A Lesson in Customer Service

By Mark Kerzner, President TMG The Mortgage Group

How many times have you heard one of the following?

1.  “It’s our policy.”
2.  “I have to check the policy manual”
3.  “Because I have to”
4.  “I am just going on my break”
5.  “Let me provide you with a website address where you can fill in your comments”

… and the list goes on and on and on. While these are just a sampling of my personal business pet peeves, my blood boils as I simply recall them and write them down.

Let me share a couple of challenges I had with the customer service practices of a car rental agency as a lesson on how not to treat customers.

Last winter I rented a car at the Calgary airport.  After completing the compulsory paperwork the rental agent handed me my keys.  To my surprise there were three identical keys on the key chain.  Over the past few years I have become a personal fan of the keyless car starter if for no other reason than to reduce the bulk of what I have to carry around. I was travelling on my own, so I said I would just take one of the keys, asked that they keep the other two. They refused. The reason: because I have to take them all.

I didn’t let it go quite that easily and tried to reason. I said, “If I happen to lose the keys, I would lose all of them if I had three with me on the single key chain. At least if you have the spare you could help me out.”  It didn’t work.  At that point I simply didn’t have the energy to continue and went on my way.



A few months later I had the exact same experience. Knowing where this was likely going to end I decided to circumvent the conversation by asking how I could get feedback to a decision maker so that they would have the opportunity – yes, I do believe it was an opportunity -- to hear feedback directly from a customer. The rental clerk said she could provide me with the contact information for the owner of the franchise and I could give my feedback directly to them. I was happy with this outcome until I got the “business card” of the franchise owner. (See below)



Despite my frustration at receiving a form email alias rather than contact for an accountable human being, I decided to follow through with the feedback form and went to the main home page of the company to provide it.  By the time I was ready to submit I had some additional feedback as well. The car that I was given was dirty inside and out. I wrote up a nice, long note, and went to submit it when the system bounced me out. Nothing I wrote was saved and I would have had to rewrite it all again.  Which I did not do.

By the way, I was not able to submit feedback to the survey URL provided from the rental agent. There was no room for feedback and I would have had to provide the digital Rental Record number to complete the survey.  In the end the car rental company never had the opportunity to hear my feedback and lost my future business.

I guess what I was hoping for was an opportunity to help empower the client service people so that they could remove the above excuses from their vocabularies. 

As mortgage brokers, we know our business is evolving and has become more competitive.  Our clients are asking us for more than they did just a few years ago. Many of our clients are better educated about finances and mortgages when they speak with us. They have already done research online or with their personal bankers.  This is actually a good thing for both the client and us. 

As problem solvers we ensure clients have the best product for their unique circumstances.  But it’s also about being there with answers and not just standard phrases such as “those are the lenders’ rules”. We owe it to our clients to explain why policies are what they are. This means we must be more diligent about knowing our lenders, their products, and the policies. We need to connect with underwriters and BDMs to makes sure of the varying conditions and be informed with recent changes.

It also means keeping in regular contact with clients to keep them informed of what’s happening in the industry and how those changes impacts them. And, if there is a complaint, then we need to listen to what they’re saying and find ways to continually improve our level of customer service.

You’re self-employed and need a mortgage

It’s becoming more challenging for self-employed workers or those who earn commission to get a mortgage to purchase a home. Nearly 20 per cent of all income earners in Canada are self-employed; and the category is growing.  They are individuals operating their own businesses and those who work on 100% commission such as Realtors, insurance brokers, and even mortgage brokers. This group has the most difficulty getting a mortgage because a good tax accountant will identify write-offs to reduce income to pay the least amount of tax, which may not reflect traditional earnings.

Mathieu McCaie, a mortgage agent with TMG The Mortgage Group in Moncton New Brunswick who works with self-employed clients doesn’t necessarily see you as ‘higher risk’ due to the source of your income. “I understand the value of self-employed clients and what they’re trying to accomplish and can provide lending solutions to help them with their personal home as well as investment properties,” he said. “However, there are guidelines that may seem more stringent then for self-employed borrowers.”

By offering expert advice, agents like McCaie can alleviate the time and frustration that most self-employed individuals experience when looking for a mortgage. Even with an excellent credit score, most lenders will ask for financials and personal tax assessments for up to three years. Those documents may not be available, depending on your situation. For example, if you are new in business, you may have only one year of tax returns.

