Dominion Lending – A Chat with Gary Mauris

Dominion-Lending-Centres Dominion Lending is one of the fastest growing mortgage brokerages in Canada. It opened its doors in January 2006 and flew under the radar for about 18 months before exploding onto the scene. Dominion is now on track to close a very respectable $7 billion in mortgage volume in 2008, and has its sights on the #1 broker volume ranking in 2009.

We recently had a moment to chat with its president Gary Mauris. The interview yielded some rather interesting observations about Dominion Lending, as well as market-wide developments.

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CMT: Thanks for being with us Gary. First off, I’d like to start by talking about Dominion itself. You’ve experienced rapid growth with about 1200 agents now across the country.  What benefits do clients get at Dominion that they might not get at a bank?

Gary: DLC brokers have access to virtually all the mortgage products from every lender in Canada. That ensures our clients have access to the very best mortgage products for their own situation.

Also, unlike most bankers, DLC agents are licensed in their originating Province and have completed the [mortgage agent] education requirements.

CMT: How comfortable do you think Canadians are becoming with arranging mortgages over the Internet?

Gary: We believe that the vast majority of Canadians begin their search for mortgage products on the Internet. The only people using the telephone book these days are seniors. It is incredibly important for agents to become as web savvy/tech savvy as possible to help them accelerate their careers in today’s market. DLC has the ultimate solution, a tech friendly company supported by 170 bricks and mortar locations, so that after the consumer has investigated the best solution they can go and meet an agent face to face. Every DLC agent in Canada has their own fully functioning website with streaming video, rate updates and a built in Customer Relation Management that we provide at no charge.

CMT: How important is the Internet to Dominion’s business plan?

Gary: The Internet will continue to be a very large part of the future focus for DLC and our agents. Currently head office is completing our EMP (Elevated Marketing Platform) this platform gives every agent in Canada access to their own website for updates, press releases, easy link access, loading instant video footage and a myriad of other easy-to-use technology advantages.

DLC head office also advertises via Google Adwords and several other web portals to drive business back to our agents.

CMT: How do you feel the end of insured 100% financing and 40-year amortizations will affect brokers’ volumes in 2009?

Gary: The loss of the 40 year amortization will not substantially affect our industry as most customers already qualify for mortgages with lesser amortizations.

The loss of the 100% mortgage will definitely have an impact, however, and we feel the changes were announced hastily. Canada’s default rate on subprime business was less than the US default rate on their “A” / prime mortgage business. There are thousands of Canadians who have the income to support the 100% mortgage product. Yet they struggle to amass the necessary down payment to enter the housing market. This move has dashed the hopes of thousands of Canadians who will now have to look far into the future before they realize the joy of home ownership.

CMT: What trends do you foresee materializing in Canada’s subprime market over the next 12 months?

Gary: We believe we will begin to see many lenders starting to reenter the subprime space within the next 12 months. Our lending guidelines and policies are distinctively different than in the US. The sudden withdrawal in the Canadian market was reactionary and was not a reflection of Canadian foreclosures or unmanageable default ratios.

CMT: Do you feel there is any threat to mortgages becoming commoditized as consumers focus more and more on rate?  Or do you think consumers will start putting more value in the services of mortgage brokers and less on rate?

Gary: We do not think our industry runs the risk of becoming commoditized. Obviously we have to remain competitive when it comes to rate but consumers value time savings, convenience, expertise, flexibility, and the ability to shop the rates and products from all the lenders.

CMT: From a mortgage agent’s perspective, what unique tools does Dominion offer to help an agent’s business?

Gary: Among other things, we offer equipment leasing, a national advertising fund, a proprietary line of mortgage products, a free CRM system, and extensive support. In addition, we have more templates, tools, and training available than anyone else.

CMT: Do you see any threat to the franchise model from brokerages that charge agents a flat monthly desk fee?

Gary: Our franchise model is based on a 5% fee to head office. We are not threatened by flat-fee/discount models. Ask yourself, what happened to the flat fee/ discount model real-estate companies? Do any still really exist? The two most expensive Realty companies to work for have a commanding market share, REMAX and ROYAL LEPAGE. If people were only concerned with the cheapest most inexpensive model, we’d all be driving Hyundais.

We believe that we have to be very competitive with our agents and owners and very transparent. All agents are paid top-tier volume bonus, all of their personal volume bonus, and lender incentives. We provide our agents with the AUTOPILOT tools to keep in touch with their friends, family, past, present and future customers automatically and give them more brand awareness and confidence than any other company in the country. Today, DLC agents using our CRM system (at no cost) are averaging between one and two extra mortgages per month simply by keeping in touch with their sphere of influence a minimum of 12 times per year. Discount models cannot afford to provide these services and will struggle to exist in the years to come.

So tell me, what’s more important, getting an extra 5 basis points per deal or completing one or two extra mortgages per month?

CMT: Dominion is investing heavily in television and print ads.  What kind of return are you seeing from this investment?

Gary: We believe in the value of building a brand, especially in the financial service sector. Our budget for advertising over the next 12 months is well over 2 million dollars, primarily directed towards television advertising. From September 2008 to September 2009 our base buy of television advertising will make more than 140 million viewer impressions via more than 7300 commercials across Canada.

Our advertising campaign was developed to make DLC top of mind with the consumer and have the consumer recognize our name when talking to our agents. DLC has more name awareness and familiarity than most other mortgage companies in Canada.  Whether the customer thinks our name is familiar because of RBC Dominion, the Dominion of Canada, Toronto Dominion, or Dominion Bond Rating, customers immediately recognize our name and believe we have been around forever. The response to our network has been amazing and all leads are given to our agents.

