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By Dustan Woodhouse, Special to CMT


New business cards in hand, you sit down at your new desk in the brokerage office. Day one. What now?

Your first three years are going to be hard work. Difficult beyond belief.

The three after that aren’t too bad. You start to find your groove and square away the debts incurred over the first three. You may even treat yourself to a ‘new-to-you’ car and a move up the property ladder.

The three years after that would almost qualify as easy, were it not for market changes, lender policy changes and regulatory changes.

But your immediate concern is the next nine weeks, let alone the next nine years.

In these early days, keep what follows top of mind:

  1. Forget brand building, but know that you are a walking, talking brand.

Should you invest thousands in ‘branding,’ creating a logo, picking colours, fonts, paperstocks, webpage designs, social media campaigns, mailers, etc.?

No. They’ll have little impact.

Brokering is largely a referral-based business. It is a people business. Spend your money and your time on people.

Know that with every step you take, the very shoes you take them in will be viewed in a new light. Are they polished? Are you dressing, speaking and behaving like a professional that can be trusted with a client’s deeply personal information?

Some brokers may want to wear flip flops, drink their face off and gossip up a storm. That’s fine – but they should understand that nobody in the group that sees this will likely trust them with their file.

Do you instead want to suit up, show up, limit yourself to two drinks and talk about issues—not people? Now you’re thinking like a pro. Know that the more often you do this the higher your trust level will be with that crowd and the more business you will do with them. 

Act as if all eyes are on you—always. Because they are.

  1. You’re not in sales, but you are selling something.

You are not selling mortgages. You are providing expert advice on mortgages. And there is a huge difference.

One results in short-term gains and an inevitable early exit from the business. The other in long-term stability, growth and a prosperous career spanning decades.

Take some time and seek out brokers with 10+ years of experience and you’ll figure this out quickly. You are selling not a product, but yourself. Specifically, you are promoting yourself as trustworthy, balanced and knowledgeable. Review #1.

  1. This is not a job, it is a small business…also it’s a job.

The gross commission earned is not your paycheque. It is the gross sales of your small business, and your business has expenses. All viable businesses have expenses. Accept that. And budget like a proper business.

The very first sub-account you need to open on day one is your income tax account. Why? Because the top profession on speed dial with CRA collections is the commissioned sales agent.

Set aside 20% of every paycheque to be safe. You are the boss so you need to manage your own deductions.

But for the overwhelming majority brokering is a job, just a job. You are not building a business that will sell for millions. So be smart with your money, because you’ll need to build your retirement plan from day one. 

  1. Family and Friends matter – just not in the way you expect.

At any given time less than 3% of people in your social circle require your services. In other words if you know 200 people, every two months you might have one that needs the services you provide.

And the kicker is that family and friends are the least likely to work with you due to the highly sensitive nature of the data required.

Would you trust your friends with your credit report, annual income, net worth and debt load?

Would you be embarrassed due to a weak financial picture?

Would you be uncomfortable revealing a strong financial picture?

Accept and embrace that family and friends may find it awkward to work with you. But, they can also be your greatest referral sources and raving fans—so long as you don’t lay a guilt trip on them for keeping their details private.

Take the opposite approach. Be upfront and understand that they may prefer to keep their personal affairs personal. Offer to at least write them a ‘rate-letter’ offering the sharpest rates in the market, which they can use as leverage with their current lender. Give without expecting a return, and you’ll get a greater return than you ever expected.

  1. Attend every single real estate event you can, keeping the above in mind.

Suit up and attend events where you can deepen your market expertise and network. Combine the first four points above to make this fifth point happen with greater effect.

Why do events matter? Because the more you know about this business, and the more exposed you are to people in this business, the more business you’ll do.

Position yourself at real estate events as a learning and listening machine. Asking friendly questions and showing sincere interest in others conveys trust and credibility. Those are keys that open up new relationships…and opportunities for referrals. 


