The Upside of Alternative and/or Unregulated Lenders

A recent report from the Bank of Canada reviewed the impact of the government’s policy changes on the mortgage market. It found that overall market activity had slowed -- something we knew would happen. The bank also found a correlation between the quality and quantity of credit.  While the data shows a slowdown in “riskier” mortgages, some economists wonder if these borrowers have turned to the unregulated market.

Approximately 20% of the mortgage lending market were made up of people who borrow at least 4.5 times their annual income to buy a home.  That percentage went down to 6% in the second quarter of 2018. That amount of mortgage indebtedness may or may not be a problem for borrowers; however, coupled with other debt, including credit cards, lines of credit and car loans, it may cause some financial problems as rates rise.

History of Mortgage Lending Changes

In 2016, the Office of the Superintendent of Financial Institutions (OSFI) announced a stress test for insured mortgages (mortgages with less than 20% down and requiring mortgage default insurance), stipulating that those buyers must qualify at the Benchmark rate (currently 5.34%).

Then in October 2017, a similar rule was unveiled for uninsured mortgages (mortgages with more than 20% down) stipulating that those buyers must qualify at either 2% more than the contracted mortgage rate or the Benchmark rate, whichever is higher.

These two rule changes -- along with several others, including; increasing minimum down payments, mortgage premium hikes, and decreasing amortization limits – have made it harder for Canadians to qualify for mortgages, which is what the government wanted for borrowers ‘on the margin’. The rationale was to encourage people to take on less overall debt, including less risky mortgage debt, which would, in theory, keep housing markets safe and protect borrowers in the event interest rates increased.

The Fallout

Mortgage brokers can attest that the impact was seen almost immediately. The rate of clients who may have qualified previously but no longer did from large banks and traditional monoline mortgage lenders went up as much as 20%. 

As a result, alternative lenders saw an uptick in business as brokers presented highly credit worthy homebuyers and refinancers with borrowing options in the unregulated space including private lenders, mortgage investment corporations (MICs) and credit unions. Some credit unions opted to include the stress test as part of their mortgage lending requirement.

The Bank of Canada admits that this segment of mortgage lending is growing, although it falls outside their purview. For example, the market share for private lenders in the GTA has grown by 50% since last year, and now makes up nearly one out of every 10 borrowers, the bank said.

There are now questions about risk in the unregulated market; however, the market is not necessarily riskier, it’s just not under OSFI’s purview.

What the unregulated market is seeing are better quality mortgage clients. Hali Noble, Fisgard’s senior vice-president of residential mortgage investments and broker relations said in an interview, “A lot of these people should be bankable, but they’re not (when applying the new stress tests).”

So, many good quality borrowers have to shift down the ladder to lenders with a higher risk tolerance. The one downside is it comes with a higher cost, but not necessarily more risk.

Borrowers who don’t fit into the mainstream box are now not limited to those with past credit issues, and may include those who are self-employed, those who are new to Canada, and even “A” clients. They simply don’t fit into the new box.

The Unregulated Market

The unregulated market is primarily comprised of private mortgage lenders -- companies and individuals -- who fall outside the purview of Canada’s banking regulators. Private lenders offer mortgage rates higher than traditional mortgage lenders for shorter terms. Typically, borrowers who could not qualify for traditional lending turned to alternative lenders.

Alternative mortgage lenders or private lenders, also known as “B” Lenders, are more willing to look at each situation on a case-by-case basis. They do have criteria, but consider a borrower’s “story”.  For example, if a borrower had a bankruptcy or have some credit issues, they want to know why. For self-employed borrowers, they will consider other documentation to prove income rather than a tax return, which may reflect business write-offs.

Interest rates

Yes, are higher compared to “A” lending, because the borrower profile is considered riskier, but remember it’s only a short-term solution.

You can also expect to pay a larger down payment, from 15% to 35%, depending on both your situation and the property you’re financing. And, there may be lender fees and mortgage broker fees.

Usually, the pre-payment privileges are flexible but there may be a charge for paying out the mortgage early. Alternative lenders are strict about missed payments, and service fees may be higher as well.

Whatever the reason for needing to use an alternative lender, the goal is to get back into the “A” lending space.

Is there cause for concern?

Maybe, maybe not. The reason for all the changes was to ensure that borrowers could manage their debt loads in the future, as interest rates rise.  Inadvertently, the new rules have grown the unregulated market, which may or may not defeat the purpose. People want to buy homes and will do what they need to, to get one.

The increase in demand has caused interest rates to go up even in the private sector, but these lenders are short-term lenders. There must be an exit strategy. There is the risk that borrowers will rely on the private funds for longer terms, which may have a negative financial impact.

