Thursday, June 14, 2018

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.
























Friday, May 18, 2018

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.

Tuesday, May 08, 2018

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.”




Thursday, April 26, 2018

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.

Tuesday, April 24, 2018

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

Monday, April 09, 2018

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.


Wednesday, March 14, 2018

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.”





Thursday, February 15, 2018

Renewing your mortgage? Here’s what you need to know

Consumers are much more informed these days about mortgages and mortgage products, and are highly engaged, especially millennials who are comfortable searching the Internet for information and rates.  According to the Canadian Mortgage and Housing Corporation’s (CMHC) 2017 Consumer Survey, 76% of mortgage consumers did online research, and 31% access online information through their mobile devices.

Among those going online, 50% went to lender websites, 25% to broker websites, and 15% visited both lender and broker sites.  Seventy-six per cent used a mortgage calculator, 51% did a financial self-assessment, and 29% filled out an online pre-approval form.

Because consumers are highly engaged, they are more confident about their mortgage decisions. Still, with all that research, more than half contacted a mortgage broker to get further clarification.

According to the survey, mortgage broker share of the market is increasing with renewers, from 26% in 2016 to 35% in 2017. This is a prudent move, considering how much the mortgage rules have changed.

This may be the year you get that renewal letter in the mail. Many of you may just sign the new renewal rate because it’s easy, and the idea of switching to another lender may be too onerous. You are busy with work and family and don’t have the time to do the research to see if there may be a better deal for you.

The CMHC survey found that 39% of households automatically renew their mortgages when the term is up instead of trying to find a better deal. When you’ve done your homework prior to purchasing a home, it only makes sense to do as much research at renewal time as you can. Quite often the renewal rate offered to you by your lender is higher than the market average.

There may also be material changes in your household. Perhaps you’ve started a family, or one of you has been promoted.  This is another good time to contact a mortgage broker to review your financial situation and see what makes sense for you to do.

Here are some tips to make sure you’re getting the best mortgage product:

·       Get going early. Start the discussion four to six months ahead of renewal time. Most lenders will guarantee a discounted rate for four months but your renewal agreement is usually sent only 30 days ahead of your maturity date.

·       The posted rate is usually not the best. Often, depending on your lender, you’ll get the posted rate, not the discounted rate, as a renewal rate. A report by Mortgage Professionals Canada found that renewers working with a mortgage professional saved approx. 2 points below posted rates. That can translate into thousands of dollars in savings.

·       Do your homework. Shop around to get the best deal, tailored to your particular situation. If you decide to switch lenders, there are no penalties at renewal time.

·       It’s not always about interest rate. Don’t fixate on rate. There are other options that may appeal to you such as changes to amortizations or changes to the rate type.

·       Why a mortgage broker? Most surveys find that brokers can get you a better rate because of their relationships with multiple enders. A broker can give you independent advice because they are not tied to one lender. A broker can also save you time with one-stop shopping. And there’s no cost to you.

In some cases, the new rule changes may necessitate that you stay with your current lender at renewal time. A broker can help assess the situation and provide advice, even if that means staying with your current lender.

The bottom line is that research is equally as important at renewal time as it is when purchasing your new home.  Don’t leave it until the last minute.









Thursday, January 18, 2018

Options for first time home buyers

Interest rates are going up, mortgage rules have changed and house prices in some parts of the country don’t seem to be going down – yet. This may not look good for first time homebuyers who may find they can’t afford to buy that dream house – yet. But it’s not all gloomy. There are still areas of the country where prices have remained steady; and if all goes the way the government indicates, prices may start coming down in 2018.

First timers should still be looking at their options.

Usually the biggest obstacle for first time home buyers is coming up with the down payment. In 2017 the average down payment for first time home buyers was 26%. Sources included:

  •         Loans, gifts from parents and/or other family members (accounted for 18% of down payments)
  •        RRSP withdrawals (accounted for 7% of down payments)
  •        Own savings (accounted for 54% of down payments)
  •        Loan from a financial institution (accounted for 19% of down payments)


With the new rules introduced over the past year and the fact that we’re now in RRSP season, it’s a good time to look at the Government of Canada’s Home Buyers' Plan for first-time home buyers, which allows them to withdraw up to $25,000 from their RRSP, without a penalty.  If you are married or purchasing the property with another first-time home buyer, each of you may withdraw the maximum each for a total of $50,000.