Dustan-Woodhouse

A CMP Top 75 Broker for five years running, Dustan Woodhouse of Dominion Lending Centres is author of the book: Be The Better Broker – Volume One. Dustan can be reached at dustan@ourmortgageexpert.com

 

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When it comes to the total mortgages arranged in Canada each year (by all lenders), definitive data isn’t easy to find. So we have to rely on estimates.

CIBC economist Benjamin Tal is one of the best estimators out there. And his latest figures suggest the market is a lot bigger than some in our business may think. 

The estimates we typically cite for annual residential mortgage originations range from about $210 to $250 billion. But that doesn’t include renewals.

By Tal’s calculations, the total of all residential mortgages negotiated or renegotiated in 2016 was $405 billion. This figure is a much truer indication of what the theoretical potential market is for mortgage lenders.

This data includes purchases, refinances and renewals of owner-occupied and residential investment properties (including 1- to 4-unit and 5+ unit residential properties).

Tal writes that the total number is up 5.5% over 2015. Canada’s “typical” home price rose 13% in the same timeframe, according to Royal LePage dataBut with insurers already citing a 15-20% drop in business since the mortgage rule changes, 2017 volumes won’t be as rosy.

 

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MPs are questioning why the Liberal government took liquidity out of the refinance market, and Dan Albas is one of the most vocal.

In the House of Commons yesterday, the Conservative MP charged the Department of Finance with “Increasing interest costs on refinanced mortgages.” This of course is a result of the Finance Minister’s ban on default insuring refinances. The move has decimated competition in the refi space, which Albas says “hurts middle-class Canadians.”

“Will the Liberals reverse this punitive and damaging change?” he questioned on his Facebook page today. Albas asked the equivalent in Parliament yesterday, to which the Parliamentary Secretary to the Minister of Finance responded but, “didn’t answer the question at all!” Albas charges. 

Here’s a video of that exchange…

Still Pressing The Liberals on Mortgage Interest Rates

Yesterday I asked why the Liberals took away CMHC insurance when Canadian families refinance their mortgage. The "Talking Point" in response – of course – didn't answer the question at all!Increasing interest costs on refinanced mortgages hurts middle class Canadians and it hurts affordability.Will the Liberals reverse this punitive and damaging change?

Posted by Dan Albas on Friday, February 10, 2017

This debate followed hours of testimony these past two weeks about the new mortgage rules. Those hearings were held by Parliament’s Finance Committee and included 38 expert witnesses.

In an opinion piece today that touched on the hearings, Albas said:

As the public servants involved in this area could not provide a coherent reason for this punitive [refinance] policy, a motion I put forward to have the Finance Minister appear directly before the Finance Committee was adopted thanks in part to some Liberal MPs voting in support.

It appears, however, the Finance Minister is sending others to talk for him (on Monday), namely:

  • Ginette Petitpas Taylor, Parliamentary Secretary to the Minister of Finance
  • Rob Stewart, Associate Deputy Minister, Department of Finance
  • Cynthia Leach, Chief, Housing Finance, Capital Markets Division, Financial Sector Policy Branch, Department of Finance

CMHC head Evan Siddall will also speak at the same meeting. Siddall has been quoted by Bloomberg as saying lenders have “no skin in the game” and “misaligned” incentives, which he later called a misstatement on his part. So the mortgage industry will be watching for any new bombs he might drop on Monday.

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Are regulators oblivious to the consequence of their own mortgage policies? That’s what certain industry stakeholders and MPs suggested to Parliament’s Standing Committee on Finance this past week.

Well, observers can now decide for themselves, based on officials’ own comments—starting with those of OSFI Assistant Superintendent Carolyn Rogers.