The Bank of Canada is also concerned about the potential for mortgage default and bankruptcies. Consumer insolvencies peaked during the 2007-08 financial crisis and have been relatively stable since 2012. Around 120,000 Canadians went insolvent last year, less than 0.4 per cent of the country's population.

•   Mortgages in arrears across Canada have fallen this year, to one of the lowest levels in history. Only 11,641 mortgages fell into arrears at Canadian banks in January, representing 0.24% of all mortgages held.
• The biggest indicator for potential arrears is a worsening unemployment rate.

Unregulated lenders are not going anywhere. They have been in the mortgage industry for many years. They continue to fill a need by allowing homebuyers to get into the housing market who otherwise may not have qualified for a mortgage. 

Grateful for my time with MPC

By Mark Kerzner, President, TMG The Mortgage Group

I believe in the power of reflection – looking back as objectively as possible to evaluate an outcome and take the lessons from past experiences so they can be applied to the future.  As I conclude my time as Director of Ontario, and Executive Member of the Board of Directors of Mortgage Professionals Canada – it is time for just such a reflection.

 When I ran for the Board of Directors of CAAMP (now Mortgage Professionals Canada) in 2014 I felt as though our industry was splintering. To me, there was a divide (brokers vs lenders/suppliers).  This is what I wrote then as part of my campaign:

It seems there has been considerable chatter lately about the role of CAAMP, regional associations and the overlap between them. Questions around the need for a national association coupled with discussions about a brokers only association have also been on the table. This is healthy dialogue and I am pleased to see the level of engagement about how we are being represented in our industry.

To that end, I would like to take this opportunity to tell you the three key reasons why I continue to advocate for CAAMP:

1.     I welcome the fact that our association is inclusive of brokers, lenders and suppliers alike. I feel that mix actually makes our voice stronger with the folks we are lobbying in Ottawa.

2.     The fact that we share a board of directors to oversee this national association helps unify our day-to-day business interests.

3.     The majority of members are aligned in seeking a very strong and growing broker channel in Canada. 

I went on to say:

CAAMP has to be more responsive and approachable. It has to advocate the broker channel while improving its events and symposiums.  More than anything, CAAMP has to remain the pre-eminent source to government and the media with respect to all-things-mortgages.

Four years later I am very proud of what we have accomplished but wish we could have done more.

Time is often marked through events and  there has been no shortage of industry benchmarks these past four years.

No one really could have predicted the extent and the resulting magnitude of the regulatory changes introduced starting in the Fall of 2016. Those changes came on the heels of a newly elected Federal Government and new staffing leadership at the Association.

I feel honoured that I have represented our members with Government, Policy Makers and Regulators. I am grateful to the Board volunteers who have given selflessly of their time and in doing so set aside personal considerations for the betterment of the Association and membership as a whole.

I believe that your Association is the pre-eminent source of information to Government and Regulators of all things mortgage related.  Our Association has taken great strides in improving events and overall value to members.

The national Mortgage Forum conference has been a resounding success the last few years and I suspect this year will be no different.

We have brought regional symposiums to new markets, delivered member updates in smaller communities, introduced additional training days and held very successful National and Provincial Hill Days.

In Alberta we have combined efforts to bring to our members and sponsors inclusive and valuable events with streamlined efforts and cost savings.  We have also collaborated and coordinated GR and advocacy efforts.

In Quebec we have grown membership to record levels and have had an average of 450 brokers attend the regional symposium in the last three years.

I am proud of what we are accomplishing – and because of these accomplishments, I am confident we can do more. To do so we need to encourage those on the sidelines to join. The value to your industry is already evident. To have a not-for-profit, industry voice that advocates for brokers is vital. Whether you are a member or not, you benefit from that voice.

The $255 annual membership fee is a tax deduction leaving the net out of pocket cost even less. Even if you see no value in the networking events, conferences, education, surveys, communications, etc… voices do matter. To powerfully advocate on your behalf with Ottawa, the provinces, the regulators and other industry associations we need to count you among us. Please consider joining – not because of the value you seek (which there is much) but because of what you can give back to your industry.

I have much faith in the leadership of the staff and the Board going forward. The Association is in very strong and capable hands. I wish them continued success.

A few final remarks:

Thank you Ron Swift and Jim Murphy for encouraging me to run.

Thank you Michael Ellenzweig, Hali Standlund, Boris Bozic and Paul Grewal for your mentorship over the years. Your respect of the brokerage channel and dedication to the Association set the bar very high for me to strive towards.

Thank you to Dan Putnam, Jared Dreyer and Lionel Lewko for leading the Board during my terms and for providing me an opportunity to contribute along the way.

Thank you to Claude Girard, Elaine Taylor, Mike Wolfe, Michael Cameron for serving alongside me on the Executive. I appreciate the discussion and debates we had but more than anything admire your leadership and commitment to the industry. 

