Canada's mortgage industry – what happens next?

Paul: [00:00:24] Hello, everyone, and welcome to the latest edition of CMP TV, a roundtable special brought to you in association with FCT, looking at the supercharged markets of the last 18 months here in Canada and delving deep into the market's future. I'm Paul Lucas, CMP's global editor. And has there ever been a time like this? Even if you were not in the mortgage industry, you'd have been impacted by the coronavirus? Just zoom in. Pun intended on the way that's changed your daily life. Maybe you're part of the urban exodus because you no longer need to be close to the office. Maybe you've renovated your existing property, or maybe on the flip side, you've been stung by a job loss, meaning you've had to downsize. Of course, brokers have had to react to all of these home living challenges facing their clients, and they've done it remarkably well. But now, as we look ahead, how long will this supercharge market last and how has the market changed, perhaps even forever? To find out, we brought in a panel of experts to help address some key market questions and help you make the most of the current landscape. So who are they? Well, let's meet them. We have Kate Wybrow, who is the vice president of distribution at FCT. Dong Lee, who is the chief operating officer at DLC Group of Companies. Megan McDonald, who is the vice president of sales at MCAP. And Joe Jacobs, managing partner at Mortgage Connection. So delighted to have you all with us now, of course. No one could have predicted what has happened around the world in the last two years. So how do you think the broker industry in Canada has responded? Megan, I'm going to come to you first.

Megan: [00:02:12] Yeah, absolutely. I think they responded remarkably well. Brokers now represent almost close to 50 percent of the mortgage market in Canada, which is a substantial increase from past years. I think they did this well because they were ready to go virtual. They responded with the branches closed due to COVID 19 and when call center lineups were backed up, they were agile and they were ready to respond to the Canadian needs. They brought comfort and security, and people wanted to get out of those larger markets and start going more urban and more medium urban and even small markets. They were able to understand that Canadians really wanted that home and that space now that they were working from home and wanted to expand that family. And I got to say the mortgage broker community responded incredibly well,

Paul: [00:03:00] Thank you Megan for getting this off to a positive start. Joe, if I can move to you, Megan says that the the broker community was ready.

Joe: [00:03:08] Do you agree? Yeah, a hundred percent. I think the broker industry as a whole maybe didn't realize how ready they were. A lot of the stuff that came to the forefront during the pandemic. Brokers were already doing a lot. We're already doing a virtual style meeting, working from home, adaptable to different hours and different ways. The consumer wanted to experience getting a mortgage. So when when banks were closed or a bank process require that you have to meet in a branch sign and a branch, they weren't able to be as nimble as the as the broker industry as a whole. So I think without us even realizing it, we were ready for it and the strong brokers were able to take what they already knew and just kind of supercharge it during during the need.

Paul: [00:03:56] I like that message that brokers were sort of ready without realizing it. I guess this just shows how adaptable brokers can be.

Kate: [00:04:04] Oh, absolutely. Adaptable is the word of the last 18 months, and I think the other word would be resilient. When I rewind back to the early parts of 2020 and we look at how much changed we were still signing documents in person, wedding signatures. Appraisals were still being done in homes. So much had to pivot very quickly, and this group of brokers was just crazy, adaptable. And not only were they adaptable in their business processes, they were then adaptable in how they supported the Canadian consumer in a time that was incredibly uncertain. So I just think that unwavering support of of the consumer of Canadians, of homeowners with all of the changes, it's pretty incredible when we look back at all of the good things that have come out of this from a market perspective for the mortgage broker community.

Paul: [00:04:53] Thank you, Kate. So I think we've established that brokers are pretty agile and adaptable bunch. Dong, what are the the next steps in learning from these experiences? And I suppose continuing to adapt?

Dong: [00:05:07] You know, the problem with with so much changes is sometimes comes complacency that you've already done enough that some of the technologies that you've embraced are enough for now and into the future. And I think that's sometimes a a natural sort of place of of misstep. And I think the other thing that we've done well is a lot of people have adopted their own technology, but there's been a lack of vertical integration within the entire sort of real estate transaction. So what might work well for a broker might not necessarily work well for a lender or can't be adjusted by lender and asset is no different, right? We just got to find a way to find better ways of communicating and connecting to make that whole transaction for everybody a lot more seamless.

