There wasn’t much in the way of “news” over the past while, so I decided to write about some trends that are happening now, and speculate about what might be coming down the road. Then head office sent this piece out (below) and I thought it was a great attachment to what I was going to send.
At our recent Atlantic CAAMP Conference, there was lots of talk about efficiencies, funding ratios and lenders looking beyond just volume to make decisions, and there were discussions about supporting “broker lenders” and how to stem the tide of early payouts.
As the recession moves along, lenders are taking a very serious look at how business comes in the door – do lenders want $5M funded from someone with a 20% funding ratio or $2M from someone with an 80% funding ratio? This is a tough decision, but when you factor in every element in the equation – cost of funds, overhead, technology, systems, salaries, commissions, chance of early payout, replacing lost volume in the CMB pool, etc. – the answer most times is that efficiencies are the answer, not just volume. Let’s make this clear, all lenders want volume too, but not volume for volume sake.
When we talk about supporting broker lenders (such as MERIX), we are talking about more than just trying to steal market share. Two years ago in Australia, when the credit crunch happened and asset backed commercial paper (ABCP) markets dried up, the broker lenders in Australia lost the bulk of their funding source (they had no CMB pool as we do in Canada) and most of them shut down. That left only bank lenders there and they almost immediately cut commissions by 40 BPS. That pushed thousands of brokers out of the business. By supporting your broker lenders in Canada, we can avoid letting this happen. In any market, decreased competition leads to less choice for you. Less commission and poorer service are not what we want in this business going forward.
The last thing to cover is the talk about “early payouts” and how this affects the industry. As an originator, you want to own your client, service them indefinitely, do their next mortgage for them, and get paid to do it. As lenders, we want to get a client and keep a client, with some lenders wanting to pay as little as possible to keep the client. So how do these two opposing views get together? There was a panel discussion at CAAMP that asked the question, but came up with very opposing answers. Is the answer having lenders “lock in” their clients so that you can’t refi them and move them elsewhere mid-term? No. Is the answer having originators move their clients to another lender just so they can get paid again, and more? No. As I listened to this panel discussion, I realized that the MERIX Xtended (and even our Basic) Compensation Models were the answer. Paying you beyond the first day of the mortgage, giving you a reason to let that client renew with MERIX by way of trailer fees, and paying you again on a refinance while still keeping your trailer fees in place, now that’s the answer!
To wrap up, let’s look at where the industry is going. Individual incentives in place of volume bonus is a trend we are seeing, and one that likely will continue. Some lenders will leave the industry, some will come in. The trend in subprime business is that it will be funded by “balance sheets” and not by ABCP. This is proving true with VFC (backed by TD Bank money) coming into the market and Xceed announcing that they applied for bank status so that they can raise money through investments, the same way Home Trust does. We will see the numbers of brokers go down overall (but mainly due to “bad” brokers leaving the business). We are also going to see more evolution in the business, and perhaps some revolution too – stay tuned.
CMHC Reports Lender Retention is on the Rise!
But you already knew that, right? How many of you have lost customers to the existing Lender at renewal? The same Lender you referred them to 5 years ago? And how much were you compensated for this?
Good Day Approved Originators!
The 2009 CMHC Consumer Survey was released yesterday and we wanted to share one statistic in particular:
The number of people up for renewal who stayed with their existing lender increased to 90%. That compares to 83% in 2007.
This is a good and bad news story.
The bad news for originators is that decisions you made 5 years ago may be negatively impacting what you are earning today. How much time are you wasting on the 90%? Shouldn’t you be focusing on the other 10%?
The good news is that 5 years ago you didn’t have the options available to you that you have today. And MERIX can help you with this increased retention problem.
Merix:
A) Pays you when the mortgage renews, and for the life of the mortgage
B) Doesn’t believe any party owns the customer. Instead, we support and enhance the relationship between originators and their customers.
C) Always has competitive rates and products. And MERIX customers receive our low published rates at renewal – no need to haggle.
D) Provides incredible long term compensation packages for your book of business
Friday, June 26, 2009
Monday, June 15, 2009
Don't handcuff your mortgage
A big thank you to Gary Marr of the Financial Post for writing today’s email for me! He talks about not only the ARM rate being your best bet still (and says lowest you will get is Prime +60, except he is wrong…Merix is at P+40bps) but he also suggests why not take one of those half fixed, half variable products (like the Merix 50/50 Wise Mortgages)!