Rogers testified last week. Below are a sampling of her statements, with commentary on each…

  • On the Destruction of Lending Competition: MP Dan Albas asked Rogers if the harm done to competition is a concern, stating, “We’re not just making life tougher for consumers, we’re also making the market less competitive.”
    .
    National Bank Financial (NBF) substantiated that concern in an unrelated report this week, stating: “…We believe increased portfolio insurance premiums could materially impair residential mortgage origination capabilities of mortgage finance companies (MFC)…Increased premiums shift both pricing power and market share control to balance sheet lenders like the Big Six Canadian Banks, highlighting that further downside risk could emerge for MFCs…We believe increased portfolio insurance premiums could materially impair MFCs’ ability to originate residential mortgages in the 65% to 80% LTV ratio range, which we estimate at 35% to 45% of (their) total residential mortgage origination, including insured and uninsured mortgages.”
    .
    Rogers, for her part, expressed no such concern. She responded to the MP’s question by acknowledging only that the government’s rules are having a “disproportionate impact” on bank challengers. Her testimony made little effort to elaborate on the serious “side effects” noted above. Nor did she make an attempt to help parliamentarians grasp the extent of those repercussions on consumers and lenders.
    .
  • On Refinancing: Rogers stated that the new rule landscape “doesn’t preclude any one lender from doing refinancing.” This was either a tacit admission that she/OSFI doesn’t understand lenders’ funding challenges, or refuses to acknowledge them in public. For as every mortgage professional in Canada knows, there are indeed lenders who have lost their ability to offer refinancing to their customers. Most can still do refinances but with a serious rate handicap versus the major banks. NBF estimates that MFC rates on 80% LTV purchases and renewals have had to rise up to 30 bps due to premium changes alone. We’re seeing 15-50 bps rate premiums on MFC refis. A 15-50 bps rate disadvantage cuts the knees out from most securitizing non-bank lenders, pushing volume into the arms of OSFI-regulated lenders. This is solely the result of a deliberate government agenda.
    .
  • One-sided Stress Tests: Rogers failed to elaborate on how her agency chose not to apply the new “stress test” to uninsured low-ratio mortgages. OSFI’s decision has created an enormous bank advantage over MFCs (which must apply the test to all mortgages, or incur much higher funding costs). OSFI could have coordinated with the Department of Finance to apply the same test to banks. This would seem logical given the Bank of Canada’s public warning that uninsured mortgage indebtedness (e.g., the ratio of uninsured borrowers with loan-to-income ratios over 450%) was rising to concerning levels. OSFI and/or the Department of Finance consciously chose not to subject banks to the same standard as insurers and (by extension) non-banks.
    .
  • On the Policy-maker’s Intentional Failure to Consult Non-bank Stakeholders: Albas said he was told by officials in October that the government chose to only consult with the likes of major banks, despite roughly 2 in 5 mortgages being originated by non-bank lenders. Rogers had no answer to why policy-makers failed to confer with industry experts before making such game-changing rules.
    .
  • On the Regional Aspect of OSFI’s Rules: Rogers stated that OSFI’s policies “are regionally neutral.” How this can be true when the new capital requirements specifically use location in their formula is anyone’s guess.
    .
  • On Higher Resulting Mortgage Rates: Rogers essentially disclaimed responsibility for hiking costs on consumers, saying “Pricing decisions belong to the lender. We (OSFI) don’t set prices. We set capital requirements. And if lenders and insurers choose to pass the capital requirements on to consumers in the form of higher prices, that’s a business decision and not a regulatory decision.” Meanwhile, considerably higher funding costs have ravaged certain MFCs’ businesses, with some lenders reporting a 30 to 50%+ drop in year-over-year volume. Why? Because they had no choice but to terminate products and jack up rates, thus harming consumer choice. OSFI and the Department of Finance knew this would result from their capital changes, or at least they should have.

Rogers’ testimony omitted the true impact that OSFI’s capital changes are having in the marketplace, contained statements that could be interpreted as misleading, and failed to provide any substantive evidence justifying her agency’s changes. She delivered this testimony snidely at times, at one point scoffingly commenting, “I might have guessed…that was the source…” after it was revealed that an MP’s concern was related to a worry from mortgage firm DLC.

This hearing will cast serious doubt on OSFI’s credibility and motives. For as CMHC CEO Evan Siddall has stated, the market consequences of the government’s actions were “fully intended.” The rule changes thus appear to have been purposely targeted and premeditated based on false (or at least questionable) pretenses.