Recently,  lending criteria for self-employed individuals has changed making it even more challenging to get a mortgage loan. However, some lenders are now offering the Stated Income program for clients who don’t have a lot of documentation. “A few months ago, this program seemed to be on hold but is now gaining some ground again as some insurers have opened it up again,” McCaie said.

Financing your home

There are a number of ways to finance a home when you are self-employed. You can opt for a conventional mortgage if you have a down payment of at least 20% of the appraised value of the property. Since you are making a larger down payment and have equity in the property,  it mitigates the risk the risk to the lender. In addition, conventional mortgages often do not require mortgage insurance.

Also, the self-employed come under stricter scrutiny to get approved for either a conventional or a high ratio mortgage and an approval will depend on a number of factors. If you have provable income, there is much more available to you. Provable income requires you produce, but is not limited to, the following:

1.  Tax returns showing income
2.  Recent Notice of Assessment showing no tax arrears
3.  Documentation showing self-employment for two years
4. No delinquencies in the past 12 months
5. No previous bankruptcy or out of bankruptcy for at least a year with reestablished credit

Self-employed borrowers who are unable to provide traditional income verification but have a proven two-year history of managing their credit and finances responsibly may be able to qualify under the Stated Income program. Here are the guidelines:

1. The income reported by the borrower must be reasonable based on the industry, length of operation and type of business
2. Strong credit profile with a minimum of  two trade lines with at least two (2) years history 
3. Minimum 5% down payment from the borrowers own savings. The remainder may be gifted from an immediate family member. Borrowed down payments are not allowed from m,nay lenders 
4. No tax arrears
5. Property must be owner-occupied

Scenario 1

Perhaps you are a 40-something carpenter who has been operating your own business for just two years. You have one year of tax returns. You have worked in the industry for 10 plus years. Your credit score is high, -- 700 plus –and have at least two trade lines that show a history of good credit management.  You have a business license, a website and have saved 10% for the down payment.  To complicate matters, the house you’re buying is a private sale.

Working with a mortgage broker, you may be able to access the Stated Income program – an ideal product for those with low documentation –and get low rates. 

Scenario 2

You’re a 20-something entrepreneur operating a painting company for one year.  You’re looking for a fixer-upper in a good neighbourhood. However, you’ve had some credit issues and your score is in the low-600s. You don’t qualify for “A” lending with best rates but you may be able to qualify through an alternative lender. If you have your NOA, a business license, a website, bank statements for the six months showing an income stream and 10% as a down payment, which can be gifted, a mortgage broker can help.

The mortgage interest rate will likely start at 4.5% and go up from there and there is usually a lender fee; and there might be a broker fee as well. However, the fees are not necessarily high – it depends on the situation.

While being self-employed does not mean you won’t qualify for a mortgage – it means there are different rules and different products available to you – a mortgage broker can help you navigate the landscape with you.

Interest rates dominate headlines again

By Mark Kerzner
President TMG The Mortgage Group

It seems as though we have come out of the gates of 2015 with a bang!

Just when we thought we turned the subject of front page news over to the OIL industry, it seems to have come back full circle to mortgages and interest rates.

As a nation, we have never seen bond yields and the overnight rate at these low levels. And the cost of funds inherent in those two areas have resulted in historical low rates for both variable and fixed mortgages. In addition, it is very rare when the yields on the 5-year bonds, and the return that regular investors earn on government guarantees, is actually lower than the overnight rate. That’s the case at the time of this writing (bond yields at 0.64% and the overnight rate at 0.75%). This usually implies some rough economic times ahead. 

What is remarkable though, is that with the latest 0.25% reduction in the Bank of Canada overnight rate the banks chose to lower their PRIME rate(s) by only 0.15% thereby 'banking' the difference as enhanced margins
To put that move in context; never before have banks moved their PRIME rates by less than 0.25%. At the same me time the banks lowered the interest rates they pay on savings and investment accounts by the same 0.25% that the Bank of Canada lowered its overnight rate.