Paul: [00:05:56] Thank you. So it's about making transactions a little more seamless. Kate, do you agree?

Kate: [00:06:02] I couldn't agree more with what Dong had to say. Real estate, by its very nature, is an incredibly disjointed set of microtransactions and what we, you know, we we're aware of it fact, and I know all of the experts on this panel today are also equally aware of we need to create a more interconnected transaction. You have to leverage data. We have to leverage new technology. And I think COVID and the last 18 months have really presented a golden opportunity to think differently about how we communicate and the pieces of technology that we leverage. That should certainly be carried forward.

Paul: [00:06:36] Thank you, Kate. And on that point as well, I guess, if we're going to sort of move forward. Joe, excuse me, Meghan, does this mean that we need to sort of let go of past perceptions as well?

Megan: [00:06:47] Yeah, absolutely. I think twenty to twenty twenty twenty one, we're great lessons in. And letting go of past perceptions regarding what grows business and what we need to do to impress the Canadian consumer when it comes to the mortgage transactions. We have a big opportunity here. We had talked about technology moving forward in the future of five to 10 years. We then saw because of COVID 19 and not being able to get out there into the world that those technologies suddenly came right up to one to two years out. We know, for example, that MCAP offered an availability for just a push of a button on my MCAP to offer mortgage deferrals this past year and a half, and that was technology we didn't even think we needed. Nor that was going to make a big game changer. And technology like that and ideas like that are continuing to bubble up because of COVID 19 and the restrictions, we were able to see things become possible that we didn't think would be possible for a decade. And I think we've got to continue to challenge our perceptions and our ideas of what technology should look like with the client interaction should look like. And as Kate and Dong has already said, putting those pieces together more seamlessly for the Canadian consumer.

Paul: [00:08:00] Thank you, Megan, and I just want to reflect back, as you did on some of Kate's words there, because of course, she talked about inefficiencies. Let's let's move beyond the inefficiencies to the efficiencies as well, because what noteworthy efficiencies do you think have been perhaps brought forward because of the the significant volume of mortgage originations that we saw last year in 2021? And which of those efficiencies do you think will be carried forward regardless, perhaps of the market headwinds that we might face going forward? Joe, let me bring you in at this point.

Joe: [00:08:36] I think kind of a few things to touch on there. One, I think it's really important to realize that a lot of the efficiencies that we're talking about, the consumer, the Canadian home owner is going to drive these because they now have expectations that this is how the mortgage transaction not only can be done, but should be done. So it's really important that we realize that the consumer's expectations have completely shifted and probably moved, as Megan had alluded to in a two year window to something we thought maybe would come in 10 years. But some of the big things that it's crazy to now look back that we didn't have that are now here, you know, digital signatures. Kate had talked about doing signings that were in wedding. You know, they've been very adaptive. We're now transfer business can be done with virtual signings and we have lawyers that are doing that. Those types of efficiencies are making it a better experience for the consumer, and it's now it's the norm. It is what's expected. So I think those things are going to continue to grow and that's that's going to be an expectation that we have to be ahead to make sure that we are delivering what is expected by the by the Canadian consumer.

Paul: [00:09:46] Thanks, Joe. And if I can bring you in as well, if we're if we're looking at these efficiencies, I guess data has to be driving all of it

Kate: [00:09:54] And a lot of ways, yes. And I couldn't agree more with what Joe is saying. The consumer behavior is really what's driving all of this. We thought the consumer expectations were at a high for you, 20 20. It's double down. People don't want to go back to in-person. If they can take a zoom to sign their mortgage documents, that's what they want. It is most efficient for them in their lives as well. And certainly, to your point, Paul data is driven a lot of this innovation. I even think about the appraisal landscape and how we now have so much accessible property data, driving automated valuations and near automated valuations. People don't want someone coming into their home anymore, and I can think of a laundry list of other similar examples where we've really innovated the way mortgage transactions are processed and it's here to stay.

