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.

Mortgage Broker News

  • Seniors-Money We’re hearing that reverse mortgage company Seniors Money Canada has suspended new originations.  A source in the company says the Australian bank that backs Seniors Money has been hard hit in the subprime fiasco and has curtailed its funding.  Seniors Money is supposedly on the hunt for a new domestic funder.
  • According to Filogix, brokers funded 11.41% fewer mortgages in March versus one year prior.  However, they used mortgage banks a lot more…21.58% more than last year.
  • Alberta’s mortgage broker population has risen from 400 to 2,000 in the last 10 years, according to Invis’s Gary Siegle.
  • MGIC Canada is apparently making good progress in it’s efforts to launch its mortgage default insurance business in Canada.  The company foresees “no material roadblocks to becoming a Federally regulated mortgage default insurer” and is optimistic it will receive its required licenses “in the next short while.”
  • The Star’s James Daw writes:
    • “It’s possible banks will cut their fixed-rate mortgages by more if borrowers start swinging over to variable-rate mortgages…But banks will face less competition from smaller lenders that do not have a large base of deposits.”
    • “Clients of various subprime mortgage lenders could…have difficulty renewing or replacing their mortgages if their financial position has not improved.”
  • “In the present capital market environment the advantage of gaining liquidity via insured mortgage origination far outweighs the benefit to [Abode Mortgage] of generating fee income from uninsured mortgage origination.” – Abode Mortgage CEO, Mike Linehan
  • Abode Mortgage is now on board with AIG. Abode is using AIG’s new auto-evaluation program (for apparently all of its mortgages) to accelerate or avoid appraisals.  Abode anticipates the majority of its mortgages will no longer require appraisals (and appraisal fees).
  • Dominion Lending Centres, a national mortgage brokerage, has selected Filogix Expert as its exclusive point of sale system.  Dominion has been growing fast after launching roughly two years ago.  They now have over 60 franchises across Canada.
  • Equitable Trust says it’s facing fewer competitors in its core mortgage markets than it did a year ago.  This is expected to provide a long-term opportunity to improve interest rate spreads on the Company’s mortgage portfolio.  Equitable Trust is an alternative lender based out of Toronto.
  • RBC had $124 billion of mortgages on its balance sheet as of Jan. 31, up from $108 billion a year earlier.
  • Genworth Canada’s earnings grew 15% last quarter.
  • Interbay reportedly tightened it’s lending guidelines somewhat.  Contact the company for details if you use them for commercial deals.
  • Appraisal system provider, Solidifi, has scored an equity investment to help accelerate its Canadian and U.S. growth.  Solidifi operates Canada’s largest appraiser network.

The No Frills Mortgage – New From Merix

Merix Why pay for something you don’t use?  That’s the idea behind Merix’s new “No Frills Mortgage.”

The No Frills is a product designed for people who know they’ll never take advantage of pre-payment privileges, and would rather have a lower rate instead.

Before we get into the details, however, first a few general comments…

No frills mortgages have been around for a while, but always as private labeled products.  For example, Mortgage Alliance launched one last fall (backed by Macquarie) and Reactive Mortgages has offered one backed by INALCO.

It’s a smart concept from a marketing standpoint, and Merix is brilliant for being first to offer this product to the industry as a whole.  As most of you know, borrowers are extremely rate sensitive these days.  Homeowners increasingly think of mortgages as commodities, despite facts to the contrary.  So when they see a rate 10 basis points below the market, their eyes open wide.

In some cases, bare bones mortgages serve as a lure to get clients in the door.  Once the client and lender/broker strike up a conversation the talk often changes to options and privileges, and those usually come with a cost.  Many clients interested in bare bones mortgages therefore end up walking out the door with a more fully-featured mortgage at a higher rate (no, this doesn’t necessarily mean higher compensation for lenders/brokers).

In terms of stats, the numbers support bare bones products.  Merix cites statistics that only 33% of Canadians make lump sum prepayments, based on a recent CMHC study.  Accelerated payments are more prevalent, with 45% of Canadians making them.

OK.  Back to Merix. 

Here’s a quick rundown on the new No Frills Mortgage:

  • The product is designed for:
    • First time homebuyers with limited ability to prepay
    • People who want a readvanceable mortgage with a low-rate fixed portion that won’t be prepaid
    • Property investors who don’t care about pre-payments given their deductible interest and cash flow needs
  • The rate:  5.19% (as of today)
  • No lump sum prepayments without penalty (3-months interest or interest rate differential, plus 0.25% of original mortgage amount times the number of months remaining in term)
  • 10% annual payment increases are allowed (on the mortgage anniversary)
  • Accelerated weekly or accelerated bi-weekly payments are allowed
  • 30-day rate hold maximum
  • No pre-approvals
  • 95% loan-to-value maximum
  • Up to 40-year amortizations
  • The interest rate, term, and possibly insurance premiums can be ported without penalty to a new No Frills Mortgage on a new property

Now that this product is out there you might see a lot of 5.19% fixed rates pop up on brokers’ websites.  If you’re a typical homeowner that cares about pre-payments (we hope you do!), make sure to ask your mortgage planner if his or her rate quote includes pre-payment privileges.

If you don’t care about pre-payment privileges (we won’t scold you if you don’t), then Merix’s No Frills Mortgage might be right up your alley.

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Side Bar: 

There is a real reason behind this product’s lower interest rate.  Mortgages are typically purchased by investors.  Investors don’t like uncertainty.  Therefore they don’t like the possibility of borrowers pre-paying their mortgages and reducing the investor’s income stream as interest rates fall.  As such, investors need a hedge against the probability that people will pay down their mortgages early. 

In addition, lenders hedge to lock in rates before closing. 

There is a cost to all this, and that cost is reduced or eliminated with a no frills mortgage.  Hence, lower rates to the consumer.

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Side Bar II: 

According to one source…

  • A 30 day rate commitment may have a 65% probability of closing and an average closing period of 20 days.
  • A 45 day rate commitment may have a 50% probability of closing and an average closing period of 35 days.
  • A 120 day rate commitment may have a 40% probability of closing and an average closing period of 52 days.

Each of the above has it’s own cost that is built into the respective mortgage.