Thank you to Cara Shulman for making sure the face of the Association is reflected in a professional and meaningful way.

Samir Asusa – thank you! Your leadership during the transition of CEOs was truly remarkable. You are smart, straightforward and empathetic. I feel fortunate to have had this time to work together.

One of the truly remarkable story lines of our industry these past few years has been Paul Taylor. Having come from a completely different industry Paul has led the Association through three different Boards, enhanced focus on Government Relations, and provided calming leadership to members across the country. He is a wonderful colleague and friend.

Thank you to all the Board members and dedicated staff I have had the pleasure of serving with over the past 4 years.

Thank you to my wonderful, supportive and inspiring wife and family. Your sacrifices these past few years allowed me an opportunity to follow my passion.

One last thank you – to my work family at TMG The Mortgage Group. You inspire me every day to give back. Your strength and leadership enabled me to participate in the Association fully. I feel fortunate to work alongside you.

One past reflection:

I remember the first CIMBL (predecessor of CAAMP) conference I attended nearly 20 years ago. As a newly minted mortgage executive I recall the excitement, enthusiasm and sense of learning I felt.  I knew at that moment that this was a very special industry and an association I looked up to. It was a place where seasoned mortgage professionals would come together, share best practices and chart a course for the future.

I continue to feel that same excitement and enthusiasm today.

5 Tips for Success

By Mark Kerzner, President TMG The Mortgage Group

A colleague asked me recently if I could share a couple of things that I do each week that helps me to be successful.  I often look to others for inspiration so I was quite flattered to be asked this question myself.

I thought about it for a bit and below is what I shared.

Below are some key fundamentals that govern who I am and how I see myself.

1.     Honour time commitments. Know what’s in your calendar, leave enough time to get to next meeting, and don’t double book.

It may not seem like a big deal if you are 10 or 15 minutes late for a meeting or a call, but trust me when I say, that’s not the case. The other person (people) are literally waiting and starting to wonder what else they could be doing with this time. They may begin to feel that they simply don’t matter or they may also have other commitments. Cancelling at the 11^th hour can be equally as annoying.

2.     Honour your time commitments with family. If you say you will be home for dinner at 6:30 p.m. be home. It adds a lot of stress to both your family and business when you don’t meet those commitments.

Just like a business meeting that begins late, when family takes a back seat to your clock you run the risk of setting off a negative chain of events and resentment at home. We have all heard that time is precious (and it is) but it’s also limited. Often we have drives, school plays, teacher meetings, etc. that also need our attention and commitment.

This doesn’t mean you have to be home for every dinner or attend absolutely every school event. It just means that when you say you are going to be there, make sure you are.

3.     Don’t TRY.  Try is really a useless word. Either you will or you will not.

When you say you will ‘try’ you are building in an excuse right from the get go. Going back to the concept of commitment -- commit one way or the other … if you cannot do something don’t say you will ‘try’ and then don’t do it.

4.     Do something creative/fun each week.

I really enjoy hockey, coaching and watching my children perform (dance). It helps me to turn off from the office for a few hours a couple times each week. Find your passion and take the time to make it happen.

5.     Be driven by your work passion.

Just like we need to find our personal passions we need to do the same thing at work. Considering we spend 40 or 50 or 60 plus hours each week on our business, find those aspects of your work that you really love. I think I have the greatest job in the industry. I get to work with talented, committed and passionate people every day who strive to put Canadians in financial situations to enable them to own homes and set them up for success. I am truly humbled that I have been able to represent my industry colleagues with Government, Regulators and the Media and I do not take that responsibility lightly. When you love what you do, you stop counting the hours.

The truth is that we all find inspiration in different places. I wanted to share my experience and encourage you to find your own, and then share that as well.

What the TREB ruling means for you

Ever wondered what that house across the street sold for? That information was only available to you through a Realtor, but not anymore. The recent ruling by the Supreme Court of Canada, refusing to hear an appeal from the Toronto Real Estate Board (TREB), over access to real estate data, will have repercussions across the country.

For years, TREB, a private organization restricted access to its home sales pricing data, although it was readily available to consumers through a Realtor.

For seven years, TREB fought against the federal Competition Bureau, with TREB insisting that publishing sales and other market data online violated client privacy and its own copyright over the information.

For many consumers and Realtor members, the ruling was a win for full transparency rather than for a loss of privacy. 

Commissioner of Competition, Matthew Boswell, said in a statement, “The ruling is “a decisive victory for competition, innovation and for consumers. The removal of TREB’s “anti-competitive” restrictions will give homebuyers and sellers “greater access to information and innovative real estate services when making one of the most significant financial decisions of their lives.”

