TMG brokers are a giving group

By Mark Kerzner, President, TMG The Mortgage Group

We are living in a volatile time. Every day there seems to be an economic or geo-political eruption somewhere in our ever-shrinking world. Even though our attention is fixed elsewhere, there are many great causes to support (especially during this time of year) in our own backyard.

TMG The Mortgage Group Canada Inc (TMG) has operated a charitable foundation for a number of years supporting local charities and families in need. While we continue to support our local communities we were introduced to the Breakfast Club of Canada two years ago and decided to get involved on a national scale.

And while the personal story of its founder Daniel Germain is very captivating, it was learning that one in seven  children in Canada go to school hungry each and every day that called us to action.  We met with and were interviewed by the Breakfast Club of Canada (BCC) to see if we were a corporate fit.

In our first year we raised over $54,000 through corporate fundraising initiatives, and also encouraged grassroots volunteering.

As we complete our second year supporting this amazing charity we are on target to raise $125,000. Perhaps more rewarding is the way that this was accomplished.  TMG brokers and staff across the country have taken it upon themselves to organize fundraising events in a number of very creative ways. They range from long distance walks to golf tournaments and auctions. In addition, a large number of TMG brokers make a donation with every mortgage they originate.

For me, one of the most rewarding days of the year is when we get to volunteer in the schools themselves during TMG’s National Breakfast Day. On November 19th, 15 teams from coast-to-coast made and served nutritious breakfast for students and got to see firsthand the appreciation from the wonderful students themselves.

Here are just a few of the comments we’ve received.

This was amazing! The gentlemen who came to my breakfast club were kind and generous and, most importantly, wonderful with the kids, Thanks TMG!” – Moncton

I want to start by thanking you and your team on behalf of our school for this morning’s treats to our students. The TMG team served over 100 smoothies to our students. – Winnipeg

Just wanted to say a BIG thank you to everyone involved in today’s volunteer effort – it was a huge hit with the kids and the TMG team was absolutely fantastic! We so appreciated their enthusiasm and positive attitudes – and, of course, the delicious smoothies! – Hamilton

These community events are where inspiration meets activism. What results is even great commitment to giving back. This is also why I am optimistic that next year will result in an even greater contribution to this wonderful initiative.

I am proud just to be a part of it.

Mark

The Habits of a First Time Homebuyer

The housing market generates a lot of economic activity in Canada. Not just home selling and buying and construction  but also for those industries connected to housing such as legal services, moving companies, landscaping companies, home improvement companies, etc.  Each year, approximately 620,000 households move into newly-purchased homes in Canada.  Of those about 45% or 280,000 are first-time buyers, most between the ages of 25 and 34, and many in the 45 to 64-age group.

Single-detached homes are the most popular house type purchased and accounts for 57% of all sales. The average price is about $347,000. The average down payment for first timers equals 21% of the price of the home.

Earlier this year, the Canadian Mortgage and Housing Corporation (CMHC) conducted an online survey looking at the home buying experiences of first timers. Here are the highlights:

•  Loans and gifts from parents and other family members account for 7% of down payments
• 3% of all down payment come from RRSP withdrawals
• 81% financed their purchase through a mortgage
•  Fixed rates are the most common rates
•  Most mortgages have five-year terms

Online Use

There’s more! First time buyers are heavy online users and do their research. A whopping 83% of them went online to get more information about mortgage options and features – about half went to lender sites and a third went to mortgage broker sites. While online, 83% used mortgage calculators, 73% did their own financial assessment and about 4-in-ten got their pre-approval online.

Social media is another big draw – 56% used Facebook; one-third used a Forum; and 30% used a blog. Twenty-six per cent used a mobile device to get their info and one-in-five used a mortgage-related app.
And they shop! Seventy-one per cent contacted either a lender or a broker and 53% negotiated a better interest rate than the one they were originally offered.

Using a Mortgage Pro

Using a mortgage professional has become more popular among first timers, up from 42% in 2014 to 55%. A key driver is getting the best rate and the idea of a “great deal” was a strong influence as to who would get their business. About 4-in ten were referred to a specific broker and 79% of those ended up using that broker.

