What lenders are looking for

When we talked to lender BDMs and underwriters nominated for CMP Canadian Mortgage Awards last year, they were happy to share what brokers could improve on application-wise and what their predictions were for the year ahead.

This year, with a fresh batch of finalists- including those from the newly added lender newcomer categories - and a host of new issues facing the industry, we asked similar questions to the people who put through deals and work with mortgage brokers and agents on a daily basis. Their feedback is particularly relevant and interesting with the advent of the new mortgage insurance rules, the harmonized sales tax in Ontario and B.C., and rising interest rates. While the lender employees interviewed seemed relatively calm about the upcoming changes, David Neville, a BDM with Home Trust, neatly summed up the situation and how it will affect brokers.

 "I think brokers have to expect the unexpected," said Neville, who is based in Halifax. "Insurers are going through uncharted territory and what was approved yesterday might not be approved today - not everything is a slam dunk as it has been in years past." With that in mind, here are some insider views on how brokers can develop closer relationships with lender partners and get a greater number of deals approved.

Common mistakes

Because lender BDMs and underwriters see hundreds upon hundreds of mortgage applications in a year, it's no surprise they can name off common errors and suggestions for improvement without hesitation.

"One of the big frustrations is having an application that isn't complete," said Christine Siddiqui, an underwriter with ING Direct in Toronto. She adds that brokers can improve on this by having better relationships with clients and completing applications with full disclosure in mind.

Along the same lines, Barb Morgan, a BDM at Merix Financial in Toronto, says the biggest thing she sees is brokers rushing applications after they get a rate quoted from the lender and then missing important information to get the deal done.

"I can't stress enough that it's not a race - it's the biggest financial transaction most people are going to go through, so it's important for originators to coach their clients to do things correctly and not rush just to get a rate," says Morgan, who encourages face-toface meetings with clients when possible.

"We waste so much time going back and forth on tiny pieces of information and that delays everything."

The most common type of information she sees missing on applications is related to property taxes, employment and income. She says it's important to get clients to differentiate their base salary and extras like bonuses, overtime and commission.

Chris Hoeppner a BDM for Street Capital in Chilliwack, B.C., also stresses the importance of brokers clarifying to lenders how a client's income is derived.

"The best brokers are the ones that ask clients for income documents upfront and then ask them to break down how they are paid as opposed to just putting down salary," he says. "The majority of delays generally have to do with the fact that questions weren't asked at the beginning of the process."

For alt-A and B deals, brokers have to pay more attention when filling out an application so they can go into more detail with lenders about why a credit score is a certain way or why income is irregular. This is especially important as guidelines tighten and formerly 'A-minus deals' may need to be turned over to an alternative lender.

"When insurers had easier guidelines, it was enough for brokers to say 'here are the facts' and that was that," says HomeTrust's Neville. "Now telling the story really does help and allowing for some more time for the deal to be done because there is an appraisal involved."

Like last year, the BDMs and underwriters interviewed emphasized the importance of good notes in getting an application processed. Neville says this is especially important for pieces of information like additional income or original purchase price, which don't always carry over to underwriting systems.
 
Good habits

Beyond a thorough application, there are other ways brokers can ensure smoother relationships with both clients and lenders.These habits go beyond simply knowing what numbers fit where and how to shape an application to work with a certain lenderor product. For Ambrose Wong, an underwriter at Bridgewater Bank in Calgary, a key component he looks for in applications is a client's financial maturity. It's something he thinks brokers need to pay attention to as well.

"If I see a client that makes $200,000 a year in Fort McMurray but he has almost no savings, I'll certainly ask questions and see if the broker is missing any information," Wong says. "Brokers are sometimes too focused on policies where they make sure a deal is with the right ratios and meets the five Cs of credit, but they don't look at things like financial maturity or unsupported marketability of a property."

Related to that, Wong often advises brokers to recommend amortizations under 35 years, especially for clients who are putting the minimum five per cent down. And if a client clearly isn't ready to take on a mortgage or will be stretched thin if they make such a big financial decision, he says it shouldn't be pushed.

"Don't force a deal because that can create massive credit hits and then the Beacon score will be driven down," he says.

Another aspect of responsible brokering is managing client expectations so that, for example, alt-A clients know they might not be able to get the best rate on offer.

"Because a lot of clients see ads showing the lowest mortgage rate, they think they're going to automatically get that rate, so a big part of the broker's job is pre-selling a deal to a client and making sure they have realistic expectations, especially in thisenvironment," says Neville.

For better client relationships, Hoeppner recommends brokers take the initiative to explain new rules or changing guidelinesto clients.

"It's a real value-add if brokers can call their database and explain the new rules and how they could affect them like, for example, if they're thinking of refinancing," he says. "It's a personal touch and it allows clients to prepare accordingly."

Future predictions

Last year, lender BDMs and underwriters predicted a few changes that would affect the mortgage industry over the remainder of 2009 and at the beginning of 2010. (This was, of course, before signs of the housing market picking up at an explosive pace.) A lot of these predictions remained this year, including a much bigger focus on responsible lending practices and brokers choosing fewer lenders to work with.

"Lenders are asking for higher volumes and more of a volume commitment, so I think there's a trend toward brokers sending deals to three or four main lenders that cover off every type of deal they need to get done and building those relationships as opposed to scattering deals around," says Hoeppner.

Siddiqui from ING agrees. She says brokers are becoming more selective and realizing the benefits of having a "strategic relationship" with the lender. But while many lenders and brokers see this as a positive development, there can be somedrawbacks, particularly for originators in smaller locales.

"Especially here in Atlantic Canada, individual brokers don't do huge volumes, so picking one or two lenders to deal with has been a tough road for them to travel," says Neville, adding he has seen a lot of brokers talking about pooling deals and looking at ways to stay within funding ratios of certain lenders. Neville also says that with the changing market, brokers will have to take on more of a "jack-of-all-trades" attitude compared to when the market was booming and relatively stable.

"Six years ago, brokers were taking every type of business they could get and then you saw people starting to specialize in A deals or B deals or rental property deals. Now I think you're going to see the broker population decrease slightly and brokers diversifying deals instead of focusing on just one thing."

Like last year, there are also predictions that there will be a greater interest in alt-A and B lending, particularly with slightlyhigher qualifying standards and tightened insurance guidelines for self-employed clients. Home Trust, for example, has put a reemphasis on its B lending products and other lenders may follow suit. As for the housing market, which is still seeing near-record numbers, there is a general consensus that sales will dampen in the not-too-distant future.

"We're predicting the last half of 2010 is probably going to be much slower with the combination of changes coming in," says Morgan, although she adds the new mortgage rules probably won't have too much of an effect. "I think most good originators already qualify clients on a higher rate - it's a smart thing to do because if you have any surprises, there'ssome wiggle room."

Brokers and lenders may have survived the recession, but the lessons of the financial crisis have left the mortgage lending andinsurance realms more cautious than when times were good, meaning more challenges for brokers and clients.Fortunately, there is still a lot to be said for good relationships between brokers and their lender BDMs and underwriters. Withregular communication, brokers can keep their efficiency ratios high - something that is becoming increasingly important - and
keep on top of new products and guidelines. And brokers shouldn't forget the importance of teamwork.

"To me, we both chip in - they send the deal and I'll make sure it doesn't turn around in two years and that will help them do better," says Ambrose. "Together, our ultimate goal is to secure financing for a client that truly deserves to be a homeowner."