There is the argument that releasing this data will negatively impact the market. However, there are two examples that counter this argument; when the US real estate housing market started releasing this data, the industry grew. And, there was a time in Canada when stocks and bond data was private and when it started to release its data, the industry grew and flourished.

TREB continues to argue that financial information about selling prices is a privacy issue. While they consider their next steps, let’s take a look at what the fallout will mean for both buyers and sellers.

The Toronto Real Estate Board is the largest board across Canada. It won’t be a surprise if other board follow their lead and start releasing sales data. Remember, consumers already had access to the data through their Realtor.

For Buyers

Knowing the asking price is only one factor – it’s the selling price that’s most important. Knowing selling prices will give buyers a better idea of the value of the home they want to buy. This could result in sellers listing their homes closer to the average selling price.

For Sellers

Transparency allows buyers to properly assess the value of their own homes without relying on the real estate agent.  Buyers can then make better pricing decisions if, for example, they want a quick sale. 

Overall, access to housing history and data puts the power into the hands of consumers. We could also see a lowering of prices in hot areas such as Toronto and Vancouver as consumers become more empowered.

The truth of the matter is that Realtors, similar to mortgage brokers, have their value rooted in their ability to educate the consumer and various options – that their jobs are about service. Data is not the product, service is.

Full transparency is good for consumers  and sustains a healthy, robust real estate market.

Interest rate increase has winners

Believe it or not, the recent .25% rise in the prime interest rate is an indicator of a healthy economy. Despite trade tensions, Canada’s economy looks to be weathering the tariff storm well, for now.

There is no doubt the Canadian economy is resilient. The country has weathered a few storms since 2008, but still chugs on – somewhat flat at times, but never stagnant. The focus of the Bank of Canada (BoC) is on stimulating the economy and keeping inflation in check. The inflation rate has been inching up and is now at 2.2%, still well within the Bank’s comfort zone. Maintaining low, stable and predictable inflation is key to fostering an environment where Canadians can prosper. 

There are many factors that contribute to rising interest rates. Since the economy has been in recovery mode for a while, it now makes sense the BoC would start raising the rate, given a few economic indicators.

One of the main indicators that point to a continued healthy economy is the job numbers. Without jobs, household budgets get tighter, consumer purchases slow down, manufacturers scramble to reduce inventory, which could lead to lay-offs, and bankruptcies rise. And job loss is also the leading cause of mortgage default.

In June, the economy added 31,800 positions. At the same time the unemployment rate rose to 6%, from 5.8% in May. The higher jobless rate is considered a good sign by analysts who see it as more people optimistic about finding a job.  Average hourly wage growth has maintained the same level as last month at 3.6%. 

What we don’t know is the effect of NAFTA negotiations and how an extended trade war will affect the economy. What we do know is how the recent increase will impact Canadians in the short term. 

First, the cost of borrowing will increase for customers with variable-rate loans and mortgages, but those with money in savings accounts and guaranteed investment certificates will benefit. When interest rates are low, there’s less motivation to save. 

The rate hike may also make Canadians think twice before adding to their debt loads. Canadians are carrying a record amount of debt -- $1.8 trillion and growing -- because of low interest rates. Hopefully, as rates rise, consumers will reconsider adding to their debt loads.

Seniors and retirees also benefit from rising rates. Seniors now have the opportunity to generate higher interest income, which may help them manage rising costs.

With people living longer, those with pension plans are in a better financial position against running out of money. 

The housing market is cooling a bit because of the new rules introduced this year, which may help affordability for future homeowners as the pressure to bring prices down grows. We are not seeing this happen yet in strong urban markets like Toronto and Vancouver.

There’s a fine line between interest rates that are too high or too low and how they may help one segment of our population and hurt another. 

While we have no control over interest rates, we do have control over our responses by thinking more carefully about our finances – our savings and our borrowing – so we’re not caught in challenging situations, no matter what the rates do.

Quebec government takes action with additional funding for children’s breakfasts

Quebec school boards will be receiving additional funding to serve breakfasts in all primary schools located in disadvantaged communities as part of the Quebec government’s Educational Services Strategy.

The additional funding expands the current school meal program and ensures that a greater number of children have an equal chance at success.  The initiative, championed by Breakfast Club of Canada, also recognizes the importance of a healthy breakfast in fostering academic performance.

"This is a big day for the Club and the partners, contributors and numerous donors who have been speaking up, and stepping up, for 23 years,” said Daniel Germain, President and Founder of Breakfast Club of Canada. "We greet this announcement with great pride and enthusiasm.” 

Already active in 312 schools in Quebec and capitalizing on the expertise gained over the past 23 years, Breakfast Club of Canada is eager to work with the school communities that choose to partner with the Club to implement breakfast programs in more than 400 new schools. And the Club is ready to accommodate the additional demand. 

