Lender Retention Programs

mortgage-retention If you’re a mortgage planner, have you ever heard someone say, “Why would you send the client to that lender? You’ll never get them back.”

It’s a question mortgage brokers are sometimes asked when they recommend lenders who have strong retention programs.  For those who don’t know, retention programs are systems lenders have in place to encourage clients to renew with them upon maturity.

Brokers who have been around a while know who these lenders are.  (We won’t name them.)  A minority of brokers avoid these lenders because they worry about losing the client once the client’s term is up. 

Most mortgage planners don’t fret about it, however.  The thinking is:

  • If the client is placed in the best possible mortgage today, then the broker has done his or her job.  It doesn’t (or shouldn’t) enter our minds that we might not get paid again in five years.  (Brokers get referral fees when they renew clients’ mortgages with new lenders.) 
  • Educated clients are smart enough to see through their lender’s song and dance at renewal time and focus on the bottom line.  They know that mortgage planners provide invaluable assistance when presenting renewal options.
  • If a client trusts that you will always do the best thing for them, they will remember you at renewal time and reward you with repeat business. 

Today more than ever, if you’re a broker, you have to adopt this philosophy and practice it.  Focusing solely on the client’s interests is good for our industry, and it’s good for your business.

Mortgage Broker News

  • October-15-Mortgage-Deadline There aren’t many mainstream lenders left with 40-year amortizations and 100% financing. The ones that remain have been pretty busy.  Merix, for example, has been on a small hiring spree lately to help handle its increased volume. As we approach the October 15 deadline (when 40-year and $0-down insured mortgages disappear) the remaining lenders offering them will likely get even busier.
  • Many think negatively of the subprime market, but it’s sure been profitable for Home Trust.  The “alternative” lender’s mortgage volume rose 42.5% in the last year.  Profits jumped 21%.  Home Trust has a deposit-taking model that’s fared better than most lenders who rely on securitization.  That said, Home’s securitization activities have reportedly offered a lower cost of funds than its deposits lately. Separately, CEO Gerald Soloway sees a lot of “low risk growth opportunities” this year, thanks to many of its competitors leaving the Canadian market.  GE Money’s departure is case in point.
  • “We’re seeing that mortgage lenders are putting a brighter face on things than they were two months ago.” — Bruce Cran, president of the Consumers’ Association of Canada, via The Canadian Press.
  • We hear Merix may be adding a 10-year term in the next few months to their popular HELOC product.
  • MortgageBrokers.com posted revenue growth of 72% last quarter. Total sales were $4.03 million.  As of June, MortgageBrokers.com had 403 agents (up 47%) and 36 offices.  Its stock price is currently $0.15 a share.  SEC
  • CMP reports that over 1/3 of Ontario mortgage agents weren’t compliant with FSCO’s July 1 licensing deadline.
  • CHIP reverse mortgage originations rose 17% to a record $39 million last quarter.  CHIP’s average loan-to-value is 36%.  The company also recently inked a distribution agreement with Multi-Prets, Quebec’s biggest mortgage broker.
  • CAAMP has a new website for this year’s Expo in Vancouver, BC.  The event is Canada’s biggest mortgage trade show. Attendance at this year’s show should top 1,800.  Stats from last year:  52% of attendees were mortgage brokers. 30% were lenders.
  • CAAMP is launching an e-directory in January 2009 that will allow members to update their own contact information.  Hopefully that includes members’ website addresses as well.
  • Seneca College has been given “sole” rights to provide FSCO-required education for mortgage brokers. The new course starts this December. (Note: This information applies to ON brokers only, not agents)

Broker Business – Simple Rate Sheets

Mortgage-Rate-SheetMortgage planners get bombarded with rate sheets and other lender emails each and every day.  It’s interesting (if you think about mortgages a lot) to compare these emails and observe how different lenders present their data. 

Readability and convenience should mean everything you would think.  After all, we brokers are forever time conscious. 

Some lenders, however, don’t seem to stress themselves out over presentation. 

So when it comes to user friendly rate sheets, we thought we’d speculate on what separates the good from the not-so-good…

Generally speaking, our favourite rate sheets:

  • Summarize all major changes since the last update in bullet format at the top of the email (minor changes should lie below or in a PDF)
  • Have simple tables with columns for term, rate, rate hold period, finders, and exclusions (the major “fine” print).
  • Use color to highlight important guidelines and changes
  • Have the BDM’s phone, cell, and email at the bottom
  • Use UPPER CASE sparingly
  • Include a link to the lender’s broker site

The rate sheets that aren’t so hot tend to:

  • Use plain text with no formatting (They’re like reading a newspaper with no headlines and a continuous sea of text.)
  • Use improper text wrapping, justification, or line breaks (so text appears inconsistently formatted)
  • Have minimal white space
  • Are font-happy (Some BDM’s make it a mission to use as many different font styles as possible per email–eye clutter supreme!)
  • Force you to open a PDF to see the rates (emails are so much faster)
  • Force you to log into their website to see their rates (Even worse!  And no, “security/confidentiality” are weak excuses when it comes to rates.)
  • Show both “posted” and “discount” rates (Posted rates are superfluous to most these days, and qualifying rates can be indicated elsewhere.)
  • Are repetitive (Some lenders will happily add to your email load by sending rate sheets with no changes!)

