Insights from the poker table

By Mark Kerzner, President, TMG The Mortgage Group Inc.

After writing a series of blog posts on interest rates, credit guidelines and the mortgage industry, I ventured out a while ago and shared my personal experience as a hockey coach (http://blogger.mortgagegroup.com/2013/05/business-lessons-i-learned-as-hockey.html). I appreciate the feedback I received and was encouraged to post again of a more personal nature. As always I welcome your feedback and comments.

I have long since been a fan of poker. A number of years ago I became a part-time student of the game, Texas Hold-Em, to be specific. I like the combination of playing the cards I was dealt and playing my opponents at the table. I liked the strategy and the math – calculating both my odds as well as pot odds, which is simply the amount that I would have to bet divided by the amount that was already in the pot. At that point I decide if my pot odds are worth it with respect to my odds of winning a hand. I like the thinking, the interaction and the winning --though that part has been few and far between. 

How many times have we all heard sayings like "life is too short" or “you have to live for the moment"? After years of having, and finding, excuses I finally decided to go "to the show" and play in one of the World Series of Poker (WSOP) bracelet events.  I have played some small tournaments and regular games with friends but I always wanted to play in a WSOP event.

The World Series of Poker along with World Poker Tour (WPT) are probably the best known tournament events. The WSOP Main Event takes place each year and has more than 8,000 participants putting in $10,000 each. The event I played in was NOT the main event but it was a bracelet event nonetheless. There were approximately 2,300 participants in the event I played in. The winner, Chris Dombrowski won $346,332 for his efforts. 

Sure, the money involved in winning would have been great, but truthfully, I wanted to play for the experience. I wanted the opportunity to sit in a tournament with thousands of other would-be poker hopefuls trying my luck at the tables with both amateurs and professionals alike.

Over the past ten years or so, poker has become much more mainstream. We’ve had the opportunity to watch the game being played on television and we get to peak at the hole cards.  We’ve become familiar with names such as Negreanu, Brunson, Hellmuth, and Esfandiari. As amateurs we have the opportunity to play with these pros. Other than an occasional golf pro-am I can't think of many other sports (ok, insert laughter here … poker is a sport?) where a casual player gets to play alongside a professional with a chance, albeit very slight, at a great run. Simply put, I had that opportunity and I had to take it.

In the end I was pleased with my play though I was knocked out on my third all-in mid-way through Day 1 with what some people are telling me was only a marginal hand --pocket 10s, short stacked, fifth to act, and one raiser ahead of me. More than that, I loved the experience. I will return, but I will also keep my day job.

 Speaking of my day job, similar to my poker play, I often look for insights for how I can keep improving. When the cards are not coming your way there is an opportunity to practice patience. There are also opportunities to “make your own luck.”  As with poker there are ups and downs in our industry with rates and guideline changes and lenders entering and leaving the marketplace. It is vital to stay focussed. Sometimes when others are becoming more passive there is actually an opportunity to act and invest.

That’s why I am so passionate about mortgage brokers and the mortgage industry. Regardless of the hands they are dealt with respect to credit guidelines, mortgage restrictions, and intense competition from bank branches, they are steadfast in their direction, ensuring that the best interests of the clients are handled first.

Reviewing the relationship of interest rates and bond yields

By Mark Kerzner, President, TMG The Mortgage Group Canada Inc.

It has been said in the past that when the US sneezes Canada is very likely to catch a cold. That reference shows just how intertwined the Canadian economy is with the US. For a number of years since the start of the great recession Canada has lauded itself for its performance in the wake of extreme economic weakness in its G8 counterparts, including the US. At this time however, we seem ready to be bracing for that head cold again.

Economists are starting to forecast an economic rebound in the US beginning later this year and in to 2014.  Unemployment rates continue to drop, housing prices are starting to rebound and given what we have all learned regarding the "wealth effect" we know that when consumers feel richer they start spending. The overall economy looks like it is growing with GDP forecasts in the US now above 3%. Given this US economic optimism the FED has signalled it is going to stop purchasing $85+ billion a month in US Treasuries and Mortgage Securities (some of you may have seen this referenced as Quantitative Easing (QE)).  Note: they have not said they are stopping the capital injection, just that at some point in the future they are going to. This has the markets concerned about inflation along with economic optimism are driving yields higher.
Here is a quick refresher with respect to bond yields

• Bond yields are set like many other prices - by the forces of competition between supply and demand. One relationship to note is that as prices go up, yields go down (and vice versa).
• If there are more investors wanting to deposit their savings for 5 years (purchasing 5 year bonds) the 5-year bond yields will tend to drop
•  Bond yields will tend to increase if investors expect inflation to increase or an economy to be strong.  This happens because investors want to ensure their funds do not lose purchasing power over time
• On average, the 5-year bond rate has declined over the past 15 years.