Government officials said in their testimony that they want consumers and the industry to be resilient to future potential shocks. That’s a worthy and necessary goal. But, we all must remember that the prior system:

  • was a product of extensive prior rule tightening (over 30 new lending restrictions since 2008 alone)
  • held defaults on MFC’s insured mortgages to half that of the major banks (MFC arrears were a minuscule 14 bps, said the Bank of Canada in December)
  • limited prime mortgage arrears to a paltry 45 bps during one of the worst recessions on record
  • was mostly based on a level playing field among lenders, unlike today.

Despite all this, regulators once again failed to share any meaningful evidence that Canada’s prior time-tested regulatory system:

  • was immoderately risky
  • justified OSFI’s and the Department of Finance’s devastation of non-bank lenders
  • justified forcing hard-working Canadians to pay thousands more in interest.

In his questioning, MP Albas suggested policy-makers were “spinning” their position, to convince Canadians these rules are in their best interests, while simultaneously taking away critical financing options and raising costs on Canadian families. Rogers’ testimony did nothing to counter this charge. In fact, her statements demand legislators’ immediate scrutiny on her agency’s one-sided decisions, to confirm the unparalleled cost of those policies justify OSFI’s purported benefits.


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

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Mortgage Professionals Canada has asked the Department of Finance for a moratorium on mortgage rule changes until the effects of the current changes are known.

Speaking before the Standing Committee on Finance this week, MPC CEO Paul Taylor spoke to the association’s key concerns about the new rules and its hope that certain aspects will be revisited.

“The recent changes are having a cumulative negative impact on the mortgage market and ultimately on the Canadian consumer,” MPC president and CEO Paul Taylor said. “We are asking for slight amendments to the portfolio insurance eligibility guidelines, and to wait for the remaining existing changes to make their way through the market before implementing any further changes.”

He touched on the disproportionate impact the portfolio insurance changes are having on non-traditional bank lenders, as well as the reduced purchasing power for young homeowners due to the more stringent stress testing of insured mortgages.

Taylor also told the committee how the new rules are negatively affecting the mortgage broker channel and hurting competition.

“Canadian consumers have been more and more inclined to use the services of a mortgage broker to provide choice, advocacy and support, and to assist in the technical requirements of mortgage qualification,” he said. “Placing competitive disadvantages [on] the non‐traditional bank lenders will adversely affect this segment of the Canadian mortgage marketplace…We therefore maintain that in light of decreased competition, increased financing costs, decreased purchasing power, and increased regional prices and access disparity, that the government suspend any further changes to the housing market it is considering.”

MPC’s Recommendations

The association made the following specific recommendations to the Standing Committee on Finance:

  1. Allow for refinanced mortgages to be included in portfolio insurance. “If an 80% loan‐to‐value ratio is unacceptable, please consider reducing the threshold to 75% rather than removing eligibility to these products entirely,” Taylor said. “This adjustment would alleviate some of the competitive disadvantage pressure the cumulative effect of these changes place on the non‐traditional bank lenders.”
  2. Reconsider the increased capital reserve requirements implemented on January 1, 2017, for insured mortgages, as they are making low-ratio insurance too costly for small‐ and mid‐sized lenders.
  3. Apply the stress test to all mortgages sold by all federally regulated lenders, not just insured mortgages.
  4. Uncouple the stress-test rate from the big five banks’ posted rates. Use an independent mechanism to determine the rate.
  5. Conduct a review of the long‐term impact of regional‐based pricing on the Canadian economy as a whole, and the potential additional harmful effects on already-strained regional economies.

The first three recommendations above would needfully re-level the playing field between major banks and Canada’s 400+ other lenders. It would put real choice back to hands of Canadians and meaningfully reduce borrowing costs for well-qualified borrowers. If the government deemed it necessary, these “fixes” to a now broken system could be re-instated with stricter qualification criteria, ensuring the government’s concerns (e.g., over-leverage) are addressed.