CMT: Agents sometimes question the effectiveness of print and TV advertising.  How are you able to measure the effectiveness of Dominion’
s campaigns so you can be confident they are paying off?

Gary: Our offices are getting more walk in than ever before and our agents are finding the consumer is choosing them when they are talking with more than one agent. Most people recognize our name as familiar and it automatically builds trust, confidence and security to the consumer when choosing a mortgage.

CMT: Dominion recently launched DLC Leasing, an equipment leasing division.  How does this help clients and provide an ancillary income stream to Dominion agents?

Gary: Many clients come to us to refinance their mortgage and grow their business. We can now offer this alternative financing source that is up to 100% tax deductible, does not affect their borrowing power, and does not force them to refinance their existing mortgage.

31% of existing customers are already in business for themselves. Why not offer them equipment leasing and earn up to 1000 basis points per deal? A $20,000 lease pays gross fees of $2,000 to the agent.  Our agents are actually using this service to help them close more mortgages.

CMT: Gary, these are intriguing insights. Thanks very much.

Mortgage Broker News

  • FirstLine Mortgages FirstLine has re-launched its Matrix and variable-rate mortgages.
  • Maple trust will reportedly officially merge with Scotiabank on October 31.
  • Mortgage Alliance has sold about $1 billion of its private labelled RightMortgage in the last year. It’s a product whose rate depends on the features you add to the mortgage (like prepayment privileges). Mortgage Alliance is also one of the first Canadian brokerages to have their proprietary mortgages listed in public rate tables, like FP’s.
  • BNN says “Optimum Mortgage, Canadian Western Bank’s alternative mortgage business, has seen its loans grow 21% year-over-year to reach $432 million at the end of July. Almost 60% of that business is in Alberta. About 5% of the bank’s total loan portfolio consists of alternative mortgages in Optimum. At the end of Q3, Optimum’s loan book had a fairly conservative average loan-to-value ratio at initiation of approximately 70%.” This is according to Desjardin analysts Michael Goldberg, who adds that “Optimum has clearly scaled back its lending in B.C.”
  • We’ve heard some evidence to suggest a small number of lenders are showing preference for CMHC insurance, which is 100% backed by the government. In the unlikely event of insolvancy, Genworth and AIG have only 90% backing. Investors know this, making it hard for some lenders to sell off (securitize) non-CMHC insured mortgages for top dollar.
  • First National has tightened its debt service guidelines for rental properties. See your BDM for details.
  • Merix has suspended its “No Frills” and “Quick Close” products.  (Update:  They’re back as of October 20)
  • CMHC’s new high-ratio guidelines require at least one borrower to have a 600 credit score. That means co-applicants can have scores under 600 if allowed by the lender.
  • The MBABC will now promote CAAMP‘s AMP designation to its members. In return, CAAMP will give MBABC a “monetary contribution to be used for the promotion of the AMP designation” in the province of BC.
  • TD has ended its 5% cash back down payment mortgage.
  • First National has terminated its Flex Down Cashback mortgages.  They’ll still offer cash back mortgages, but the borrower won’t be able to use the cash for the downpayment.
  • CAAMP now has it’s Mortgage Journal magazine online.
  • CAAMP’s early-bird discount for the 2008 Mortgage Expo ends Friday. The following lenders permit use of their points to buy admission: FirstLine Points, First National LP Wizard Spending, MCAP MSA, Merix X Rewards, Mortgage Intelligence IPS, ResMor Advantage Club Dollars, Street Capital Street Rewards
  • Xceed has launched its new Prestige Broker Program with six levels of volume and funding-ratio based incentives–some quite attractive.
  • HSBC has suspended its 5-year open variable mortgage.
  • Scotiabank has suspended its 5-year open variable mortgage.

AIG United Guaranty – Update

AIG-United-Guaranty-Canada With all the AIG news lately, many in our industry have wondered about the effects on AIG United Guaranty Canada, Canada’s #3 mortgage default insurer.

To that end, we have just received more information from the company and would like to pass it along.

First off, AIG United Guaranty Mortgage Insurance Company Canada (“AIG Mortgage Insurance”) is owned by the Commercial Insurance Group of companies (CIG), an AIG subsidiary.  According to the company, CIG is highly profitable ($1 billion Q2 operating income), its capital is protected by regulators, and its capital position has not diminished as a result of AIG Inc.’s financial challenges.

AIG Mortgage Insurance further ensured in a statement today that:

  • It is is backstopped by a Government of Canada 90% guarantee consistent with all private mortgage insurers (i.e.  similar to Genworth Financial).  The government guarantee provides additional protection to its lending partners in the unlikely event of insolvency.
  • The Office of the Superintendent of Financial Institutions for Canada (“OSFI”) regulates Canadian insurance companies for regulatory compliance and financial solvency. AIG Mortgage Insurance is subject to minimum capital adequacy requirements and as at June 30, 2008, was in a surplus capital position.
  • AIG Mortgage Insurance maintains assets and capital which meet all OSFI requirements. These assets are located in Canada and are dedicated to supporting the Canadian mortgage insurance business. As at June 30, 2008, AIG Mortgage Insurance has more than CDN $176 million in bonds rated AA or better.
  • It has more than CDN $110 million of unearned premiums as of August 31, 2008 which represents a future earnings stream for the company.
  • It has not made any investments in U.S. sub-prime mortgage assets which have contributed to the credit crisis, nor any investments in Canadian Commercial Asset Backed Paper.

In sum, Andrew Charles, AIG Mortgage Insurance CEO, says the company has “the capital, resources and commitment to operate effectively in the Canadian market.”  As always, we’ll report back with any updates.

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.)