Paul: [00:10:43] Yeah, I've never wanted people coming into my home, but we're talking about how customers are sort of influencing things here. I'm wondering if lenders will have sort of a role to play as well. Will they be influencing things? Will they perhaps be a little bit more selective? Megan?

Megan: [00:10:59] Yeah, great question. A topic that is near and dear to my heart, as you can imagine. You know, I do want to reiterate, though, that I'm hearing from Kate and Dong and Joe that the virtual realities of today are table stakes. We're not going back to the way we were. This is the way it will be now. And so on top of that, what's going to be driving this, particularly for lenders, will be cack. And that, of course, is the customer acquisition costs. Was it costing us to bring this client on board? And what is the profitability behind this business? Let's face it, we've all got to contribute. We've all got to have successful businesses, which means we do have to look at things like profit. So the true profit of a mortgage broker partner with a lender measuring their efficiencies and seeing how their behaviors change over time. It'd be interesting to know what things will look like three to five years from now. I've got a feeling the lender partners are going to get a little bit more picky about. Who they want to deal with and why? And they're going to be looking at all measurements, whether that's submit to fund funding ratio documents coming in churn rates. All this will now be applicable into the future. And so I encourage all mortgage brokers to look at how you're doing your business because I'll tell you the lenders are looking at it.

Paul: [00:12:12] You know, I liked that idea that many of the lessons of 2021 are clearly going to translate into 2020 to Dong, if I can bring you in, I'm just wondering did anything surprise you about the market last year?

Dong: [00:12:24] Yeah, you know what? What surprised me the most was the same problems. We've been struggling for the last three or four decades, which is when when volumes increase and turnaround times go from two days to four weeks to get a commitment back on a transaction. It's it's absolutely astonishing that the same problems we've had in the 1980s and 90s are the same problems we struggle in in in twenty twenty one. You know, I kind of giggle and laugh because, you know, the triage of lenders of which transactions to look at is based on. Is it a purchase or is it a refinance? And you know, to think that we're in the world of technology and all this new stuff coming. Yet that's still the only way to decipher which deal. To look at when you're overwhelmed is is surprising. So, you know, I'll go back to the same thing. I think if we look back to twenty twenty one and twenty twenty two, are we going to bring new technologies in place that is going to talk to some of the stuff that Megan spoke to, which is how do we bring better brokers to the table to get responses faster? How do those people get to the front of the line? You know, call it the Amazon Prime example or or the the, you know, the Amex, you know, front line services like those things I think ultimately are going to come into play. And I think, you know, the lessons we learned in Twenty Twenty One, I think are going to take hold in twenty twenty two and everyone is looking at that sort of thing. So I think Megan is bang on.

Paul: [00:13:49] Thanks, Dong, and I'll actually bring Megan back in as well, if I can, because just picking up on on Don's point there and also reflecting back on what you said earlier, Megan, I mean, lenders have to be looking to the future here. What sort of shape do you see that taking?

Megan: [00:14:05] I think auto adjudication is going to be technology for the future. Lenders have been looking at this for years. There hasn't been quite the driving force or need as there is today, but we saw a lot of lenders struggling with staffing, struggling to get those commitments out the door, lagging to the Canadian consumer, which we know we can't sustain. We have to be able to respond and respond quickly. And with that, I think there's an opportunity for us to look at some of these deals. Look at some of these more cookie cutter deals, these deals that can fit in a box that you can auto adjudicate and have an answer out within the hour, if not sooner.

Paul: [00:14:38] Ok, I like you, Joe. I'm going to come across to you now because I think we've focused a little bit on the lender there. Give me the broker perspective.

