Brokers: mortgage rules pave way for agent cull

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For established brokers, it could be the sunny side of an otherwise dark round of mortgage rule changes, with industry veterans predicting the revamp will force as much as 15 per cent of agents out of the business.

“We’re talking about young agents who haven’t had the time to develop a client book of people with significant equity in their homes and so are dependent on those first-time buyers with 5 per cent down,” Ray McMillan, a broker with Home Mortgage Consultants Inc. in Mississauga, told “Also, in terms of refis, unless you have a stable of private lender in place, it will be harder to get those refi deals done."

The comments echo the admittedly wishful thinking of other established brokers, with equally well-established books and client databases.

McMillan’s clients skew older, have significant equity in their homes and household income above the national average. It means he’s less susceptible to any slowdown in the first-time buyer market as qualifying gets harder.

Under new mortgage rules, meant to take effect July 9, those clients – may find themselves shut out of the GTA and other high-priced markets, unable to qualify under the new 25-year amortization cap.

Many are now relying on 30 years to get into starter condos in both the downtown and suburban cores.
McMillan is convinced the new rules will dry up business for many young brokers  as they fight for few first-time clients. He’s predicting 10 – 15 per cent of Ontario’s agents will quit have to quit the business within a year, unable to support themselves under a dramatically changed landscape.

Those kind of losses would come on top of a significant cull earlier this year and attributed to new re-licensing standards in Ontario.

As of April 1 – one day after Ontario’s final deadline– some 21 per cent of the province’s 9,707 agents had failed to renew their licenses. That’s a loss of 2050 agents, alone, although nearly 200 mortgage brokers also missed the renewal date, representing a 12 per cent drop in the number of those licensees.

While the numbers represent a bump-up from initial FSCO relicensing stats, they exceed industry estimates for a total loss of 10 per cent to 15 per cent.


  • Christopher on 2012-06-26 4:26:47 AM

    I'm thankful to be in a market where the difference between 25 and 30 years isn't much. It's always been a small percentage of my business, with more deals with less than 25 years than more.

  • @kiltedbroker on 2012-06-26 4:29:23 AM

    I think the real question here is... will rates stay low? If rates stay low, housing prices might correct (if you believe the general consensus that housing in Canada is 10-15% overpriced). If this is the case, young agents might not be as affected as their target clients (first time homebuyers) should be okay. However if rates go up before the market corrects itself, I think it will be a tough go for all brokers across Canada. What better time would the banks have to go for our throats?

  • Welbanks on 2012-06-26 4:30:44 AM

    I'm not sure why there would be so much doom and gloom predicted... the rules really aren't all that different from when we had 25 year amortizations before. In fact, the ratios at 39 & 44 are still more lenient than they were then. Refinance business may take a bit of a hit, but for all the refinances that I do, there aren't that many that go to 85%. New brokers may find it a bit tougher, but I don't see it reason enough to say we're going to lose another 15% of brokers.

    The things people will write for some headlines.

  • Gregory Stanley CFP CSEC on 2012-06-26 4:55:46 AM

    Do we really wish to promote the word 'cull' when we refer to losing more young mortgage agents from our industry. The word is usually used in reference to animals; deemed pests/unwanted by society. I respect all people that have attempted to make it in our industry and have believed in the broker advantage for the public.

  • David O'Gorman on 2012-06-26 5:59:56 AM

    Do you think the banks are getting their way?Again? They start forcing clients to take collateral first mortgages, thereby blocking consumers access to second mortgages. Then they support the Feds moves to tighten the
    mortgage lending guidelines squeezing for lower LTV mortgages but higher GDSRs so they can lend highly more profitable unsecured loans & high rate credit cards. At the same time they shut down one of the larger broker oriented lenders(First Line) & flood the market with their own "specialists" that do not have to follow the rules set by provincial regulators...and you think the drop in agents will only be 10-15%?

  • Tim on 2012-06-26 6:33:18 AM

    I agree somewhat with Welbanks. In todays day and age people should be counseled to be looking at 15 year amortization not 30 but I do appreciate that making ends meet matters for a lot for people buying their home. If they are that critical that going from 30 to 25 year mortgages is going to not allow them into the market then they probably shouldn't be getting into it in the first place until they save more equity. This is a non-issue really, as was already stated it wasn't that long ago 25 year amort. was the limit. As for rates, sure they are low but it shouldn't be a surprise as these rates are only slightly less than what they were for the 30 years prior to the 1970's. It was a result of the glut of baby-boomer spenders that our economy saw high rates for a period of 15-20 years. What we have today are actually normal rates (read the book Pig and the Python). It seems to me that many of the nay sayers posting on the internet and writing articles like the one above these days have come into the business after the period when 15%,16%, and 17% first mortgages were the norm in the 80's and 90's. We all made it work somehow back then and housing prices were still considered high for the time, even in those days. Nothing has changed today except we have normal rates and todays society should be happy even if a first mortgage was at 6% which is mega miles from 15% only 20 years ago. Anyone that is driven out of the business today with this small announcement doesn't understand that real estate industry has a business cycle like everything does, and you have to expect to work through good times and through bad times. I hardly even look at this new announcement as even newsworthy. My thought for those so worried, is to hang in there (or don't) and roll with the punches. It isn't even bad yet and "if" it goes bad (which I don't think it will), then you will be ready for the day it turns good-but only if you are in the game.