Satisfaction Factor

Seventy-eight per cent of first timers were satisfied with their experience working with a mortgage professional. And 43% said they would likely use a broker for their next mortgage. The one area that brokers seem to lag is in post transaction follow-up.  Fewer than half of first-time buyers received any follow-up. What would they like? Many of them said useful information including long term mortgage/financial strategies and advice on how to manage financial difficulties.

Concerns and Uncertainties

It’s no surprise that first time buyers are less confident than repeat buyers.  Even with all the research they’ve done, many still feel a little overwhelmed about the process and have a lesser understanding of their options than repeat buyers. Even more felt uncertain of what to do or where to get help if they were facing some financial difficulties.

Fifty-five per cent had concerns about the buying process and much of it had to do with the unexpected rise in the costs of owning a home. Thirty-eight per cent of then did incur unexpected expenses.

The mortgage industry is a competitive business. Mortgage professionals work with a wide variety of clients. They counsel and educate clients and help them understand the buying process.  A broker also makes sure to understand what a first time home buyer needs   and pays attention to both their financial goals and their personal goals – and not just in the short term.

It’s not surprising that more home buyers are turning to mortgage brokers  to help them navigate the daunting process of buying a home. That number will continue to grow as the mortgage industry, with its variety of options and products, becomes more complex; and as the needs and  the profiles of  first time home buyers continue to evolve.

Proud to be named Vice-Chair of CAAMP

Friends:

I remember the first CIMBL (precursor to CAAMP) conference I attended 16 years ago. As a newly-minted mortgage executive I recall an excitement, enthusiasm and a sense that we were all learning and growing together. I knew at that moment that this was a very special industry and it was an association I would admire for many years to come.  CAAMP was a place where new and seasoned mortgage professionals would come together, share best practices and chart a course for the future.

Looking back on this past year it is remarkable to me the ground we have covered as an Association and what lies ahead.  I feel privileged to have been part of the discussion, and debate, over many issues that impact our industry and the members we represent.

Having sat behind ‘closed doors’ I can tell you that I feel your Board worked tirelessly on your behalf over  the past year.  The passion, commitment and understanding they have for our industry will continue to propel the Association forward, representing our member’s interests in a very meaningful way.  I feel privileged to be recognized as the Vice Chair of CAAMP for the upcoming year.

I advocate for CAAMP because:

1.  Our association is inclusive of brokers, lenders and suppliers alike.  That mix actually makes our voice stronger when we are lobbying in Ottawa.
2. Our different (broker, insurer, lender, etc) yet interdependent businesses helps unify our day-to-day business interests.
3. Members are aligned in seeking a very strong and growing broker channel in Canada. 
4. Quite honestly, because it is in my DNA, I have a deep passion for this industry and the people it serves just as the staff and volunteers at our association have. 

CAAMP is not perfect – but we are engaged.  We will continue the positive work done in recent years and be even more approachable to our members, still more relevant to our stakeholders and better coordinated with our regions.

I am extremely proud to count myself among such a committed and passionate group of fellow CAAMP Board members. I am confident that our Board will represent the voices of ours members.

If you have any feedback or seek to get more involved please reach out to me or any of your directors directly at any time:  www.caamp.org/board-of-directors

Cheers,

Mark

Consult a mortgage professional for sound mortgage planning

The housing market has dominated the headlines over the past years. Rumours of rate hikes have never materialized. The market didn’t crash. Prices continue to increase in large urban centres. Despite the most recent recession, Canada’s housing market soldiers on and is still at the core of media commentary and policy revisions.

Since 2011 we have seen changes come into effect to restrict mortgage lending in Canada, and those changes continue today – all in an effort to curb the market.

The housing market continues to be a vital component to the success of the Canadian economy as it has during the past decade. In many respects, the industry has helped to stabilize a faltering economy.  By allowing consumers an opportunity to purchase by taking advantage of low interest rates or to tap into their equity for either spending or investing purposes, the mortgage channel has contributed positively to consumer spending and confidence.