We’ll have more on the hearings to come, including surprising testimony from OSFI.

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People are increasingly open to purely automated banking and investment services. But Canadians also lag the world in robo-advice acceptance, finds a recent survey.

Accenture Financial Service’s 2017 consumer study reveals that 6 in 10 Canadians (59%) would use entirely computer-generated support for banking. The consulting firm attributes this to the growing need for “greater control over [our] service experience,” adding that “improved speed and convenience is the main reason consumers will turn to automated servicing.”

There are case studies of this throughout mortgage industries abroad; Quicken Loans is a perfect example down south. U.S. borrowers closed more than $6.5 billion worth of its “digital” Rocket Mortgage in 2016, despite Quicken not having rock bottom rates, nor emphasizing a “human touch.”

But if you believe the survey, most Canadians have no intention of ditching their mortgage advisors. A majority (61%) said it was important that specialists be available to offer mortgage advice in bank branches. Compared to the U.S. and U.K., however, Canada doesn’t have many digital mortgage options for folks to compare.

Any way you slice it, we’re behind the times with fintech adoption. As just one example, 14% of Canadian Gen Y respondents said they would consider banking, buying insurance or purchasing investment advice with an online provider like Amazon or Google. That was a whopping 26 points below the global average of 40%.


Sidebar: Accenture’s research segments financial services consumers into three groups:

  1. Nomads (23% of Canadian consumers): Described as “a highly digitally active group,” they are ready for and open to new models of delivery for financial services. Nomads are independent and not tied to a traditional provider (e.g., bank).
  2. Hunters (23%): Bargain hunting is their game. This group searches relentlessly for the best deal on pricing. Yet they still actively rely on human advisors.
  3. Quality Seekers (55%): This group considers quality first, especially when it comes to service, advice and data protection. 

More than 32,715 respondents took part in this survey from 18 different markets internationally.

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Manulife Bank has rolled out another balance sheet product in the broker channel: the Manulife One for investment properties. We’ll call it the “M1R” (M1 for rentals) for short.

It’s an important product that broadens choice for broker customers, as there are few other automatically readvanceable HELOCs for rental properties (Scotia STEP being its main competition in the broker space).

“We are very pleased to be expanding further our commitment to mortgage brokers across Canada and appreciate the confidence they are showing in partnering with us,” said Jeff Spencer, Manulife Bank’s VP, Retail Sales & Distribution. This is the second balance sheet product that the bank has launched in the broker market in the last month.

Here’s a quick rundown of M1R’s features:

  • Maximum LTV: 80% (75% for high-rise condos; note: any portion over 50% LTV must be in a non-readvancing 5-year fixed sub-account)
  • Maximum loan amount: $750,000
  • Rental treatment: Manulife allows Gross Rental Income x 50% for the net rental income (on the subject property or an owner-occupied rental; note: Manulife removes heat and property taxes from the debt ratios). On non-subject, non-owner-occupied properties, it allows gross rents less allowable operating expenses (actual expenses as noted on the T776)
  • Rate Hold: 120 days for purchases and 90 days for refinances (on the 5-year fixed portion)
  • Minimum credit score: 700 (primary applicant)
  • Rate: The LOC rate is prime + 0.70%

 

What’s to love:

  • The fact that Manulife has filled a key niche with a competitive new product that lets brokers better compete with big banks
  • The LOC is fully readvanceable. Clients can set up multiple readvanceable sub-accounts after closing (Tip: do it in the first 30 days to ensure you get the same rate on the LOC)
  • The 5-year fixed portion can be qualified on the contract rate (the LOC must be qualified using the BoC’s 5-year posted rate)
  • The LOC account is a bank account, and can be used to segregate and track expenses pertaining to the subject rental property
  • Broker compensation is notably higher than Scotia, and paid on the limit of the LOC

 

What could be improved:

  • The 5-year fixed rate is 15 bps higher than Scotia’s rental rate
  • Clients can’t have more than $1 million of rentals with Manulife (hopefully they look at raising this limit in the future, as it’s quite limiting to some clients)
  • The only term option for sub-accounts is the 5-year fixed
  • It’s not available in Quebec
  • It’s got M1’s $14 monthly fee. A lot of customers aren’t keen about it. But, on a positive note, the fee can potentially be written off (speak to your accountant) and includes unlimited e-banking, which is essentially a dedicated accounting solution for that rental property.