The banks have collectively said their margins are under pressure and this was an opportunity to alleviate that. On the one hand, it’s interesting to me to see the banks continue to erode their own margins by heavily discounting rates when their margins are eroding. On the other hand, when they lower the PRIME rates they are lowering the rates on a portfolio basis as opposed to when they decrease discounting on an ARM, which is reflected in only subsequent new deals put on the books.

That said, I simply cannot imagine a day when the Bank of Canada has to increase its overnight rate and the banks 'collectively' say, "My margins are large enough so I am just going to keep the PRIME rate lower and not raise it (by the full amount)."

I find the argument that the banks are mitigating a potential housing bubble and protecting the Canadian consumer from overextending very difficult to accept.  If that were the case they could simply set limits on rate buy-downs and discretionary pricing.

There is a silver lining for us as brokers in all of this news. Can you imagine the conversation a first time homebuyer would have going into a branch to discuss the impact of the news of the day on their buying decision? Now picture the same conversations taking place with an educated, professional, full time mortgage broker. As uncertainty abounds, it is absolutely vital that mortgage consumers seek out the expertise of a broker to navigate their mortgage financing needs.

No panic necessary over interest rate increases

(Blogger's note: To everyone's surprise, the BoC lowered the interest rate on Tuesday, January 21 to .75%. The impact if that is yet to be seen and will be addressed in another blog. This blog addresses the two types of interest rates and what consumers should understand about them.)

Interest rates have once again become a hot topic in the media. Just prior to oil prices nose diving, the Bank of Canada (BoC) hinted that the overnight rate would likely start rising in 2015. Of course, the media had a heyday with headlines of how rising rates will affect affordability for homeowners and talk of “bubbles” started to emerge…again. (See Blogger's note above)

It’s important to understand which interest rate the media is discussing because there are two very different types of rate – fixed and variable – and both rates are determined by very different criteria.

The rate making most of the headlines is the prime rate. The prime interest rate, which the Bank of Canada (BoC) controls, is what determines variable interest rates.  The focus of the BoC is on stimulating the economy and keeping inflation in check. The best way to stimulate the economy is to get people to spend money, so keeping interest rates low is beneficial.  Until oil prices starting tumbling, the economy was recovering and starting to grow and the BoC started talking about raising rates.

The BoC rate is currently at .75% -- this is the borrowing rate for lenders. The Bank’s prime interest rate is 3%. Variable rate mortgages are based on the BoC rate. When rates do rise, it is usually in small increments and over time will start to add to the amount consumers pay for credit facilities like lines of credit, overdrafts and variable-rate mortgages. In today’s mortgage market, five-year variable-rate mortgages are available in the prime minus 0.50% to prime minus 0.70% range.  Even with potential incremental rises in the prime rate, these discounted rates, are still attractive.

There are many factors that contribute to rising interest rates. Since the economy was in recovery, it only made sense the BoC would start raising the rate. But lower oil prices may have put a hold on that decision. The BoC has already expressed concern about the impact of sharply lower oil prices on the economy, and is likely to be more cautious about when to start increasing rates. As we have seen, the BoC lowered the rate.

Fixed rates, on the other hand, are at historic lows and it looks as if they will stay low for awhile. Fixed rates are based on bond markets, independent of what’s happening with the prime rate. The Bond market, like all markets, fluctuates daily. Lower oil prices and market volatility is exerting downward pressure on bond yields and fixed mortgage rates. Today, five-year fixed mortgage rates are as low at 2.79% to 2.99%

Here’s a closer look at bond markets:

* Bond yields are set like many other prices - by the forces of competition between supply and demand
• If there are more investors wanting to buy bonds, as is often the case when they sell equities, bond yields tend to drop
• Financial Institutions use the spread between interest charged to borrowers and paid to investors to cover their costs and generate some profit

With all the insecurity in the market today, investors are buying bonds and yields continue to drop and are now below 1.10%.

So does this mean fixed rates will drop? Some experts think so. However, John Bordignon, EVP for Paradigm Quest doesn’t think so. “While I believe fixed rates will remain stable, there is still volatility in the market and lenders are still cautious about lowering the fixed rates,” he said.

Bordignon doesn’t rule out the occasional promotional fixed rate discount, but because the costs of mortgages have gone up, lenders are not likely to tighten the spreads.