Debbie Thomas is equally as pleased about this announcement, and is proud of the ongoing support from TMG brokers who contribute to the Breakfast Club of Canada each year. 

"Not only are we proud of the funds that we have raised to ensure more children in Canada have the opportunity to begin their day with a nutritious breakfast, but of the way our brokers and staff have gotten involved in local communities across the country, raising awareness and volunteering in the schools directly,” she said. "Since we started TMG has raised over $250,000 – that’s over 250,000 healthy breakfasts served to hungry children.”

Breakfast Club of Canada’s core philosophy is that children deserve to start the school day with a nutritious breakfast in an inclusive, caring environment. Over the years, the Club has helped shed light on the positive impacts and outcomes of school meal programs. 

"We would like to express our heartfelt thanks to all those who have supported and continue to support Breakfast Club of Canada,” added Mr. Germain. "Their commitment has made a difference for hundreds of thousands of children across Quebec. But neither the public sector nor the private sector can win this fight alone. By joining forces today and tomorrow, we will be giving kids the best possible shot at success and helping them live up to their full potential. Together, we can make it happen.” 

Housing affordability continues to erode

New mortgage rules, rising interest rates, and stress tests have definitely cooled housing market activity by making it more challenging for some to qualify for mortgage. An unwelcome consequence continues to be eroding affordability -- as sales activity slows down, house prices have continued to go up, and not only in major urban centres. 

In the first quarter of 2018, home affordability eroded further at the national level – the 11th straight quarter of declines, according to a report by the National Bank. The bank measures affordability as the mortgage payment on a median-priced home as a percentage of median income. Last quarter, the metric rose by 1.2 points in Canada. The higher the metric, the worse the housing affordability.

The bank also suggests that as interest rates rise, affordability will continue to decline, setting the stage where prices have nowhere to go but down. But when? And will it be too late?

The National Bank report also says that by the end of 2019, prices would need to fall 2% in Toronto and Vancouver to keep home affordability from eroding further.

Economists have been predicting a more stable, balanced economy where people are happily working and are able to pay their debts; where interest rates are “low normal” and where house prices are affordable.  Well, that was a few years ago. The once booming real estate sector is in a bit of a slump. 

The Canadian Real Estate Association (CREA) reported that national home sales on the MLS were down 2.9% in April 2018, to the lowest level in more than five years. About 60% of all local housing markets reported fewer sales.

According to Will Dunning, Chief Economist, Mortgage Professionals Canada, data for the first quarter of 2018 points to a sharp slowdown. For the first quarter, the sales rate was 10.3% slower than in 2017. The average price in Canada was $482,782– a 4.8% drop compared to a year ago. However, when we look at the price index as opposed to averages, which can be easily skewed, Dunning reports a different picture.

The index from CREA shows that in the first quarter of 2018 prices were 6.4% higher compared to a year ago. The index from Teranet/National Bank shows a rise of 7.6%. Price growth is strongly influenced by the balance between supply and demand, which can be measured using the sales-to-new-listings ratio. The data from CREA indicates that the ratio was 56.6% in the first quarter. Based on that ratio, Dunning expects house price growth in many areas of Canada, which is what is indeed happening.

We are living in strange times. World economies have changed; NAFTA is at risk and our economy might start to feel the effects of a trade war with the US. The new mortgage-insurance rules and stress test have indeed impacted the market, especially for the first-time homebuyers.

In an April 2018 survey by West Coast Capital Savings, 60% of young British Columbians (18 to 29 years old) believe it’s impossible to buy a house in the province’s pricey real estate market and are “seriously considering” moving to areas where home ownership is less costly.

While some homebuyers can adjust their housing expectations and move to buy something less expensive, some potential buyers will be knocked out of the market. And will there be enough, good inventory available for purchase?

There is no arguing that the market has cooled, but it has not stopped. We have not yet heard of massive foreclosures, which mean that households continue to pay their mortgages and their debts. 

So, the big question is when will prices really start coming down in a way that will make housing affordable again. 

We need to continue to closely watch the market to determine if rising rates and lower home values are a blip or a trend which will ultimately impact long term affordability for Canadians.

NU Stream Realty Inc and NU Stream Mortgage Inc chooses TMG The Mortgage Group

Wells Peng, Dan Pultr (TMG) and Anna Zhang

TMG The Mortgage Group is proud to announce a strategic affiliation with NU Stream Realty Inc and NU Stream Mortgage Inc located in B.C.

NU Stream was searching for a partner with similar values to help facilitate its incredible growth, while at the same time servicing their clients with the best mortgage products in the market.