While debt-to-income levels are indeed at its highest point in Canadian history, over the past 20 years personal lines of credit have accounted almost exclusively for the surge in total consumer debt and consumer credit card debt has surged at higher levels than mortgage debt. However, consumers are managing their debt loads well.

Earlier this year, The Canadian Association of Mortgage Professionals (CAAMP) published a report titled A Profile of Home Buying in Canada.  The report offers information on homebuyers, and profiles some key aspects of their decision making process, as well as the financial parameters of their decisions. Here are the highlights:

•  Each year in Canada, about 620,000 households move into dwellings they have purchased
• Of those 620,000 approximately 45% (280,000) are first-time buyers -- most between the ages of 25 and 34.
• Single-detached homes (estimated at 360,000 per year, or 57% of the total) account for the largest share of home buying for all of Canada. 
• On average, the homebuyers made down payments of about $119,000, equal to one-third of the price of the homes. 
•  For first-time buyers, down payments averaged $67,000, equal to 21% of their average purchase price.
•  Buyers do relatively little shopping when they chose their real estate and mortgage professionals.
• Among the buyers who obtained financing, only 16% did not consult  a mortgage professional 
• Only 9% of borrowers say they did not shop for mortgage quotes  
•  56% of mortgage borrowers consulted mortgage brokers 
• Mortgage brokers are used most often by for first-time buyers 

The growth of the housing will remain neutral in the near term. The resale market activity is widely anticipated to remain close to current levels for the rest of the year and into 2016.  And low interest rates are with us for awhile.

Here’s the track record for the mortgage broker channel:

1.  On average,  consumers using a mortgage broker saved 19bps on their interest rates (Competition in the Canadian Mortgage Market, Bank of Canada Review, Winter 2010-2011, p.5) 
2.  Those who renewed or renegotiated recently with a mortgage professional reported an average rate decrease of 1.4 points, compared with 1.0 point among all renewers. (Maritz Research Canada, January 2011)
3. Since 1992 changes to the Bank Act, the Big 8 (Big 6 plus Desjardins and ATB) now own more than 80% of mortgage assets in Canada. In the wake of that reduction in competition, the mortgage brokerage channel has grown by over 300% (from 10% to 30%).  This competition IS in the best interest of consumers.

As a country, we are fortunate to have weathered the global recession and we have managed to grow through the most recent “technical” recession. Canada is operating on sound financial principals and our housing and mortgage markets will continue to remain robust. It’s been proven that mortgage professionals  get better deals for Canadians and it’s been proven that competition is vital to Canadians’ best interests.

Clearly, home buyers, other than new home buyers, would benefit from consulting with a mortgage professional.

Canadians seem to love debt

Canadians have a growing love affair with debt. Household debt hit a new record in August as consumer spending jumped 2.3 % in the second quarter of the year, despite the fact that we are also in a recession, “technically” speaking.

So where is this debt coming from? Well, we’re buying houses, cars, furniture and clothing. Household credit is rising its fastest since 2012 – 80% of that is due to an increase in mortgage debt. In 2013, the pace of credit growth was 2% -- it’s now rising to just under 3%.

Retail sales has had its best start to the year in the past decade. Credit-card spending has gone up by 8% this year; spending on restaurants and fast food is up more than 12%. And we’re pouring more money into home improvements. Spending on home improvements has increased by 10% in the second quarter of the year.

So why is this happening? Being employed helps. The unemployment rate is holding steady at about 6.9%. Low borrowing costs also helps. The Bank of Canada rate is .50% and mortgages, both variable and fixed are at historical lows. In fact, consumer spending has stepped in as the fuel for the economy ever since the slowdown in our resources sector. 