 

All in all, the M1R is a solid new rental financing option that should do decent volume in our channel. And if Manulife addresses a few of these wrinkles, its uptake will be all the greater.

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By Mike Cameron, Special to CMT


We’re back with Part IV of the Badass Brokering series. The last ingredient in the formula is the simplest, but also the most overlooked: Authenticity.

Simply put, be you. Stay true to who you are.

Authenticity is now a buzz word in many marketing circles, but let’s dig deeper to understand what it really means.

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Authenticity: [aw-then-tis-i-tee] The quality of being authentic. Real or genuine. Not copied or false.
 
When we look at authenticity in the context of brokering, it means: be exactly who you are. True success in this business doesn’t come from emulating someone else’s style or content verbatim. You have to adapt it to your personality.
In order to be effective we must always be congruent with our own styles, values and beliefs. Too often I have seen brokers try to imitate other leading brokers and fail simply because the person they are imitating has a different underlying style.
It’s not that the tactics, tricks or strategies of the successful broker are ineffective. It’s that they’re not delivered in a way that’s consistent with your personality.
I have watched brokers mimic the words of top pros and have them fall flat. Sure, you can pick up an immense amount of information by watching the best of the best, but you have to find a way to make it your own. Customers have a radar for inauthenticity. They sense it in a heartbeat.
 
I have travelled the country sharing many of my “Best Practices” as a broker. Invariably I get asked the same question: “Why do you go around sharing all of your trade secrets with your competition?”
Well, first off, we as a broker channel have somewhere around 30% market share. It’s pretty clear that brokers are not their own primary competition. 
Secondly, and this is both sad and funny, 90% of you will not do a damn thing with the information I provide you (if you are in the 10%, shoot me a note and prove it). 
 
The main reason why I have no problem sharing “trade secrets” is that no matter how much of my knowledge you have, no matter what information I give you, you can never be me. The same holds true vice-versa.
Even if I had all of your knowledge, there is no way I could deliver it the same way that you do. Your uniqueness is your competitive advantage. Why would you ever want to give that up and try to be someone you’re not?
 
“If you are your authentic self you have no competition.” This is one of my favourite concepts. There is no other you. You are 100% unique. The way you approach customers is unique. YOU do not have competition, because no matter how many “secrets” you share, no one can re-create your approach.
 
Let me tell you about an experience I had a number of years ago. It shows exactly what I’m talking about.
 
I took my family down to United Cycle, a family-run, Edmonton-based cycle shop for the Kids of Steel triathlon. It turned out that Paula Findlay, the #1 ranked women’s triathlete, was going to be signing autographs and greet the kids after she did a short talk.
In the meantime, my eight-year-old daughter Mikaela decided to go and browse the swim shorts. In the women’s clothing section we were greeted by an enthusiastic young lady who asked if she could help. I explained why we were in the store and she put on a huge smile, kneeled down and asked my daughter in the most engaging voice possible, “Are you running the triathlon this weekend?” Mikaela answered, “Why yes, yes I am!” with a proud smile.
The young sales agent gushed all over her about how great that was. My daughter felt like a million bucks!
I then told the sales rep that we were thinking about heading back to the meeting room for Paula Findlay’s autograph. She stopped dead, looked me in the eye and said, “Paula Findlay is here? Shut UP!”
I smiled and said, “Yeah, she’s up in the briefing room right now.”
“Shut UP!” she said again, so I did.
She then asked, “Can you show me where the briefing room is? I would love to meet Paula.” She was so enthusiastic and passionate about the sport that it was contagious, and my daughter caught all of her spirit. This salesperson’s positivity was so infectious, in fact, that I spent $500+ in her store that day, despite having no intention of dropping a dime.
 