Don't handcuff your mortgage
Gary Marr, Financial Post Published: Saturday, June 13, 2009
Would you like to pay an extra $300 per month on your mortgage? Not likely.
That hasn't stopped a number of Canadians, with the deal of a lifetime on a variable-rate mortgage, from switching over to a more expensive fixed-rate product and paying the extra freight.
A fear of rising rates is driving the rash decision. But if you've finally managed to pin your banker to the ground, why on Earth would you let him off the mat?
More than 28% of Canadians have a variable-rate product tied to prime, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP). If you negotiated a deal before October of last year, chances are you are now borrowing money for as little as 1.35%. That's based on deals that at one point saw the banks giving 90 basis points off prime. Prime is now 2.25%.
The average sale price of a home last month in Canada was $306,366. Based on a 25% downpayment and a 25-year amortization, your monthly payment would be $962.61 at 1.35%. Convert that to a five-year fixed-rate term and you're probably going to have to consider a 4% mortgage rate and a monthly payment of $1,289.04.
Rates are rising fast. Most major banks upped their five-year rate by 40 basis points this week, although discounters were still offering 4% this past week.
"It's not a mass rush yet, but we are starting to see ... people locking in. But variable rates are still so good," says Joan Dal Bianco, vice-president of real estate-secured lending, TD Canada Trust. She stops short of questioning why a consumer would pull out of these "deals" that are no longer available on the market.
Try to get a variable-rate mortgage today and the best you can probably hope to get is 60 basis points above prime, or 2.85%.
The landscape changed dramatically in October during the credit crunch. As the Bank of Canada lowered rates, the major banks reluctantly lowered prime because of the massive amount of customers with variable-rate products negotiated under the old, higher terms.
"Bonds yields are going up rapidly and people are starting to realize the rates are going to go up," Ms. Dal Bianco says. Throw in the fact the Bank of Canada used the weasel word "conditional"(on inflation rates)when it promised not to raise rates until June, and you can understand why some people think today's record-low prime rate might not hold.
But if you're someplace between 60 to 90 basis points below prime, the rate is going to have to go up pretty fast to justify locking in today at 4%, even though that is just slightly above the all-time low hit last month for a five-year term.
"I don't understand why you would lock in," says Jim Murphy, chief executive of CAAMP. "Sure, if they start to rise, but [Bank of Canada governor Mark] Carney says they won't rise, so you've got another year at that prime-minus rate."
Don Lawby, chief executive of Century 21 Canada, says even when rates do start to increase, they are not going to jump significantly right away. You are not going to get 4% on a fixed rate again, but double-digit rates seem unlikely. "The only logic two locking in would be for someone very sensitive to any rate change and they just want to be secure," Mr. Lawby says.
But at what price? If you're using the "feeling secure" logic, why not go for the 10-year fixed-rate product? Rates on that product can be locked at 5.25%, ridiculously low by historical standards. Yet fewer than 10% of Canadians consider a 10-year product.
There are some compromises you can make. For starters, there is nothing to prevent consumers from having a blended mortgage at most Canadian banks. Some banks will let you take half your outstanding debt and lock it in. Diversity is preached for stock portfolios, but few people seem to adhere to the same philosophy when managing their debt.
Consumers might want to take their cue from business. Few companies would want all of their debt coming due at the same time -- it presents too much risk. The other option is knocking down principal: Make payments based on a 4% rate and have that extra $300 go straight to your principal every month.
The bottom line is if you've got a deal on your mortgage, why would you give it back?
Dusty wallet Double check your credit card statements. DW is in a bit of a skirmish with Visa over a taxi cab bill. Of course, DW is too cheap to use cabs, but does succumb to them to get to and from airports on vacation. Last trip, the family took an airport limousine and paid the $56 charge. Guess what? The same amount was billed a month later. So far, the taxi cab company has yet to produce a second receipt. In the interim, DW had to pay the second $56 charge.
gmarr@national-post. Com
Don't handcuff your mortgage
Gary Marr, Financial Post Published: Saturday, June 13, 2009
Would you like to pay an extra $300 per month on your mortgage? Not likely.
That hasn't stopped a number of Canadians, with the deal of a lifetime on a variable-rate mortgage, from switching over to a more expensive fixed-rate product and paying the extra freight.
A fear of rising rates is driving the rash decision. But if you've finally managed to pin your banker to the ground, why on Earth would you let him off the mat?