Are we vulnerable?  It is indeed a concern for policy makers and it is unlikely that consumer spending can power the economy for too long. There is also a huge discrepancy among the provinces. Ontario and British Columbia are strong markets, while spending and consumer confidence have taken a hit in Alberta and Saskatchewan. Also, spending has not matched income growth. 
Higher debt loads also mean that consumers now spend an average 14% of after-tax income on their debts. This is up from 11% in 1990, even though interest rates have plunged from 14% back then to below 1% today.
So what now?  When you look at the global economy, we don’t see a pretty picture – most economies are experiencing slow growth. Because Canada depends on trading partners for much of its growth, we must wait for other countries to start their turnarounds.

Moody’s Analytics chief economist Mark Zandi had this to say in an interview in the Financial Post. “I think [consumers] feel a little bit tired,” he said “There has been a lot of debt accumulation and leverage. I don’t think Canadian consumers can lead the way for the economy.”

It’s still going to take some time. The U.S Fed recently decided to hold steady its prime rate, a tacit acknowledgement that its economy still isn’t up to growth expectations.

The Bank of Canada’s Governor Stephen Poloz has been on the talk circuit, spreading words of encouragement.

 “Canada has seen this movie before,” he said in a speech to the Calgary Economic Development, a body funded by the city and private-sector partners. “We’ve adjusted to rising prices; we can adjust to falling ones. These adjustments are never easy. They are often difficult and painful for affected individuals and their families. But they are necessary.”

Eventually, however, policy-makers and the Canadian government will need to find a way to grow the economy by boosting exports, hiking government infrastructure spending or spurring capital investment from businesses in order to give consumers a break.

Don’t get caught up in the headlines

By Dan Pultr
Vice-President, British Columbia, TMG The Mortgage Group

Despite what seems like a focus on statistics that creates fear in the media, Canadians are still making their mortgage payments, while enjoying the cheapest borrowing environment in history.

 Not that long ago, all headlines were focused on the household debt to income ratio, which has proven to be a poor indicator of the financial situation of Canadian households.  That ratio, actually, has decreased recently, but the “number” alone is the focus of headlines.   

More recently, attention has turned to foreign ownership – that this may be causing a housing bubble in certain parts of Canada. However, the data doesn’t support this hypothesis and even the most anecdotal analysis suggests that most of the sales activity by foreign buyers has been in high-end homes (north of $3M) in Vancouver and Toronto.

The reality is in Canada, there is nothing to fear.  Even if all of the headlines were true and the most concerning of assumptions became reality, Canada is not in any way in a similar situation to that of the U.S. pre-financial crisis.  Nor is Canada the same as it was eight years ago.

Let’s look at the facts. Canada is currently enjoying the lowest interest rate environment in history.  It has never been more attractive for homeowners to borrow money.  Five-year fixed rates are around 2.6% to 2.75% and 5-year variable rates are nearing 2%.  Notwithstanding these low rates, lenders focus on providing mortgages to only the most creditworthy applicants with provable income. 

Since the Global Financial Crisis in 2008, the lending landscape in Canada has drastically changed.  At one time we had  American sub-prime lenders operating here such as Accredited Home Lenders, Wells Fargo, and GE Money, to name a few.  However, capital requirements imposed by the Canadian government made it almost impossible for these small lenders to survive.

The mortgage business was also much more attractive to banks and investments banks and many prime lenders such as Macquarie, First Line, and ING have left the mortgage channel completely. We didn’t see new lenders for a long time, until recently. 

The Canada Mortgage and Housing Corporation (CMHC), The Office of the Superintendent of Financial Institutions (OSFI)and the Ministry of Finance have changed mortgage lending rules and have increased compliance requirements, which have eliminated most of the riskier lending such as the No Income Qualifier (NIQ). We also once had 40-year amortizations, 100% financing (including on rental properties), refinances to 95% of the value of a home, and stated income loans with very little documentation.

We’ve had five policy changes so far and the introduction of mortgage underwriting scrutiny via B-20 and B-21.  Ask a self-employed borrower trying to get a mortgage and he or she will tell you how more challenging it is today than it was 10 years ago.

