3Non-bank lenders rely heavily on securitization (selling mortgages to investors to raise money). They then lend that money out to new borrowers. This July, that’s about to get a whole lot more complicated…and costly.

Big changes are afoot in the mortgage business, and they’re coming to a lender near you in two months. They include:

  • Higher fees for lenders who use government-guaranteed mortgage-backed securities (MBS)
  • Restrictions on securitizing mortgages in non-CMHC guaranteed securities
  • A requirement to securitize portfolio (bulk) insured mortgages within six months

New Guarantee Fees

The Department of Finance (DoF) wants to spur development of “private market funding sources” for mortgages. The goal is to reduce Ottawa’s direct exposure to mortgage risk. CMHC’s answer is to raise the cost of government-sponsored funding. The losers here are lenders that depend on securitization methods, like the Canada Mortgage Bond (CMB). These extra fees will likely be passed straight through to consumers in the form of higher rates.

Banning Non-CMHC-Sponsored Securitization

Effective July 1, lenders will no longer be able to directly place insured mortgages in non-CMHC approved securities. Lenders who rely on asset-backed commercial paper (ABCP), which include a few of the top non-bank broker-channel lenders, will have to find another way to sell their mortgages.

That’s a problem for these lenders. Normal securitization, like NHA MBS, require lenders to assemble $2+ million pools of mortgages that are very similar in attributes (similar term, similar interest adjustment dates, similar coupons, etc.). ABCP wasn’t as restrictive. It helped key broker-channel lenders sell off different and odd types of prime mortgages more easily (read, more cost effectively).

There are still a few workarounds for getting insured mortgages into ABCP conduits (e.g., by turning them into NHA MBS pools, paying a guarantee fee and then selling them into ABCP conduits), but that’s more expensive. Once again, these extra costs will be passed straight through to consumers.

The New Purpose Test

Here’s where things get dicey. The DoF has a new “purpose test” starting this July for mortgages that are portfolio (a.k.a., “bulk”) insured. Lenders that bulk insure mortgages will have six months to securitize them. If they don’t, the insurance on those mortgages will be cancelled. (There are a few exceptions, including but not limited to, a 5% buffer and an allowance for delinquent mortgages.)

The goal of this purpose test is to ensure lenders use bulk insurance for securitization purposes and not capital relief (a strategy where big banks insured mortgages and used the “zero-risk” status of those insured mortgages to avoid setting aside capital against them).

This new “purpose test” sounds fairly innocuous, until you look at it from a small lender’s eyes. Small lenders don’t have balance sheets like the major banks. If they fund a mortgage that isn’t eligible for securitization, they have a problem.

Small lenders, for instance, can’t securitize 1- or 2-year terms very effectively. Securitization pools must be at least $2 million, be grouped by amortization, have similar interest rates and cannot be overweighted with big mortgages. As such, the little guys don’t have enough of them to pool and they don’t have a large array of buyers for these short-term mortgages.

The net effect is that smaller lenders (and new entrants) probably won’t be able to price 1- or 2-year terms as competitively. They’ll likely have to sell to big balance sheet lenders (a.k.a., “aggregators”), potentially at margin-squeezing prices. Even if they could pool them, the result would be a larger number of small pools, which are more expensive to sell to investors.

Practically speaking, this could be a real problem for:

  • renewing borrowers who want a shorter term from a non-bank lender
  • borrowers who want to refinance (e.g., Someone with two years left on their mortgage who wants to add $50,000 to it can typically blend and increase with no penalty. Going forward, smaller non-bank lenders may limit this feature on terms less than three years)
  • variable-rate borrowers who want to convert into a shorter-term fixed mortgage (more lenders may start restricting variable-rate conversions to 5-year terms only)

The Takeaway

This latest onslaught of mortgage regs could soon reduce liquidity for non-bank lenders with less diverse funding sources than the banks. Remember that when you hear the DoF and CMHC lauding how their policies foster competition in the mortgage market.

These changes are especially painful to smaller lenders who can’t pool enough mortgages cost-effectively. The result could be more one-dimensional product offerings (e.g., 3-year and 5-year terms only, and fewer mid-term refinance privileges) for these very important bank challengers.

This, in turn, raises costs for customers both directly and indirectly. For mortgages funding after June, there will be a literal step-up in rates. In addition, there’s the indirect impact from less rate competition from smaller lenders. Remember, rates are set at the margin. Consumers have been increasingly exposed to competitive rates from bank challengers, and that in turn influences big bank pricing.

All of this is in the name of reducing government exposure to mortgages, mortgages that have proven time and again to be one of the lowest-risk asset classes in Canada.

Did the federal policy-makers envision all these side effects when they instituted these rules? We have to assume they did, and chose to do it anyhow.


Last week, CMHC’s Housing Market Assessment (HMA) cited “strong evidence” of increased housing risk in Toronto, Calgary, Saskatoon and Regina.