More than 28% of Canadians have a variable-rate product tied to prime, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP). If you negotiated a deal before October of last year, chances are you are now borrowing money for as little as 1.35%. That's based on deals that at one point saw the banks giving 90 basis points off prime. Prime is now 2.25%.
The average sale price of a home last month in Canada was $306,366. Based on a 25% downpayment and a 25-year amortization, your monthly payment would be $962.61 at 1.35%. Convert that to a five-year fixed-rate term and you're probably going to have to consider a 4% mortgage rate and a monthly payment of $1,289.04.
Rates are rising fast. Most major banks upped their five-year rate by 40 basis points this week, although discounters were still offering 4% this past week.
"It's not a mass rush yet, but we are starting to see ... people locking in. But variable rates are still so good," says Joan Dal Bianco, vice-president of real estate-secured lending, TD Canada Trust. She stops short of questioning why a consumer would pull out of these "deals" that are no longer available on the market.
Try to get a variable-rate mortgage today and the best you can probably hope to get is 60 basis points above prime, or 2.85%.
The landscape changed dramatically in October during the credit crunch. As the Bank of Canada lowered rates, the major banks reluctantly lowered prime because of the massive amount of customers with variable-rate products negotiated under the old, higher terms.
"Bonds yields are going up rapidly and people are starting to realize the rates are going to go up," Ms. Dal Bianco says. Throw in the fact the Bank of Canada used the weasel word "conditional"(on inflation rates)when it promised not to raise rates until June, and you can understand why some people think today's record-low prime rate might not hold.
But if you're someplace between 60 to 90 basis points below prime, the rate is going to have to go up pretty fast to justify locking in today at 4%, even though that is just slightly above the all-time low hit last month for a five-year term.
"I don't understand why you would lock in," says Jim Murphy, chief executive of CAAMP. "Sure, if they start to rise, but [Bank of Canada governor Mark] Carney says they won't rise, so you've got another year at that prime-minus rate."
Don Lawby, chief executive of Century 21 Canada, says even when rates do start to increase, they are not going to jump significantly right away. You are not going to get 4% on a fixed rate again, but double-digit rates seem unlikely. "The only logic two locking in would be for someone very sensitive to any rate change and they just want to be secure," Mr. Lawby says.
But at what price? If you're using the "feeling secure" logic, why not go for the 10-year fixed-rate product? Rates on that product can be locked at 5.25%, ridiculously low by historical standards. Yet fewer than 10% of Canadians consider a 10-year product.
There are some compromises you can make. For starters, there is nothing to prevent consumers from having a blended mortgage at most Canadian banks. Some banks will let you take half your outstanding debt and lock it in. Diversity is preached for stock portfolios, but few people seem to adhere to the same philosophy when managing their debt.
Consumers might want to take their cue from business. Few companies would want all of their debt coming due at the same time -- it presents too much risk. The other option is knocking down principal: Make payments based on a 4% rate and have that extra $300 go straight to your principal every month.
The bottom line is if you've got a deal on your mortgage, why would you give it back?
Dusty wallet Double check your credit card statements. DW is in a bit of a skirmish with Visa over a taxi cab bill. Of course, DW is too cheap to use cabs, but does succumb to them to get to and from airports on vacation. Last trip, the family took an airport limousine and paid the $56 charge. Guess what? The same amount was billed a month later. So far, the taxi cab company has yet to produce a second receipt. In the interim, DW had to pay the second $56 charge.
gmarr@national-post. Com
Friday, June 12, 2009
BoC's Mark Carney says Merix ARM is a great choice
Here is an article from Canadian Mortgage Trends that quotes Bank of Canada’s Mark Carney stating that the BoC overnight rate will remain low until 2010.
With fixed rates moving up (but still at fantastic rates), it may make sense to offer an ARM rate today. The Merix ARM is at Prime + 0.40%, which equals 2.65% today. This is a great option for lots of clients. If your client is still sitting on the fence, remember that the Merix 50/50 Wise mortgage allows ½ in an ARM and ½ in Fixed, and it goes up to 95% LTV. Great options. And maybe Carney doesn’t exactly say the Merix ARM is a great choice, but all the evidence leads us to that conclusion!