The choice of opting for a fixed rate versus a variable rate is ultimately a personal decision. Each situation is unique and its best to discuss the options with a mortgage professional. But when the headlines are screaming doom and gloom for interest rates, make sure to understand what type of interest rate they’re referring to.

Did the mortgage market do what we thought it was going to do in 2014?

By Susan Ashton, BComm, AMP, TMG The Mortgage Group

As we all know, predictions and forecasts are all well and good but sometimes they fall short of what actually happens. While I might be able to predict, with some level of certainty, what is going to happen tomorrow, the longer the time frame, the harder it is to “hit the nail on the head”.

So let’s start with last December’s Globe and Mail article – Five Canadian Mortgage Market Predictions for 2014. I thought it would be fun and interesting to revisit this article and see how accurate it really was.

Keep in mind that Rob McLister of Canadian Mortgage Trends, the author of The Globe and Mail article, is one of the thought leaders when it comes to shooting straight from the hip about the mortgage industry and where’s it’s going. Here’s what he said would happen in 2014:

1. Prediction: New mortgage rules – Expect more rule tightening in 2014 designed to reduce mortgage risk for lenders, mortgage default insurers and the government. By definition, those rules will make it slightly harder to get approved for some mortgages and further slow the housing market.

What actually happened: Well, when it comes to new mortgage rules, we certainly saw lots of changes in 2012 and 2013, but fewer in 2014. We had CMHC cut their Self-Employed/Stated Income and Second Home products but there were no changes to the Genworth and Canada Guaranty (the two private insurers) products, so this hasn’t had a significant impact on approvals. We have seen lenders starting to change the way they view payments for debt servicing purposes on personal lines of credit. Where once we could use the actual interest–only payment, as long as it was proven, most lenders want us to use 3% of the outstanding balance. We still had a couple of lenders who would use the lower payment amount, but these last remaining lenders will discontinue this practice at the end of this year so I predict more restrictions in 2015 than we saw in 2014.

2. Prediction: Credit unions will steal market share – Since they’re provincially regulated, credit unions have more flexible lending guidelines than federally regulated banks. They’ll use that to their advantage in addition to marketing more heavily, both online and to mortgage brokers. We’ll also see some big mergers this year as credit unions seek out economies of scale.

What actually happened: Credit Unions are definitely increasing their market share. While I can’t say that I am using them more, they can do things that OSFI regulated lenders just can’t.  I expect it will take more time than one year to see Credit Unions really make a noticeable dent in market share.

3. Prediction: Stronger online player – A new online model is sacrificing commissions for volume. This trend will heat up competition industry wide, delivering greater mortgage discounts to all consumers.

What actually happened: Some online brokers do compete on rate though the full service brokerage model remains alive and well. Your mortgage is more than just rate – it’s about getting the best product for your situation; it’s about getting the right advice for your situation and it’s about protecting your future.

4. Prediction: Hybrid mortgages will grow more popular – Economists and government officials have been warning us of higher rates for four years. So far they’ve been wrong, and now many consumers aren’t sure what to believe. More Canadians will hedge their rate bets with hybrid mortgages (part fixed and part variable).

What actually happened:  Hybrid mortgages are definitely talked about more, but I’ve found that clients want the stability of a fixed rate payment, or the advantage of the lower payment/rate that a variable offers. Mainly it’s the savvy, yet risk adverse, investors who talk hybrid mortgages. These products represent a great opportunity to speak with your mortgage associate about what is right for you.

5. Prediction: Consumer IQs will increase – For those in the mortgage industry who prefer an uninformed consumer, your days are numbered. Canadians will spend more time researching rate comparison websites, online mortgage forums, news portals, blogs, calculators and other online mortgage tools. They’ll become increasingly savvy about fine print like penalty calculations, rate blend policies and refinance restrictions.

What actually happened: Consumer IQs are most certainly getting higher. The Internet has brought about change and transparency in the industry, which has benefited consumers. The younger generation also educates themselves online prior to making any sort of purchase – another great thing for the industry. I love to work with clients who come into my office, armed with great questions with a goal of learning even more. The perfect client! This will only continue as the amount of available information grows.

So there it is. Rob McLister just released his predictions for 2015 in the Globe and Mail. Let’s see how well he predicts the market next year.

Stay tuned!