“When we were looking at this next stage of growth, TMG’s support systems, training and tools impressed us,” said Wells Peng, founder and CEO of NU Stream.  “The TMG team is the best fit for our company and we look forward to continuing to grow together.”

TMG’s Vice-President of BC, Dan Pultr, is equally as enthusiastic.  “From the moment we met with the partners at NU Stream, we were excited to work with such growth and client focused individuals,” he said. “The company’s market penetration over the past few years has been impressive -- $3B in transactions since inception in 2016 – and when they shared their vision, it was a natural fit. “

“TMG has earned a stellar reputation in the industry because our staff, systems and resources are placed against the filter of adding value to our broker partners. We’re confident TMG will truly complement NU Stream’s business and make this partnership a win-win,” Pultr added.

TMG The Mortgage Group is an award-winning mortgage brokerage and the largest independent brokerage in Canada with more than 800 agents and brokers across the country.

NU Stream Realty Inc. is an innovative real estate brokerage company using a team-based model that has proven to be highly efficient, professional, and comprehensive. NU Stream Realty Inc. is developing operations in both the Vancouver and Toronto Chinese markets simultaneously, establishing a platform to serve customers across Canada.

TMG’s Co-founder Wins Lifetime Achievement Award

In July, 1990 Debbie Thomas and her husband/ business partner Grant opened TMG. In the ensuing 28 years, TMG has grown its presence in the marketplace from four brokers in a small office, to more than 800 mortgage professionals across the country.

Debbie has been the Broker of Record in British Columbia since 1993.

In addition to company awards, Debbie has won the Partner’s in Excellence Award -- CAAMP and Pioneer Award for Lifetime Achievement – MBABC.

As the only female to head up a successful national brokerage, Debbie credits her skills as an educator that has contributed to her influence. She has been the "Mortgage Expert" on Global BC TV for many years and worked hard to get the industry message out to consumers that “Your best mortgage is through a Broker”.

Not only is Debbie committed to the success of TMG, she has shown passion and dedication for the success of others and the industry at large. As part of a very influential Western core group of broker advocates in the early 1990s, she was instrumental in ensuring that Western brokers were properly recognized. Through her efforts, mortgage lenders such as Scotia Bank and HSBC added the West to their business market.

 It’s not surprising that British Columbia enjoys the highest level of mortgage broker activity in the country with more than 35% of consumers seeking out a mortgage professional.

Within TMG, Debbie is seen as a mentor, an expert and a leader. Within the mortgage industry, she is seen as an entrepreneur, an industry advocate and a pioneer.

On Thursday, May 3, Debbie was recognized for her contribution to the mortgage industry by receiving the Lifetime Achievement Award at the Mortgage Awards of Excellence in Toronto. Here is Debbie, in her own words.

“I was both honoured and humbled to receive the inaugural 'Lifetime Achieve Award' at the Mortgage Awards of Excellence. Thanks to the nominating committee for the privilege of being the very first recipient of this award.  

When I think about Lifetime Achievement I start to look back and reflect on the past, as I imagine all of us do, and I thought about the early days of TMG, and of the mortgage industry, and how I got here.

TMG was founded by myself and my husband Grant back in 1990.  That same year the Berlin Wall came down, the first episode of The Simpsons aired and there was this launch of something called the World Wide Web. So, in retrospect, it was very good year for beginnings.

Back in those days, we had one huge, big-ass Fax machine, and we would line-up to send and receive documents.  It was almost a full-time job just organizing and distributing those documents.  Then in 2000, Expert came along and life got a whole lot easier.

We’ve seen a lot of changes in the industry over the years. We’ve seen lenders come, and we’ve seen lenders go. We’ve seen mortgage rates in the double digits, we’ve seen market “corrections” and we’ve seen very hot markets. And we’re still here. Mortgage brokers remain committed to the consumer and making sure they have a choice when it comes to mortgages.

I’m proud to say that we’ve seen more women enter the industry.   Each day I work with outstanding women in the industry – our brokers – our lender BDMs – our underwriters -- and our support staff. Together we are empowering thousands, breaking down barriers and demonstrating that there are really no gender preferences in our industry. With each passing day there are more, strong female leaders emerging. I am grateful to be a part of that.

I have learned many lessons on this journey.  One particular lesson has sustained us -- I have learned about the importance of partnering with the right people. By surrounding ourselves with people of integrity, with people we can trust, it empowers us to be our best.

 From the outset, Grant and I never wavered from our values and our vision – it still sustains us today.”

Condo investors and the housing market

A recent study titled, “Window Into the World of Condo Investors” by Shaun Hildebrand, senior vice-president of rental research firm Urbanation, and Benjamin Tal, senior economist with CIBC Capital Market, sheds a light into who these investors are in the GTA and how they might impact the condo market in the future.