June 11, 2009
Carney Repeats: Rates Low Till June 2010
Bank of Canada chief, Mark Carney, repeated his pledge to keep rates low, saying today:
“Conditional on the outlook for inflation, the Bank expects the policy rate to remain at its current level until the end of the second quarter of 2010…”
That “inflation” caveat means there is a chance rates will rise beforehand, but few are brave enough to predict it. Nonetheless, Carney stressed that things can change.
Carney also said people shouldn’t get overly excited about an economic recovery just yet. He noted lots of uncertainty on the horizon, including the Canadian dollar. It’s virtually unprecedented 2-month rise (see chart) is offsetting much of the government’s economic stimulus.
In conjunction with this news, Canada’s 5-year bond yield promptly bounced off of technical resistance and closed near the day’s lows, at 2.75%. It will be interesting to see if it can get through the 3% level. Perhaps we’ll have a respite from rising mortgage rates for a little while. Or perhaps we’re wishful thinkers.
With fixed rates moving up (but still at fantastic rates), it may make sense to offer an ARM rate today. The Merix ARM is at Prime + 0.40%, which equals 2.65% today. This is a great option for lots of clients. If your client is still sitting on the fence, remember that the Merix 50/50 Wise mortgage allows ½ in an ARM and ½ in Fixed, and it goes up to 95% LTV. Great options. And maybe Carney doesn’t exactly say the Merix ARM is a great choice, but all the evidence leads us to that conclusion!
June 11, 2009
Carney Repeats: Rates Low Till June 2010
Bank of Canada chief, Mark Carney, repeated his pledge to keep rates low, saying today:
“Conditional on the outlook for inflation, the Bank expects the policy rate to remain at its current level until the end of the second quarter of 2010…”
That “inflation” caveat means there is a chance rates will rise beforehand, but few are brave enough to predict it. Nonetheless, Carney stressed that things can change.
Carney also said people shouldn’t get overly excited about an economic recovery just yet. He noted lots of uncertainty on the horizon, including the Canadian dollar. It’s virtually unprecedented 2-month rise (see chart) is offsetting much of the government’s economic stimulus.
In conjunction with this news, Canada’s 5-year bond yield promptly bounced off of technical resistance and closed near the day’s lows, at 2.75%. It will be interesting to see if it can get through the 3% level. Perhaps we’ll have a respite from rising mortgage rates for a little while. Or perhaps we’re wishful thinkers.
Thursday, June 4, 2009
Canadian Economy on the Rise
Here is a good article for you to share with your clients and referral sources. This may push some of those “fence sitters” onto the right side of the fence for a Merix mortgage, including our great ARM at Prime + 0.40% or our NEW 50/50 Wise Mortgage.
Economic confidence is rising
Julian BeltrameThe Canadian Press OTTAWA
There is mounting evidence that Canada's economy is springing back to life, bringing with it the spirits of ordinary Canadians -- except, it seems, when it comes to the question of whether or not they'll have a job to go to next month.
As the recession relaxes its steely grip on the country, employment remains among the last of the country's economic wounds to heal, usually because leery firms are biding their time lest the signs of improvement prove a false harbinger of better times ahead.
That's why the consensus is predicting Statistics Canada, which releases its latest employment figures tomorrow, will reveal the country dropped another 36,000 jobs in May, and that jobs will keep disappearing for most of the year and possibly well into 2010.
The expected losses would completely wipe out April's surprising 36,000 pickup, which many economists believe overly flattered Canada's ugly labour market.
"I don't believe the StatsCan report for April reflected material improvement for job markets,'' said Derek Holt, vice president of economics with Scotia Capital. "I think it was just a big head-fake on people declaring themselves self-employed for involuntary reasons.''
After five months of vanishing jobs, April's data shocked most observers -- until it became clear the gains were based entirely on 37,000 new jobs in the self-employment category.
In a recession, that is most likely an indication that the newly jobless were trying to create their own work because regular work couldn't be found, they say.
Not that there aren't signs of life -- the so-called "green shoots'' cited by economists as they scour for hope amid the blackened economic landscape -- appearing in increasing regularity in Canada, as well as in the U.S., Europe and Asia.
Yesterday's correction notwithstanding, North American markets are up close to 40 per cent since the lows of early March. Oil prices have also been moving upwards on the expectation of demand in China.
Canadians have started to notice the brightening sky.
Consumer confidence hit a 15-month high last month, according to a Harris-Decima poll that found only 29 per cent of Canadians surveyed expecting economic times to worsen in the next year, compared to a pessimistic 59-per-cent reading in February.