If you’re a broker that likes your rate sheets formatted different than above, let us know in the comments section.  Maybe your BDM will be watching.

Brokers Rate The Banks

trophy CMP’s 2nd annual Brokers on Banks survey is in.  Here are the lenders that brokers apparently liked the most, broken down by category. 

Keep in mind, this survey rated just the big banks.  CMP does a separate survey for non-bank lenders.

Best Approval/Turnaround Times: 

1.  TD Canada Trust
2.  ING

This is such an important category. Low rates are meaningless if a lender can’t close on time. Take last month’s low-rate lender for example (we’re not comfortable naming them but many brokers know who we’re talking about).  They’re still working on applications submitted over a month ago!

Without question, there are times when we’d give up some of our commission to know a deal will get approved in 4 hours.  With some lenders, like FirstLine, you don’t have to give up anything.  They just consistently provide reliable turnarounds.  This should be the standard all lenders follow.  TD is solid in this department as well.

Best Support from Business Development Managers:

1.  Scotiabank
2.  TD Canada Trust

BDM’s who reply to emails and phone calls within two business hours should be applauded.  We say focus less on site visits (we’re biased being Internet based).  Instead, send concise product summaries by email and focus on answering calls and emails quicker.  As the Internet takes over mortgage brokering, time is growing as a factor.  Fast feedback from BDMs will continue to rise in importance.

Best Broker Support:

1.  Bridgewater Bank
2.  TD Canada Trust

We love the lenders who explain their niche in short periodic emails.  This helps brokers understand what that lender is good at versus the competition, and it’s all the training most people need.  Kudos to lenders with broker call centres as well.  Call centres are a nice fallback when you can’t reach, or don’t need, a BDM or underwriter.

Best Broker Technology

1.  Bridgewater Bank
2.  TD Canada Trust

Immediate confirmation of faxed or emailed documents is on our permanent wish list.  A centralized electronic document submission feature for Filogix Expert (where you could upload docs to any lender) would be even groovier!

Best Interest Rates

1.  TD Canada Trust
2.  Scotiabank

Lenders who offer great rates and lousy turnaround times fool no one.  You might send them deals once, maybe twice.  But few sane brokers will let a lender burn them consistently.

As a side note, TD is good but Scotia has rates just as good, with excellent products to boot (their open STEP for example).

Best Range of Products

1.  ING
2.  Scotiabank

Our hats are off to banks like Scotia who are wise enough to offer their best products though the broker channel.

CMHC Drops 100% Financing and 40-Year Amortizations

This will be a big surprise to many.  The Department of Finance has just announced that it will no longer back the following:

  • 100% financing (5% will now be the minimum downpayment on an insured mortgage)
  • 40 year amortizations (35 years will be the new maximum on insured mortgages)

The government will also require the following with all new mortgages it backs:

  • A new 620 minimum credit score requirement
  • 45% maximum TDS ratio
  • New loan documentation standards

The new rules will take effect October 15, 2008.  This affects CMHC insured mortgages as well as mortgages insured by Genworth, AIG, etc.  Insured mortgages are generally those with less than 20% down.  Certain conventional mortgages are also insured, however.

In a statement earlier today, the Department of Finance said, "Today’s announcement marks a responsible and measured approach by the
Government to ensure Canada’s housing market remains strong and to
reduce the risk of a U.S.-style housing bubble developing in Canada."

These new rules pertain only to new, government-backed insured mortgages.  This will not affect existing mortgages.

Xceed Turning A Corner?

Xceed First the bad news. 

Xceed Mortgage Corporation, formerly one of Canada’s biggest subprime lenders, lost $16.7 million last quarter compared to a $4.7 million profit a year before.  Revenue sank to $2.6 million versus $16.4 million.  Xceed’s funded mortgage volumes fell 55%.

Restructuring costs, a shift to low-margin insured mortgages, lower origination volumes, and lower securitization income contributed to these ugly numbers.  Xceeds stock price is now 1/6 of what it was a year ago.

Now the good news.

Costs are way down.  In March, Xceed let go 74 employees to cut expenses.  That helped the company be cash-flow positive in the 2nd quarter.  CEO, Ivan Wahl now expects Xceed to “return to profitability in the second half of this year.” 

The uncertainty.

Xceed has seemingly completed its transition from subprime mortgages to less risky insured mortgages.  CEO, Ivan Wahl, says: “Xceed now is solely originating mortgages that qualify for insurance and sale to the Canada Mortgage Bond Program.” 

That’s good, except that lots of other lenders have the same strategy.  That means competition is vicious and Xceed’s profits might be paper thin for a while. (Not a fact, just our gut feel)

Xceed’s future may depend on its ability to differentiate itself from the slew of other low-margin competitors.  What has the company got up it’s sleeve in this respect?  We’re anxious to find out.