Once you decide to use your RRSPs then there are a few rules.

What’s the definition of a first-time home buyer?

You are considered a first-time home buyer if, in a four-year period, you have not occupied a home that you or your common-law partner or spouse owned. Even if you or your spouse or common-law partner have previously owned a home, you may still be considered a first-time home buyer.

The four-year period begins on January 1st of the fourth year before the year you withdraw the funds and ends 31 days before the date you withdraw the funds. For example, if you withdraw funds on March 31, 2018, the four-year period began on January 1, 2014 and ends on February 28, 2018.

If you don’t fit that four-year window yet, you could wait and buy later. For example, if you sold your home in 2013, and did not purchase another one until 2018, you can participate as a first-time home buyer.

Also, buyers must have a bona fide purchase agreement for a house that will be owner-occupied.

What’s a qualifying home?

No rentals or investment properties. You must have either bought or built the home before October 1st of the year, after the year of withdrawal. And you can buy or build the home alone or with others. When purchasing with others, the benefit applies to the entire purchase even if only one person qualifies as a first-time home buyer.

Paying it back

RRSP withdrawals must be paid back within 15 years so each year 1/15 must go back into the fund. If not, then that amount will be taxable. For example, if you withdraw $25,000 from your RRSP then you must pay back $1,667 every year for 15.

However, it’s not straightforward – you must designate the amount as a payback for the Home Buyer’s loan.

RRSP withdrawal conditions

  • You have to be a resident of Canada at the time of withdrawal
  • You have to receive all withdrawals in the same calendar year
  • You can only withdraw up to $25,000
  • No tax will be withheld
  • You cannot withdraw from an RRSP that is locked in
  • Your RRSP contributions must be in the account for 90 days before withdrawal
  • You must fill out a form to withdraw funds, which can be found at the Government of Canada website

TIPS

You may want to consider borrowing to deposit into an RRSP this tax season which, after 90 days, can be used as a down payment. There might also be a tax benefit for you.

You can use your RRSPs as a down payment more than once as long as the balance from the first withdrawal has been paid back in full.

To keep track of your account, each year you will get a statement with your Notice of Assessment showing what you owe and how much contribution you have in your RRSP.

TFSA

This might be a better way to save for your down payment. It is, however, a longer-term strategy. There isn’t a lot of room to save, the maximum is $5,500 each year, but your money grows tax free. When you hit your target, you can withdraw the money with no strings attached.
For more information about the Home Buyer’s Plan and to develop a plan for your down payment, contact your mortgage professional. He or she has the tools and the expertise to help you realize your dream of home ownership.







Wednesday, January 03, 2018


By Bud Jorgenson, VP.TMG  Prairies
Mentor of the Year, 2017, Mortgage Professionals Canada

What’s best for consumers?

We need to clear the air. We’ve recently come across marketing materials that some Bank mortgage specialists have been sending aimed at “educating” members of the public on the impact of the mortgage rule changes and the limitations of dealing with mortgage brokers. Some bank specialists are referring to mortgage brokers as sub-prime brokers and that the recent changes to the mortgage rules will negatively impact us. As mortgage brokers we would like to respond.

We agree that it is vital for Canadians to be educated on the ways in which the most recent mortgage rule changes coming into effect, and all recent regulatory and legislative changes will impact mortgage consumers and markets as a whole.  We applaud all efforts to bring awareness at this very important juncture in our industry.

The Office of the Superintendent of Financial Institutions (OSFI) is an independent government agency whose mandate is to supervise federally regulated financial institutions.  OSFI is the agency who is updating their B-20 underwriting guidelines that came into effect on January 1, 2018.