With the sharp downturn seen at the end of 2008 and beginning of 2009 apparently slowing -- but the economy still in recession -- most economists expect the Bank of Canada to sit on its hands today and keep the trend-setting interest rate at the historical low of 0.25 per cent.
But they also see little chance of central bank governor Mark Carney priming the pump with additional stimulus, such as resorting to increasing the money supply through so-called quantitative easing -- a tactic that essentially amounts to printing more cash.
"The significant rise in the Canadian dollar has increased the chances they may move to ease policy further, but at this point we don't think they are willing to do that yet,'' said economist Benjamin Reitzes of BMO Capital Markets.
"If the dollar keeps rising, however, it may provide a significant enough downside shock to the economy for them to feel that further easing is warranted.''
A strong dollar is particularly damaging to Canadian manufacturers, already on their knees from the recession, by making their products less competitive on world markets.
But even the dollar movement yesterday pointed to the central bank taking a time out. After a torrid climb from the 77-cent US levels, the loonie experienced the first significant pullback in weeks, diving 2.29 cents to close at 90.22 cents US.
Economic confidence is rising
Julian BeltrameThe Canadian Press OTTAWA
There is mounting evidence that Canada's economy is springing back to life, bringing with it the spirits of ordinary Canadians -- except, it seems, when it comes to the question of whether or not they'll have a job to go to next month.
As the recession relaxes its steely grip on the country, employment remains among the last of the country's economic wounds to heal, usually because leery firms are biding their time lest the signs of improvement prove a false harbinger of better times ahead.
That's why the consensus is predicting Statistics Canada, which releases its latest employment figures tomorrow, will reveal the country dropped another 36,000 jobs in May, and that jobs will keep disappearing for most of the year and possibly well into 2010.
The expected losses would completely wipe out April's surprising 36,000 pickup, which many economists believe overly flattered Canada's ugly labour market.
"I don't believe the StatsCan report for April reflected material improvement for job markets,'' said Derek Holt, vice president of economics with Scotia Capital. "I think it was just a big head-fake on people declaring themselves self-employed for involuntary reasons.''
After five months of vanishing jobs, April's data shocked most observers -- until it became clear the gains were based entirely on 37,000 new jobs in the self-employment category.
In a recession, that is most likely an indication that the newly jobless were trying to create their own work because regular work couldn't be found, they say.
Not that there aren't signs of life -- the so-called "green shoots'' cited by economists as they scour for hope amid the blackened economic landscape -- appearing in increasing regularity in Canada, as well as in the U.S., Europe and Asia.
Yesterday's correction notwithstanding, North American markets are up close to 40 per cent since the lows of early March. Oil prices have also been moving upwards on the expectation of demand in China.
Canadians have started to notice the brightening sky.
Consumer confidence hit a 15-month high last month, according to a Harris-Decima poll that found only 29 per cent of Canadians surveyed expecting economic times to worsen in the next year, compared to a pessimistic 59-per-cent reading in February.
With the sharp downturn seen at the end of 2008 and beginning of 2009 apparently slowing -- but the economy still in recession -- most economists expect the Bank of Canada to sit on its hands today and keep the trend-setting interest rate at the historical low of 0.25 per cent.
But they also see little chance of central bank governor Mark Carney priming the pump with additional stimulus, such as resorting to increasing the money supply through so-called quantitative easing -- a tactic that essentially amounts to printing more cash.
"The significant rise in the Canadian dollar has increased the chances they may move to ease policy further, but at this point we don't think they are willing to do that yet,'' said economist Benjamin Reitzes of BMO Capital Markets.
"If the dollar keeps rising, however, it may provide a significant enough downside shock to the economy for them to feel that further easing is warranted.''
A strong dollar is particularly damaging to Canadian manufacturers, already on their knees from the recession, by making their products less competitive on world markets.
But even the dollar movement yesterday pointed to the central bank taking a time out. After a torrid climb from the 77-cent US levels, the loonie experienced the first significant pullback in weeks, diving 2.29 cents to close at 90.22 cents US.
Wednesday, June 3, 2009
Rate History Since 1951
If you are having trouble convincing your clients that today’s rates are anything short of fantastic, show them this chart. It shows the average interest rate for the month of June for every year since 1951. The average rate since 1951(excluding 2009) is 9.08%. Pretty powerful stuff.
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