Now, I ask you. Does United Cycle have competition with a salesperson like that?
No way. I don’t care if there was a shop next door with the same products at 25% off. I’m buying from her because of who she is. Simple as that.
 
Of all the techniques and strategies I have shared in my writing and speaking, authenticity is the most vital. I have watched BDMs come and go over the years, following in the footsteps of their predecessors. Some try to mimic the unique style of the one that came before them, only to fall short of the mark.
It’s only when you can deliver your message, your product or service, in a manner congruent to your own disposition, that people deem you genuine and want to do business with you.
I received a wonderful testimonial after one of my presentations this year. I’ll paraphrase it here:
 
“In 25 years of sales I have heard many a speaker talk about the importance of scripting responses. For years I have tried to deliver scripts that others had written for general consumption, only to fail. I was told bluntly by one honest prospect that I ‘sounded phony.’ When I confessed that I was using a line from a sales manual, when I went on to honestly and professionally answer his concern in my own words, it was then that he decided to trust me.”
 
For this individual, the gold in my presentation was the part that gave him permission to simply be himself. He had all the scripts and tools at his disposal. What he was lacking was the motivation to deliver those scripts and tools in Tom’s authentic voice.
So if you need reassurance to do the same, trust in what I say. Let this article be your resounding permission to take the tools and techniques we’ve discussed and confidently deliver them to clients as only you can.
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We’ve covered numerous tips in the four segments of this series. To recap the big ones:
 
  1. Understand that the greatest thing we sell is trust.
  2. List the objections you run into regularly and develop questions to lead your prospects to the answers.
  3. Create a list of points you need to make and objections you encounter and build a repertoire of stories around them.
  4. Simply be you.
 
You’ll be astounded by the results.
Now go out there, find your talent, be badass and make beautiful $#!% happen!
 

Michael Cameron is CEO of AXIOM Mortgage Partners, a national network of independent mortgage brokerage firms. Mike has been in the mortgage brokerage industry since 1994 and is a graduate of the Sauder School of Business at the University of British Columbia. 

You can download Mike’s Badass Brokering workbook here.

 

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Canada’s mortgage rulemakers want less exposure to insured mortgages and—as this BMO Capital Markets graph shows—they’re getting exactly what they want.

                                     Source: Sohrab Movahedi, Analyst, BMO Capital Markets

 

Uninsured mortgages have been growing at two and a half times the pace of insured mortgages since the financial crisis.

But high-equity mortgages aren’t growing in that same way at CMHC. A quick check of its financials pegs the average loan-to-value of its insured mortgage portfolio at 52.5%. Five years ago, it stood at 55%.

But in that same timeframe, home prices surged 36%, as measured by CREA’s Home Price Index. By that measure alone, one would expect the loan-to-value of CMHC’s portfolio to have dropped more than 2.5 percentage points. But it didn’t.

One reason is because CMHC isn’t insuring as many low-ratios mortgages these days. Its bulk insurance in force has plunged almost $60 billion since 2011. Conversely, 96.5% of the homeowner insurance it sold in its last reported quarter was high ratio.

Thanks to insurance restrictions and premium hikes, CMHC’s portfolio will grow even more top-heavy with high-ratio mortgages in 2017. No longer will it benefit from the diversification of low-ratio mortgages in its revenue stream and portfolio, not to the same extent it once did. That has to worry someone out there.


Sidebar: Speaking of worries, we asked CMHC if it was “concerned” that its dramatic hikes in low-ratio premiums could hurt mortgage competition (since so many smaller lenders rely on low-ratio insurance for securitization and funding). A spokesperson replied, “…We are committed to continuing to offer competitive products to a wide variety of lenders”—to which we replied, that didn’t really answer the question. The spokesperson responded, “we have no further comment…” 

Hey, that’s understandable. It can be difficult to comment when your policies just set back competition by over a decade—in a $1.3+ trillion market.

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

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

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

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

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

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

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

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

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

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

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

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

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