The bond market is a good gauge for the establishment of mortgage pricing. Most financial institutions, regardless if they are selling in the MBS, CMB, etc will still use the spread between bond yields and mortgage rates as a means of establishing pricing. The historical correlation between the bond and fixed mortgage rates is over 90%.

 

And while we know there is a very strong connection between bond yields and mortgage rates what has become increasingly unclear is the spread that financial institutions are expecting to make these days. So while we can usually determine the direction of rate movement, the magnitude of those movements are somewhat harder to predict.

 

On May 1st 5 year bond yields were 1.15% - 5 year rates were 2.89% to 2.94%

On May 17th they were 1.32% - rates remained fairly stable. There were a few quick close promotions that ended.

On June 6th they were 1.42% - rates had begun to creep up and were in the 2.94% to 3.04% range

On June 19th they were 1.55% - 5 year rates continued to creep up and were in the 3.04% to 3.19% range

Today they are sitting at approximately 1.85% and we are hearing of more impending rate increases - some as high as 3.39 to 3.49%.

 

Between May 1st and today bond yields have increased by approximately 70 basis points while pricing has only increased approximately 50 to 60 basis points. That means that either there are going to be further rate increases or lenders are prepared to earn smaller spreads during this Spring market.

 

Brokers and consumers alike have all enjoyed these historical low rates as well as a prolonged period of stability (of interest rates). Now with bond yields starting to spike what does this mean for rates and where will it all net out? That is the million dollar question. If you believe that the FED will hold true to its word and stop purchasing billions in Treasuries and Mortgage Securities, the US Housing market will continue to rebound, and global economies will strengthen thereby purchasing more exports than yields will keep climbing. If on the other hand you feel that we are still not out of the words with respect to a global economic crisis and thereby a prolonged US recovery we may see some relief from this latest upward yield pressure.

 

In the meantime, the "insurance" spread of taking a 10 year term has narrowed considerably and should be considered for some, especially where payment security is sought. On the other hand, the discount of ARM to 5 year fixed (the difference in rate between a discounted variable product against a 5 year fixed) has also grown, meaning for some who feel that although yields are rising, the Bank of Canada is likely to leave the overnight rate alone for some time to come, should consider a discounted ARM.

 

We are experiencing more market volatility than we have become used to in the last little while. If it continues, and I suspect it will, we will see more regular rate movements than we have in the past 6 months or so.

 

Save at renewal time by using a mortgage broker

Consumers are becoming much more informed about mortgages and mortgage products before taking the plunge into home ownership. According to the Canadian Mortgage and Housing Corporation’s (CMHC) 2013 Consumer Survey, 70% of buyers researched terms and conditions, 60% discussed the pros and cons of various mortgage products with professionals and 59% compared interest rates.

Because consumers are highly engaged, they are more confident about their mortgage decisions, according to the survey. Still, with all that research, more than half contacted a mortgage broker to get further clarification. This is a good move, considering how much the mortgage rules have changed over the past few years.
The survey also found 81% of buyers were totally satisfied with the experience with their brokers and would most likely use that broker again. An overwhelming 75% would highly recommend their broker to family and friends.
A study recently released by RBC Economics found that low mortgage rates have helped make owning a house largely affordable in the first quarter of 2013, with low risk that rates will move up sharply.  It’s likely that this low interest rate environment will go on for the next two years. 

The year 2008 was one of the biggest years for mortgage originations in Canada. That means a large percentage of those mortgages are now maturing. Discounted variable rates were popular and those discounts no longer exist, so those mortgage holders will be facing increased mortgage costs.  For most homeowners, their biggest monthly expense is a mortgage payment. Yet 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. 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 for you:

• Get going early. Contact your mortgage broker 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.
• Do your homework. Let your mortgage broker shop the rates for you and get you 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. 
• Let a broker negotiate on your behalf.  If you don’t like negotiating and don’t have the time to do the research, your mortgage broker will do the legwork for you. Homeowners who use a broker at renewal time usually pay less than those who don’t use one.

Business Lessons I Learned as a Hockey Coach

By Mark Kerzner, President, TMG The Mortgage Group Inc.

In the past I have written a lot about lenders in the mortgage channel, interest rate forecasts, mortgage guideline changes and the impact of those changes in the industry. With this post, I'm taking a completely different approach. Today, I want to share with you a recent personal experience coaching my son's hockey team and the lessons he taught me about business.

My seven-year-old son loves hockey and I am at least partially to blame. Truthfully, I couldn't be happier. He teases me with his love of the Vancouver Canucks and Pittsburg Penguins but I believe deep down he is a die-hard Toronto Maple Leafs fan, just like his dad.