 Yes, if you’re credit worthy and have provable income, you will enjoy the lowest rates ever. Often borrowers get annoyed in this new lending era, where the need for paperwork and more paperwork seems daunting. Lenders require more information, more paperwork, and more due diligence -- more everything.

Canada’s delinquency rate is at 0.28% -- its lowest rate since 2007 -- and close to the lowest rate in history.  That means that for every 10,000 mortgages, only 28 of them currently have missed three mortgage payments in a row.  In the U.S, the delinquency rate is 5.77%.  It’s comforting knowing that if the market should take a turn, the housing market would be fine.

So in reality, Canada is actually doing pretty well.  Our government has focused on ensuring the people who get mortgages can afford to pay them. Despite these changes, our mortgage and housing markets are still growing.   This is good news for the future of these markets. 

Make sure to speak with a mortgage broker so  they can help you navigate our current lending environment to ensure you get the best mortgage to meet your unique needs.

Housing slow down heralding a more balanced economy

For the past four years economists have been warning us of a slowdown in housing activity, of lowered house prices and of interest rate increases. None of which have come to pass, until now, with the exception of interest rate increases and clearly, no one really knows what will happen with rates.

“Real estate, it has nine lives,” said Benjamin Tal, deputy chief economist at CIBC in an interview with the Globe and Mail. “Every time it’s supposed to slow down because of interest rates, something bad happens elsewhere that keeps interest rates low…”

Here are the most recent predictions from the Canada Mortgage and Housing Agency (CMHC).

New-home construction will slow over the next two years as low oil prices continue to take their toll on the economy despite rock-bottom interest rates.  Prices of resale homes will rise 3.4% this year before slowing to 1.5%.

Oil-dependent provinces such as Alberta and Saskatchewan will be hit hardest.  Home prices will likely decrease below the national average in Alberta.

In the rest of Canada the slowdown will be due to the shifting preferences among buyers. Where once buyers set their sights on higher-priced, newly built detached homes, they will start looking at buying older entry-level resale homes and more affordable new builds, such as townhouses and condos.  A healthy supply of condos and townies has kept those prices more affordable.

In Canada’s two high-priced markets – Vancouver and Toronto, demand for detached homes may fall because they are just not as affordable. However, just outside of these two hubs, prices are affordable.

CMHC also predicts that mortgage rates will rise slightly over the next two years, with five-year posted rates set to range from 4% to 5.5% this year, rising to 4.2% to 6.2% next year – caveat: We’ll see.

Many economists also say that our housing market is overvalued. Some say upwards of 60% compared to rent, some say about 30%, but the consensus seems to be between 10% and 20%.  But we may be looking at the wrong comparison.  What’s really important is a mortgage holder’s ability to pay.  And that means people need to stay working. 

So far, job numbers are good. The unemployment rate is holding steady at 6.8 %. Compared to a year earlier, Canada has added 161,000 jobs (a gain of 0.9 per cent) and the total number of hours worked has grown by 1.2%. Full-time jobs have risen by 1.8% over the past year. 

However Canadians are carrying large debt loads. At last count in March the debt ratio was 163.6% -- a record high. However, in June the debt ratio declined. It appears that in a low interest rate environment, consumers pay down debt.   Benjamin Tal said in an interview, “We have seen in the past that Canadians use low interest rates to actually pay down debt faster, as opposed to add to their debt…”

It looks as if consumers don’t have a problem paying their debts…unless interest rates shoot up past “historical norms”.  Yet, how many years have to pass before something becomes history?  We’ve been living with low interest rates since 2008 – that’s seven years. It could be that low interest rates are now the “norm”.

We are living in times that are defying textbook scenarios on the economy. Clearly world economies have changed. It’s not likely that interest rates will skyrocket in the next few years, given what’s happening in the world; it is more likely they may start to increase… slightly. 

What we’re seeing today is the correction that economists predicted would happen two years ago. With it will come a more balanced, stable economy where people are happily working, who are able to pay their debts, where interest rates are “low normal” and  where house prices are affordable. 

In the end, economists will look back and say that everything unfolded as it should.