Here’s a visual summary of the insurer’s findings:

Source: CMHC

Source: CMHC


Many don’t realize it, but mortgage lenders take these assessments seriously, and for multiple reasons. For example:

  1. CMHC factors in HMA risk when deciding whether to approve an insured mortgage. While CMHC says its loan eligibility criteria is the same in all markets throughout Canada, it adds: “HMA is considered in emili as a factor which influences the risk of an application…CMHC’s decision to insure a loan is based on an overall risk assessment of the mortgage application. Local market conditions, alongside borrower, property, and loan characteristics influence this overall risk assessment. Applications considered high risk based on a combination of these characteristics may be subject to additional mitigations.” In turn, when CMHC underwrites an application in a higher-risk market, it’s more likely to ask for a physical appraisal, or ask the borrower to put down more money, reduce the loan amount, add a co-borrower, or so on.Housing market FB
  1. Lenders all get their money from someplace, and to the extent they use investor funds, those investors sometimes get edgier about lending in higher-risk markets. This, in turn, leads to incremental guideline tightening and less flow of credit to those areas.
  1. Federal policy-makers are eternally vigilant when it comes to risk warnings, and they rely heavily on CMHC’s research. That, again, can lead to policy tightening, including measures the public doesn’t see. OSFI, for example, can, and has, issued guidance to banks to encourage more conservative lending in high-risk markets.


All this said, if you’re a strong borrower in a higher-risk city, don’t get too worried. The consumers who are most affected are those who are riskier to begin with. That means people whose credit scores are below average, whose debt ratios are above average and who are only putting down the bare minimum. For those folks, good luck with getting those 5% down high-TDS condo purchases financed in Toronto.

TDS refers to “total debt service” ratio.



Announcement FBB.C.’s mortgage broker regulator, FICOM, updated the industry Friday on the contentious new compensation disclosure guideline. (More on that contention)

FICOM said it processed 70+ comments about the new policy. Here’s what it concluded:

Simpler Disclosures are Better

The Mortgage Brokers Act regulations prescribe a one-page “Form 10” that brokers should use to identify conflicts of interest that might sway the broker’s advice. This form will replace the multi-page version that’s widely used today.

According to Carolyn Rogers, the Registrar of Mortgage Brokers at FICOM, “Most consumers will find the prescribed one-page Form 10 simpler to absorb than the multiple pages in the [current] enhanced Form 10.” 

Consumer Guidance

Probably the best news from FICOM’s announcement was this:

“We are also contemplating the development of information for consumers, to ensure consumers understand why they’re receiving conflict of interest disclosure and how to use the information they receive.”

Misinterpretation of this new disclosure has been one of the industry’s biggest concerns. Research has shown that mortgage shoppers can choose a less optimal mortgage provider if they deem the broker’s compensation somehow abnormal, even when it’s not.

It’s certainly helpful that FICOM will (potentially) issue guidance to homeowners on how to interpret the disclosure. Ideally it will explain the normal range of compensation in our business so consumers can better judge what’s “fair.” Albeit, that context should speak to the complexity of certain applications and the different service levels in our business. Difficult-to-place clients (e.g., those with weak credit, unprovable income, etc.) should sometimes expect their broker to earn more due to the specialized and time-intensive nature of those applications.

Industry Guidance

“The Registrar will publish guidelines, developed with industry input, that describe how we expect brokerages to review and disclose conflicts to consumers,” said FICOM in its statement.

Of particular interest is how brokers will be expected to estimate the dollar value of lender bonuses or status perks, which often depend on volume or unit sales that cannot always be foreseen.

“We anticipate the release of improvements to conflict of interest disclosure by no later than September 1, 2016,” FICOM says. The actual rule won’t take effect until later, however (no later than January 1, 2017).


The cost of funding a mortgage is going up again, thanks to new federal regulations due this fall.

Canada’s banking regulator (OSFI) announced Friday that it will “change” (read increase) regulatory capital requirements on mortgages. The rule change takes effect November 1, 2016, after a public comment period.

“These updates will ensure that capital requirements remain prudent in periods where house prices are high relative to household income and/or house prices are increasing rapidly in nominal terms,” OSFI said in its announcement.

The rules will force seven large banks to put aside more capital for mortgages in potentially overvalued cities. That will add a bigger buffer if the market sells off and these banks start incurring losses. The lucky seven in question include RBC, TD, Scotiabank, BMO, CIBC, HSBC and National Bank. Together, they account for the majority of Canadian lending, so this rule will have a widespread impact.

Upon implementation, the proposed new capital requirements will be calculated using an OSFI-approved formula for price correction risk, which in part is based on Teranet – National Bank’s House Price Index.

OSFI adds: “…Potential losses may become more severe during extended periods of rapid price appreciation and/or periods where house prices are unusually high relative to household incomes – since the value of the collateral underpinning these loans is likely to be less certain in those circumstances.”

It’s too early to tell how much this policy will cost banks. But I’d be surprised if it raised mortgage rates more than 5-15 basis points nationwide. 

Interestingly, since banks usually price the same across the country, a person in a lower-risk housing market could effectively be subsidizing the rates for someone in a higher-risk market.

If you’d like to comment on this proposal, send your thoughts to OSFI here, by June 10.