What’s interesting is that investors who grab the best units at developer pre-sales account for nearly half of the rental housing inventory in the region. And while many are foreign investors, it’s the domestic investors who may hold the key to the future of the real estate market.

According to the report, only about 10% of condo investors are international buyers and are more likely to be local immigrants aged 40 to 60. The reasons are many – a retirement investment or to help their children, for example.

Most investors use a minimum down payment of 20% on a pre-sale unit. Since it may take four to five years to build a condo, the value increases each year until the unit is leased at market rent, which should cover costs and pay down principal. 

However, the future may not look as bright as it once did. While current market conditions have elevated demand, the slow turnover, higher prices for move-up buyers and the mortgage rule changes have reduced turnover, with fewer units available.

A Snapshot of Condo Investors

Some hard data:

•  In 2017, just over 20% of condo investors purchased the units with no mortgage.
•  The Big “5” Banks provided two-thirds of the credit
• Credit unions provided 20$ of the credit
•  Private lending accounted for 5% in dollar amount but 10% in number of transactions
• Approx. 30% have an interest rate of more than 6%
• 16% have interest rates higher than 9%
•  On average, investors provided the 20% down payment; non-investors, of course, can provide lower down payments. 
•  44% of investors with a mortgage are in a negative cash flow position
•  Investors with positive cash flow have an average monthly income of $360
•  The average resale price was 51% higher than the average pre-sale price

The last few years have been challenging for investors and it’s going to be difficult to get that healthy return.  Forty-four per cent of investors who took possession of their units in 2017 are seeing their rental income fall short of mortgage payments and building maintenance fees.

Here’s a scenario: The authors of the study estimate that new units that were pre-sold over the past year and scheduled for completion in 2021, rents would have to rise by 17% over the next four years, if there were no changes in interest rates, by 28% if rates increased by 100 basis points, and by 39% if rates rose by 200 basis points.

The condo market is the last bastion of affordability, but it’s going to be more important than ever for investors, and non-investors, to make sure they do their homework and get the information they need to make the best decisions.

TMG Mortgage Broker Runs 250KM for Breakfast Club of Canada

Can you imagine running a 250km ultra marathon over six days, in the Sahara Desert, while carrying all your supplies?

Mathieu McCaie, a mortgage broker with TMG The Mortgage Group, based in New Brunswick, has done just that. After months of training, this father of two ran 250 km in a six-stage event in the Sahara Desert, under extreme conditions, in part, to raise more than $13,000 for Breakfast Club of Canada.

The Marathon des Sables (MDS) is one of the toughest races in the world. What makes it challenging? “It’s an ultra-marathon where I carried everything I needed over the 6-day race: food, sleeping bag, venom pump, compass, etc., so my backpack weighed about 22 pounds,” McCaie said. “There was also the change in temperature, which varied from 4 degrees at night to around 50 degrees in the daytime.”

 “We at TMG The Mortgage Group, are in awe of Mathieu’s achievement,” said Mark Kerzner, president of TMG. “He is a consummate professional, who leads by example - -this was just his next challenge.”

For McCaie, completing the race felt good, but says he’s ready to move on. “I trained for almost two years and missed precious time with my family,” he said. “I had time to reflect while running and realized I wanted to spend more time with my family.  Before the race, I spent a lot of time working but I have adjusted my work schedule.”

Would he run the race again? Absolutely not, he said.

McCaie trained between 15-20 hours a week since September, determined to accomplish two major objectives: Finish the race, and do so with no permanent injuries. During this rigorous training, he has also been working, and caring for his two young children and… fundraising for Breakfast Club of Canada!

McCaie has raised over $13,000 for Breakfast Club of Canada.

“TMG The Mortgage Group has been a longtime supporter of the Club, and to have the support of individuals like Matt, who go out of their way to raise funds and awareness is inspiring. We congratulate Matt on this amazing achievement!” says Benjamin Neumer, Senior Business Development Advisor, Western Canada, Breakfast Club of Canada.

“It was a tough race, but not as hard as what some kids are going through,” McCaie said. “This cause has hit me hard, especially now that I have my own kids.”

To donate to the Club please visit www.breakfastclubcanada.org

The mortgage industry stresses quality over quantity

By Mark Kerzner, President TMG The Mortgage Group

The Canadian mortgage landscape has seen regulatory change after change combined with continued Government legislative changes since the Fall of 2016.  Government changes to mortgage rules have been led by the Department of Finance, superimposed with tightening from the Bank of Canada. We have also seen some provinces introduce their own restrictions that have resulted in increased taxes to foreigners and speculators.

As Canadians it is important that we question the reasons for these rule and guideline changes.  There are slightly different answers depending on where the rule changes are coming from. For the most part, they stem from the fact that there was a belief that the Canadian housing market was overheating, that an interest rate shock would paralyze a great many Canadians in being able to afford their payments when interest rates increase, and that the liability of the Government in backstopping mortgages was just too high.

