Economic turmoil and uncertainty has created mortgage market in Canada where brokers need to ensure they are positioned to meet the needs of clients who no longer fit the A mortgage space, says Optimum Mortgage’s Lester Shore
CMP: It has been about three years since the housing correction in the U.S. and it appears we are still dealing with the macro-economic fallout that is rippling through the world economies. In your opinion are there darker days ahead for the mortgage industry in Canada?
Lester Shore (LS): I expect the road ahead will be bumpy as governments around the world deal with serious debt issues, which is clearly impacting consumer confidence in Canada. In Canada we are very fortunate that consumers, brokers and lenders acted prudently during the boom of the early 2000s; the Canadian real estate and mortgage markets were not exposed to the same frenzy that they were in the U.S. The mortgage foreclosure rate in Canada has remained low and even though real estate values in some parts of Canada have decreased from their 2007 highs, we have seen modest price gains in most markets over the last two years.
Additionally, Canadian unemployment rates continue to decrease, in some regions we are back down to pre-2007 levels. Our view today is that the upcoming year will see relatively low interest rates, stable to slightly appreciating home values and a slight improvement in unemployment. This will translate into another stable and positive mortgage market for 2011/2012.
CMP: Do you see major upheaval in the world economy such as the European debt crisis as the major threat to the mortgage industry here in Canada?
(LS): There is no question that a major macroeconomic event such as a default by Greece or Italy, a double-dip rescission in the U.S. or a major slowdown of the Chinese economy would have some economic impact on Canada. Like storm clouds on the horizon, we must always keep an eye on such major macro-economic events. However, the potential challenge to the Canadian mortgage industry is the high level of Canadian household debt levels. How do we as lenders react and more importantly are the regulators going to become more involved in our industry? I had the opportunity last month to attend the American Mortgage Bankers Association annual meeting and was shocked by the dramatic increase in mortgage lending and mortgage broker regulations. Some of these changes were clearly needed; however, one wonders whether the pendulum has swung too far and home ownership is no longer an option for those who, in a normal market, would and should qualify.
My hope is that brokers and lenders in Canada will continue to show the Canadian regulators that we conduct ourselves in a prudent manner. In my view, there is no need to follow the U.S. lawmakers whose “new rules” have resulted in a material reduction in risk appetite by lenders because of increased regulations and criteria. The Canadian regulators, I know will take into account the difference between the two markets and ensure our industry continues to contribute to help Canadians achieve the goal of home ownership.
CMP: How is Optimum Mortgage reacting to these concerns?
(LS): At Optimum Mortgage we believe in using common sense. We have always strived to be a prudent lender, we offer a number of stated income mortgage solutions in which we always ensure that we are satisfied that the borrower’s stated income is reasonable and that the overall affordability of the deal makes sense. The biggest failing of the U.S. mortgage industry was putting people in mortgages they simply could not afford.
There is a need in the marketplace for a lender who can provide alternative mortgage solutions for clients who do not fi t the traditional bank income, credit and TDS/GDS guidelines. There are life events along with the fallout from these economic swings that cause people to fall outside of the A lending criteria. The alternative mortgage solutions that we offer at Optimum allow these borrowers to transition back into the A mortgage space over a couple of years as they build their business, increase their tenure with their employment or repair their credit.
At Optimum we also appreciate the value of our broker partnerships. We will continue our commitment to the broker channel by not competing with them by having our own sales force of mortgage specialists, not having a formal retention department and by continually adapting to the changing needs of our broker partners.
CMP: Do you have any suggestions for brokers on how best to position themselves for the road ahead?
(LS): With the recent decrease in the number of mortgage applications most brokers are seeing, I have witnessed a number of brokers who have successfully expanded their reach beyond just A clients, which has resulted in less of a decline in their fundings. The ups and downs of the economy have resulted in a larger percentage of clients who do not fit within the A mortgage space. If you have not already positioned yourself as a mortgage broker who can provide solutions for these clients you may be missing out on a growing part of the market. If you are not familiar with the alternative lending solutions that are available, Optimum has put together an accredited training program (issuing CAAMP credits) on alternative lending that our BDM’s are presenting on a regular basis.
CMP: Any final thoughts?
(LS): As history has shown us, in times of uncertainty and chaos there is both great anxiety and great opportunity. Those who can manage the anxiety, see the opportunity and adapt to take advantage of the opportunities will not only survive, but will also prosper. Optimum Mortgage continues to see great opportunity in the Canadian mortgage industry, especially in the area of providing alternative lending solutions – and we have built the team to successfully serve brokers in this market.