  • Brian Coventry on 2012-06-26 7:40:14 AM

    I think the big six don't like the way we serve the mortgage clients. I know of many files in the big six I wish CMHC would audit certain Branches. We have to exercise due diligence and compliance at the pain of losing our license. There are lenders who in the Branch can play fast and lose with the rules and get away with it, some major fudged deals we could never pull off in our Industry....

  • Paul Therien, CENTUM on 2012-06-26 9:26:10 AM

    It may very well be that some people will leave the industry as it becomes more challenging to source business, however, given that the industry has been experiencing great change already - many of those people would have left eventually without this added encouragement... if they were to leave in the first place.

    I think that Welbank makes a valid point. It was not all that long ago when a 25 year am was the norm. If we look back to 10 years ago it was still, even with these changes, more difficult to obtain financing than it is today after these changes were made. The difference between a 30 year am and a 25 year am truthfully should not make or break a deal.

    If a customer cannot afford to make the payment on a home at 25 years, perhaps instead of trying to find a way to squeeze them into that mortgage, they need to consider purchasing a home that is not quite so expensive. I understand that presents challenges in some areas, like Vancouver, but… as the song says… “You can’t always get what you want”. Helping the consumer differentiate between the reality of what they want and what they can afford is a big part of being a mortgage advisor. Why anyone would think that maxing someone out to the last penny is a smart financial move is just plain… well… silly. 39% of your GROSS income on housing is still very high, consumers do not think of their gross income when doing a budget, they consider what is in their pocket.

    Consider this: let's say you make $1000 before deductions, $200 is gone for deductions, leaving you with $800 – of that $800 we are telling the consumer that they can spend $390 on PIT – which equals 48.75% of their take home income - their real, in pocket income. Doesn’t sound bad until you throw in kids, food, vacation, clothing, etc etc etc. Can't forget debt 44% of their gross would equate to 55% of their net.

    Back in the old days I was taught that the very first question you asked your customer was what the maximum amount they would be comfortable spending is, then you built your mortgage plan based on that. Today we ask them what their income is, and then TELL them that they can afford $X per month. Pretty different approach.

    Try it yourself, ask your next customer a simple question – “What is the most you would be comfortable spending each month?” – if they are not sure then ask them “If you were renting, what would be the absolute maximum you would be willing to spend?” then “How much more would you add to that, if any, to own a property?” You might be surprised at the answers you get. The amount typically will be lower than what the “maximum” allowed is. Allowed is very different than the comfort level they have for a payment so that they can still maintain their lifestyle.

    Maybe, if we approach these changes the right way, it is an opportunity for our industry to make a positive difference to the consumer... just maybe.

  • Tim L. Walker on 2012-06-26 2:20:08 PM

    Excellent comment, Paul. If I weren't in the industry myself, you'd be the type of mortgage agent I'd want to work with.

  • Jerry on 2012-06-27 7:37:18 AM

    While I agree with most of the comments regarding the 25 year amortization it really depends on the market you're serving. 8 years ago when the 25 year amortization was in place average house price in Calgary was about $180K for single family, now it is well over 400K. Vancouver was about $400K now closer to 800K+. Incomes haven't risen in correlation with house prices so in certain markets this will squeeze people out. ( I know rate were higher then too ) Especially if we see a 2% rate increase. In my perspective I have already seen a lot of the people I used to work with leave the business.I myself went from doing 40 million a year in business to 20 million and I work twice as hard as I did in 2006-2009. I think the damage will get worse before it gets better. I would bet at least 20-25% of the agents in Calgary don't renew their license come this Sept.

  • Paul Therien, CENTUM on 2012-06-28 7:00:45 AM

    In my opinion, for what it is worth, we as an industry need to take a step back and really consider these changes. Are we, perhaps, upset because it creates challenges for us in how we do our business as much as that the rules impact the consumer? I am not suggesting that there is anything wrong with that – just a question. The move to a 25 year am should not, in truth, inhibit the ability of the consumer to purchase A home. They may not be able to buy the bigger fancier home, but if they are so close to the cusp of having the ability to purchase a home… are they really ready for home ownership? If they can barely afford their mortgage, how will they manage unexpected costs? Interest rate increases? Major life changes? There are so many other factors to consider when buying a home that are just as important as the mortgage payment. Affordability is not just the standard payment. Cars are an example, you might be able to afford a BMW, but if you cannot afford to maintain the car – is it affordable?

    The rules move us back to the way mortgages were governed less than a decade ago. Yes, home prices have surged, but a large part of the why is because of the ease by which a mortgage could be obtained. Home ownership is not a divine right, it is something that we work towards, and is a goal for most people. These changes present an opportunity for our industry to really step up and demonstrate to the consumer that mortgage brokers offer solid and valuable home ownership advice to Canadians.

  • Mike Toporowsky, Real Mortgage Solutions on 2012-06-30 5:39:09 AM

    Customers need mortgage professionals now, more than ever. The changes have actually created a need for the Canadian consumer to seek out the help of somebody who can help them make sense of the mortgage rules. If a mortgage professional makes it a priority to become an expert on all of the changes and how individuals are affected, there should actually be a larger demand for our services.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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