It would seem the motivation to ‘tighten’ might have come from different vantage points but implemented with unison.  The Office of the Superintendent of Financial Institutions (OSFI), which oversees federally-regulated financial institutions wants to ensure their solvency, whereas the Department of Finance may have been more concerned about outstanding debt, and the Bank of Canada on their inability to raise rates quickly enough to stem borrowing activity.

And after nearly a year and a half of dealing with all these changes we are told by an international credit rating agency (S&P) that the quality of Canadian mortgages is deteriorating, resulting in the lowering of a key metric for Canadian banks.

I just don’t buy it. And to suggest that the broker channel is somehow complicit with the elevated levels of fraud is insulting. 

Robert McLister in Canadian Mortgage Trends, cited from the agency’s report: "…The growing share of residential mortgages originated via brokers, compound the risks of high household debt and house prices…As brokers do not bear credit risk for the residential mortgages they initiate, and are generally compensated primarily on the quantity (not quality) of residential mortgages applications they process, we believe brokers have less incentive than a lender’s own staff to prevent fraud.” 

Here are the facts: Deals originated by mortgage brokers are often underwritten four times. The broker underwrites the deal and reviews the documents for suitability deciding where to place the file. The underwriter underwrites the file according to the specifications of the lender guidelines. When the file is insured or insurable, the mortgage insurer (CMHC, Genworth or Canada Guaranty) underwrite the file, and with many non-bank lenders, the file may be reviewed on a pre-funding audit (may even go through Quality Assurance at one of the banks).

Fraud is an issue, and as an industry we cannot tolerate it. It is an issue in bank branches, with mobile sales forces as well as and among brokers.

The Financial Consumer Agency of Canada (FCAC) in their 9-month long study just outlined the wrongdoings of bank mobile sales forces. Included in their findings were; 

• Performance management programs -- including financial and non-financial incentives, sales targets and scorecards -- may increase the risk of mis-selling and breaching market conduct obligations

We must all be vigilant against fraudsters. Brokers are regulated provincially and must complete educational requirements. In many jurisdictions they have to complete periodic re-licensing requirements.

 In addition, there are supervisory requirements placed upon the brokerages where agents are licensed. The vast majority of brokers view their livelihood as a profession and would not want to jeopardize it in any respect.

All that said, over the past ten years, and accelerated more recently, mortgage rule guideline and qualification changes have dramatically increased the quality of the mortgages underwritten in Canada. Average credit scores have increased significantly, and arrears rates remain at historically low levels.

Brokers have been an accountability check on other channels for some time ensuring that consumers have choice and access to market leading rates. In the same respect, they are also educated and knowledgeable about lending guidelines and suitability. In the same respect they are an accountability check to maintain high standards in mortgage underwriting and fulfillment.

I shudder to think what the Canadian mortgage landscape would look like without a vibrant mortgage broker channel.

TMG The Mortgage Group expands to Quebec as Le Groupe Hypothécaire TMG

Claude Girard, new Regional Vice-President
 Le Groupe Hypothécaire TMG

Canada’s largest independent mortgage brokerage, TMG The Mortgage Group is excited to announce that as of April 2, 2018, it will be operating in all 10 provinces. The company will expand to Quebec, operating under the name of Le Groupe Hypothécaire TMG.

Leading the TMG expansion and taking on the role of Vice President for Quebec will be industry veteran Claude Girard.

Claude has 30 years of financial industry experience – the last eight years as Assistant Vice-President for Laurentian Bank. In his role at the bank, Claude developed strong mortgage broker relationships and grew the channel exponentially.

Claude is also well-known in the mortgage community as the representative of the Quebec region for Mortgage Professionals Canada (MPC).  In 2017, he was elected for a second consecutive term and also serves as Treasurer on MPC’s Executive Board of Directors.

Claude is a leading voice for the broker channel in Quebec, working closely on provincial regulatory matters as it pertains to the mortgage broker industry.

 “I am thrilled to be given the responsibility to grow the TMG footprint in the province of Quebec,” Claude said. “I believe with the support of TMG management and systems we have something new and significant to offer brokers in Quebec. Ultimately, our goal is to ensure that more and more Quebecers use the services of a mortgage broker” 

“Claude is a highly respected leader and mortgage industry executive. We are fortunate that he chose TMG as his next opportunity,” said Mark Kerzner, President of TMG The Mortgage Group. “ I look forward to working alongside Claude to meet the needs of brokers in Quebec and providing tools and options to help them exceed their business objectives. We have long sought to enter Quebec but have waited for the right leader to represent our company, Claude is that person.”