Last year was his first in organized hockey. It was a traumatic experience for both parent and child. Evan was not the best player in the league. In fact he was close to being the worst (only a parent can say that). During opening weekend he didn't even want to go onto the ice because "my equipment is hurting me." So without even his first fall on the ice he was already in pain. Yikes!

When he finally did get on the ice it was mostly down and up… okay, it was really only down -- he had a really hard time getting up. Even getting to practice was a chore. It wasn't a lot of fun.

For a hockey-mad parent, dreams of future NHL stardom quickly evaporated. Then the trauma started. My son was traded. Not only did he have to change teams but was traded for a really great player. While his previous team graciously welcomed their new goal-scoring sensation, Evan was left to fill the proverbial skates of one of the best players on his new team. He even had to don his jersey and adopt his number.

While he took it in stride and was happy to move instantly up the standings with his new team, I on the other had didn't. I couldn't understand how you trade one of the worst for one of the best. I couldn't understand why I wasn't consulted. Did I mention though that he totally took it in stride? He also improved. He finished year one at 0 goals and 3 assists.

This year I vowed things would be different and I took matters into my own hand - literally. I decided that I would coach my son's hockey team so that a trade was out of the question. I was paired with two other amazing coaches and then the seeds of change were planted.

Our team started off weak but we encouraged the kids to do their best while instilling some basic fundamental skills - shoot the puck up the boards!  We won only four games in our first four months. Then the magic happened.

The kids were having fun and so were the coaches. They started to play like a team. They started to support one another. And more than anything else, they started to commit. They were working hard during games and in practices. This was rubbing off on my son as well.

Evan scored his first ever goal while I was away on business. I was devastated - I wasn't sure when the next one would come, but then they did. By the end of the year, Evan was fifth in team scoring with 10 goals and 17 points (he had 1 goal and 2 assists mid-way through the year).  His coaches and his dad were really proud. More importantly, so was he.

But more than that, his team, which finished the year as the 7th overall seed and went 6-1-1 down the stretch, got to play in the Championship Game.This was an incredible experience for me. I was so proud of the team. I was so proud of my son.

The odd thing with this experience is that, as coaches, we are supposed to teach our players. The parents reinforced that with end of year support for our efforts. However, it was really the team who taught the coaches a whole lot more.

 
Lessons I Learned:

Be Positive and good things will happen.
We never got down in the dumps with our slow start.  We knew we would get better and we did.

Always keep (your feet) moving.
In hockey when you are stationary it is easy for someone to skate around you. In life that is true as well. Stay in motion and make things happen.

Working together as a team is far more effective than relying on a few star individuals to carry you to the end.       
That is as true in life as it is in sports.

Hard work pays off.
Our team committed themselves both in games and in practices as well. With sports, as with work, nothing is automatic. Becoming a success means dedicating yourself to constantly becoming better, to understand the market, the guidelines and the opportunities so that you can best serve your clients unique needs.

Protect the ones you love.
OK, I know the right answer is to give the ones you love support and slack to find their way. Give them encouragement, put them in an environment where they can and will thrive ..but truthfully, I do think that it’s okay for a parent to want to protect a child, especially if it is in light of wanting to provide them with an environment where they can thrive. Sometimes a parent really does know best.

I also think it is okay from a business perspective as well. You do this for your customers on a regular basis -- you assess their needs and make recommendations that are supportive and realistic. At the end of the day you are the expert and the voice of reason. 

By the way, we lost the Championship game in a very hard fought battle.

Employer of Choice for TMG The Mortgage Group Canada Inc.

(Toronto) TMG The Mortgage Group Canada Inc., took home The Employer of Choice Award at the Canadian Mortgage Awards on Friday, May 10, held at the Liberty Grand in Toronto. TMG is the first brokerage in the past five years to win this award.

It has been an exciting year for the 23-year-old company. In November of 2012, TMG was named the Best Companies to Work for in B.C. at an Awards Gala the Fairmont Hotel in Vancouver. Also in November 2012, TMG was honoured with The Canadian Association of Accredited Mortgage Professional’s Partner in Excellence Award at its annual conference.

 “It was truly an amazing moment when TMG The Mortgage Group was announced as the winner,” said Mark Kerzner, President of TMG. “This reward recognizes the "family values" culture that founders Debbie and Grant Thomas have fostered.”

TMG is recognized as a caring, innovative, company that strives for mutual success.  “We continuously value the tremendous brokers, agents and associates who are part of the TMG family but at the end of the day this award is a reflection of the commitment, passion and dedication of our best –in-class employees. ”

Consider a mortgage broker first

By Mark Kerzner, President TMG The Mortgage Group Inc.

So what comes first - the chicken or the egg? In the real estate industry that question gets turned into the following -- if I am going to buy a house do I speak with my mortgage broker or Realtor first?