In addition to having access (directly or indirectly) to most of the major Tier 1 banks in Canada, mortgage brokers also have access to many other provincially-regulated and private mortgage lenders. Those lenders include Credit Unions, Monoline mortgage lenders who have funded hundreds of billions of dollars in aggregate (including First National, MCAP, Merix, Street Capital, etc) alternative lenders (Canadian Western Bank, Equitable Bank, Home Trust, etc.) and private lenders. 

This allows brokers to ensure that the features of the mortgage are aligned to the client’s needs. Brokers will look at prepayments options, how penalties are calculated, how the mortgage is registered and how the client credit fits against the available products.

Perhaps it is only semantics but when a customer deals with a broker they do not have to ‘negotiate’ a rate with the lender directly – the broker shops the market to secure the best overall cost of borrowing for the unique needs of the consumer.  This competition maximizes the opportunity for a consumer to get the best overall deal.

The recent OSFI changes are actually targeting all consumers (including the federally regulated banks) rather than only the subprime market. In fact, it may create market share opportunities for subprime lenders. 

We certainly agree on the need for consumers to get the best advice. A mortgage broker is licensed with their corresponding provincial regulator. They have to meet initial education and licensing requirements and then have to maintain educational requirements going forward. Given the breadth of lender and mortgage products available to brokers, they have to constantly do research on the options available to their clients.

Brokers also get to deal with large regulated banks. Sometimes that represents the best option for the client to consider. Other times specialty lenders, mono-line lenders and unregulated lenders represent the best interests of consumers. 

Broker market share has actually increased steadily since the onset of the Global Financial Crisis and with each additional mortgage rule and regulation changes. This is because brokers are best suited to assess a mortgage client’s needs and then access a number of market options to fit those needs.

Debunking the myths

Myth: With the broker channel, the goal is to move the mortgage on each renewal
Reality: The goal of the broker channel, in general, is to present multiple options to consumers so they get the optimal mortgage for their unique needs. That includes looking at prepayment options, type of mortgage charges, costs of borrowing, portability, etc.  Brokers often advise their clients to stay with their current lender at renewal. The  goal at renewal is exactly the same. The result of providing clients with the best ongoing advice at the time of origination and at renewal, a broker is able to grow their referral networks.

Myth: If the client remains with the same lender at renewal a small trailer fee is paid to the broker. 
Reality: This is true in some cases and creates accountability between the lender, broker and customer in those cases.

Myth: If they (brokers) move the mortgage to a new lender then the full mortgage commission is paid as it represents a new deal to that new lender. This becomes a “residual or passive income” source for the broker.

Reality: If a client chooses to move their mortgage at renewal after being given the options then it is considered a new deal. As such it has all the corresponding work associated with any new file at that time.  That is not residual income – it is earned income and in most cases paid by the financial institution receiving the mortgage, NOT the client.

Clients save money when they work with a mortgage broker at renewal

The Bank of Canada released a report a few years ago titled “Competition in the Mortgage Market” and found the following:

Banks also offer larger discounts to new clients than to existing clients. Consumers willing to switch financial institutions when shopping for their mortgage will see, on average, an additional discount of 7 basis points from the posted rate. The results also indicate that borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly. This average discount is about an additional 19 basis points.”

Most mortgage brokers offer ongoing advice and information to their clients. Because they deal with a wide variety of lenders for unique circumstances they are often very well versed in issues affecting mortgage borrowers.

For example, as of January 1st, a bank rep may tell you all uninsured mortgages have to be qualified at the benchmark rate or 200 basis points (whichever is higher). What they mean to say is all their mortgages are qualified in that manner.

It may be that a bank may be the best option for many clients but other lenders, credit unions for example, can still qualify the borrower at the contract rate.

By working with a licensed mortgage professional, you have a trusted advisor and problem solver, who is best positioned to navigate these changes.

Brokers take the time to first understand a client’s needs, both short term and long term, then recommend the right mortgage and present options. As the lending environment changes, brokers keep up-to-date with all these changes and have access to a variety of lenders including banks, credit unions, trust companies, monoline lenders and private lenders. No one is more knowledgeable and more informed than we are.