What’s New With MortgageBrokers.com

MortgageBrokers-com MortgageBrokers.com posted $2.4 million in revenue this past quarter, an 86% increase over last year.  CEO Alex Haditaghi said, “We believe we are well on track to realizing our goal of being a profitable company…” 

MB’s agent headcount grew 67% in 2007. Yet, per the company’s press release, “Mortgagebrokers.com common stock is trading at an all time low [about 7-8 cents a share] in spite of the fact that the Company has had twelve consecutive comparative quarters of revenue growth.”

The fact that MB keeps issuing shares doesn’t seem to be helping it’s stock price.  The company’s outstanding shares were 38.5 million on May 20, and have increased every year since 2004, when 25.38 million shares were outstanding. 

On the upside, the company just hired Gary Laughlin, RBC’s former Ontario mobile sales force manager.

Here’s MBKR’s latest quarterly SEC Filing.

(Full disclosure: Some of our staff have stock in this company. This should not be construed as a recommendation.)

Free Mortgage Broker Course

artifacts_g0164.tif Kendrik is offering a free course to mortgage brokers who read Canadian Mortgage Trends.  The introductory course is called: “Taking a mortgage application.”

It’s 40 minutes long and teaches you how to “confidently gather all the information you need on a mortgage application.”

The course is accessible via this link (click on the first course) and is free until June 5.  Use coupon code 41CC4 when signing up.

Broker Channels and Banks

Big-Banks Dow Jones ran a story Friday on how different banks view brokers.  As those in our industry know, CIBC, Scotia, National Bank, and TD embrace broker business.  BMO and RBC do their own thing.

Last year, BMO lost market share because of their decision to close their broker channel.  Now it says it’s got that share back. As for RBC, according to Dow Jones, it has a mortgage book that’s growing at 17% a year (there was no mention on the profitability of this book however).

RBC’s banking head Dave McKay, was quoted as saying the broker model “just doesn’t work for us.” He says it causes the bank to “lose control” of the customer. 

(Of course, that begs the question: Do customers really want to be “controlled?”  Moreover, do they even realize they’re being controlled?)

BMO VP, Lynne Kilpatrick, says, “When [a] mortgage comes up” for renewal, broker-referred customers “tend to chase the next best rate.”  She says clients now come to BMO “with a warm handoff to the banker, where they can then have a conversation about other banking needs…We do find our ability to cross-sell products that come through the [branch] mortgage specialist is exceptional.”

In short, RBC and BMO deem it critical to manage the client because they want to sell more to the customer than just mortgages.  The last thing they want is for homeowners to build a relationship with a broker (who can suggest any of several other lenders).  We’ve talked about this many times before, so readers probably know our position.

Thankfully, CIBC and others have a far more progressive view of mortgage brokers. CIBC Executive VP, Rick Lunny, says, “We see a tremendous advantage in attracting customers through brokers.”  Scotiabank agrees.  In fact, 53% of Scotiabank’s mortgages were originated by brokers in 2007.

Desjardins analyst Michael Goldberg says Scotia can cross-sell products to broker-clients just as well as it can for branch-originated clients.  (That’s probably because Scotia mortgages are always closed at the branch.)

Online Banks Get Frisky

CanadianTire Canadian Tire is leveraging its customers’ “High Interest Savings” deposits to fund aggressively priced variable-rate mortgages.  This morning it dropped to prime – 0.90% on its 5-year closed variable.  Its 5-year fixed is at 4.99%.  Few lenders are advertising rates this juicy.

(If you’d like information on Canadian Tire products, call CTFS direct or drop us an email)

ING, another online bank, isn’t too far behind with a variable at prime – 0.75% and a 4.89% 3-year fixed.  It’s nice to have customer deposits!

Maybe more non-bank mortgage lenders should start offering deposit accounts of their own.  Mortgage planners could really use another competitive variable-rate lender.

In the meantime, if you’re a broker selling variables based on just rate, you’re done.  You won’t compete.  The best way to prosper in the closed variable market is to focus on alternative solutions.

Most online banks offer just basic closed variables.  A lot of homeowners asking for vanilla variables don’t know what else exists.  There’s actually a world of alternatives out there:  open variables, readvanceable variables, all-in-one variables, front-weighted variables, etc.  Our job as planners is to educate consumers about them, and explain their benefits if applicable.

Of course, professional mortgage planners never:

1)  Push an inferior rate/product if the client can be better served by a lender that doesn’t pay brokers;

2)  Suggest alternatives, like those above, if the client doesn’t need them.

Our industry is based on doing what’s best for our customers.  Those who don’t share that philosophy will be weeded out in due course. 

Indeed, Canada’s mortgage planning industry has evolved over the years with a genuine and recognized focus on ethics.  For that reason, our broker industry is as customer-centric as any in the world.

In any event, back on topic, it might seem like non-bank lenders have forsaken mortgage planners in the variable-rate arena.  That’s not the case.  Margins with variable-rate business are just really tight right now.  The non-banks will be back though.  “Prime – BA spreads” (which influence variable rates) are slowly improving, and the U.S. subprime garbage won’t last forever.