First of all, kudos if you knew that it’s vital to speak with both a mortgage broker and a Realtor when you’re thinking about buying a home. Some will choose the simpler and often more ineffective path of trying to sell a house privately. Some will blindly walk into a bank branch to apply for a mortgage from a financial generalist.

TMG The Mortgage Group strongly encourages our clients to use a licensed Realtor for buying and selling real estate. They are experienced professionals who know your local market and can guide you through the processes of purchase agreements, deposits and conditions. TMG brokers work with many Realtors and will often refer clients to those who have proven to be exceptional and professional service providers.

As well, mortgage brokers often receive referrals from qualified and valued real estate agents and we are grateful for those relationships that we have developed. Those Realtors know that mortgage brokers are professionals, just like they are, and who are experts in their fields. Furthermore, they know that successfully removing financing conditions on agreements of purchase and sale are vital to completing the real estate transaction.

Consider your own experience with the professionals in your life and those you turn to for advice. In my own experience, I think the following:

• I trust my accountant implicitly. He understands my financial health and goals. From time to time I ask him if he knows a good life insurance broker, financial advisor, etc.
• I trust my circle of friends. Many of us went to school together, hang out, do business together, have fun, etc.. Some are lawyers, accountants, entrepreneurs, Realtors, teachers, and I refer people to my circle of friends whenever I can.
• I trust my referral sources and lender partners. They understand that our purpose is to provide access to choice and unbiased advice, leading to the most appropriate mortgage financing solutions for your unique situation.

What is still a little unclear to me though is why more home purchasers and sellers do not go to their mortgage broker before doing anything else. Just as Realtors are uniquely equipped to refer clients to mortgage brokers, so too are mortgage brokers with respect to Realtors.

 On HGTV’s Property Virgins, the host begins by confirming that the house hunters on the show have been pre-qualified for a mortgage so they can determine the price range of the houses worth looking at.  At that point they can start their housing search.

Even if you’re selling, consider speaking with your mortgage broker first. Here’s why it makes sense. If you’re selling you may be buying as well. If you’re “moving up” to a larger, more expensive home, then you will need to know what you qualify for. If you have a mortgage and wish to pay it off you will want to understand penalty and breakage costs. Alternatively, you may wish to port (transfer your mortgage) with an increase or decrease to the mortgage balance. A mortgage broker can assist in all of these scenarios. 

Know where you stand. Know what you can afford.  Start your next real estate transaction with a conversation with a mortgage broker first.

Buying a house doesn’t have to be stressful

Buying a house should be an exciting time but it can get pretty stressful, according to the Bank of Montreal’s Psychology of House Hunting report released on Thursday, May 2. The biggest worry is finding problems after moving in. The next worry is that prices will drop and the house won’t be worth the original purchase price.

The house buying process can be overwhelming for first time home buyers but also for move-up buyers as well. It doesn’t have to be if you put together a team of experts who will guide you through the entire process.

It starts with a mortgage professional who will take a look at your finances, including your credit score, to qualify you for a mortgage. A lot of information about you and your credit management abilities come up during this process. Having derogatory items on your credit report doesn’t mean you can’t qualify for a mortgage. Everyone’s situation is different and a mortgage broker is familiar with most situations and can offer options.

Once armed with a pre-approval, you can confidently work with a Realtor to find the right house for you. According to the report, on average, home buyer spend five months house-hunting and visit 10 locations before deciding to buy. It’s certainly a good idea to take your time to make sure to get the house that’s right for you. Interestingly, the report found that 33% of home buyers felt rushed into making a purchase and increased to 39% for first timers. Sixty-eight per cent were prepared to settle for a home that was less than perfect. Four-fifths of prospective buyers said they know a home is right for them as soon as they step inside.

Once the Offer to Purchase is made, working with a trusted lawyer is the best way to make sure there are no surprises at closing. The bottom line is to take your time, work with professionals and do some research.

Here are the top five mistakes new homebuyers make:

1. Not getting pre-approved. Without a pre-approval you’re actually going in to the home-buying process blind. You won’t know what you can afford or if you even qualify for a mortgage. 
2. No Home Inspection. This is a must, especially in older homes.
3. Not budgeting for the increased costs. Home ownership comes with additional costs that you don’t have when renting. In addition to mortgage payments, you will have property taxes, higher utility bills, home insurance and extra costs for maintenance and repairs.
4.  Not knowing the closing costs. A lot of buyers forget about the closing costs, which includes land transfer tax, title fees, the lawyer’s fee, etc. Don’t get caught short.
5. Forgetting about future needs. If the home you’re purchasing is a starter, then perhaps a two-bedroom will work for you. However, if you plan to start a family, you might want to look at a three bedroom. Or if you there any other possible living arrangement changes, make sure to factor those in.