Joe: [00:14:47] Yes, certainly. I mean, I'm I'm going to just acknowledge that the lenders are looking at this correctly. Meghan had alluded to it. Dong has talked about it as well, that they're looking at how can we be more efficient? How how much is it costing us to acquire this, this mortgage? And you know, the mortgage broker is a source of acquisition, but if we're an expensive source, it doesn't make sense for the lender. And so we need to be better. Megan's talking about, you know, the auto approvals, and that's something that every mortgage broker wants. But for that to happen, it's good data in or or that can't happen. So it's really forcing better behavior on the broker, which I'm excited about because we preach it from from the top down, from the bottom up that if you want to win in this game, you have to be better. You have to step your game up and lenders are really hyper focused on it now. They've always said it, but the way they are now paying the way they're know ranking brokers, whether you know it or not, you're you all have a report card. So and some of us are failing. So, you know, the A-plus student is going to have better access, better pricing, better pay, and they're going to win more mortgage transactions because of it. So I'm all for it. You know, everyone has to raise the bar and step their game up.

Paul: [00:16:03] Yeah, I think these are vital messages to sort of step up the game. But if I can just reflect back on my original question as well, Megan, were there any sort of surprises in the market from your perspective?

Megan: [00:16:15] Yeah, I think there was a lot of surprises, and I think we have to look to those external forces record low interest rate, record high property values, a pull forward of purchases. People that weren't going to move ended up moving earlier than probably expected. We saw the shift from insured and insurable to uninsurable, of course, because those property prices were rising so quickly, we saw an increase in refinances. You know, that famous token of the Canadian landscape is that home can be a great ATM. We saw people going out and spending records, amount of money saving records, amount of money. We're seeing the effect on inflation. So I think, you know, twenty twenty two for me will put pressure on that $1 million mark. And then we've got us because there is a stagnation around there for being an insured mortgage. And then we've got to see if the government increases that to one point two, five, one million and two hundred fifty thousand. And will that take the pressure off that $1 million mark, or will we simply just see pressure moving up? So it's it'll be interesting to see what happens.

Paul: [00:17:23] You know, a lot of food for thought, for sure. Kate. Any surprises from your perspective?

Kate: [00:17:29] No, I love. This is all music to my ears when I hear Meghan and Joe and Dong talk about the need for change and everyone raising the bar. And that innovation is just, it's so ready. And I know that all of us in the industry are ready for it, and we want to enable a lot of that innovation through data driven solutions through insurance offerings, mitigating risk for lenders. Speaking of just risk mitigation, on whole, what really surprised me a lot about the last year was that our lenders who typically have a significant approval process when they want to do something different, that is a vast departure from their current business processes, policy changes, the risk approvals, the third party investor approvals. It's a lot of legwork to create change when you look at what they have to do in order to introduce a new product and process. And I cannot believe how nimble and how agile some of our lender partners were. And I do hope that's been appreciated across the industry because these are quite often their big ships to steer. So that is something, I think to be celebrated with how adaptable and fast moving some of those changes came to be, whether that be technology adaptation, new product solutions, new appraisal tools. I think our lenders have given us a lot to work with, and FCT is in the fortunate kind of driver behind some of that in partnership with those lenders. I do think that that's going to carry forward into next year and beyond next year. So just reflecting back at the sheer amount of change that we've seen in 2020 one, it's exciting to see where the industry is headed.

Paul: [00:19:01] It's been a lot of positive vibes on this conversation so far. But of course, the Canadian Real Estate Association has predicted that this supercharged market is going to slow down somewhat during this year. So what market opportunities do you see out there? Megan, I'm going to come to you.

Megan: [00:19:21] Yeah. So let's talk about what we do know for a minute. Canada trades on MLS. That's a multiple listing system, typically usually on any given year, four hundred and fifty thousand transactions. This is what's deemed in many people's eyes as a balanced market. But last year, in twenty twenty one, we saw six hundred and seventy five thousand trades on MLS. Of course, this is due to COVID pull forward purchases and so on, and that's why we were so busy. So the good news is Korea. The Canadian Real Estate Association is predicting that we are going to have an estimated five hundred and eighty thousand eighty thousand trades rather this year, which is still an incredibly healthy market. But what is buzzing in the back of everybody's mind is new construction. So let's talk a little bit about that because I think it's important in Canada, we build approximately two hundred thousand homes a year. Here is what's complicated, though this doesn't mean that 200000 homes were physically completed. In fact, there's too many layers of government here. We've got federal, provincial and municipal. So when we're talking about two hundred thousand homes, it's actually that the municipality approves two hundred thousand builds, so of two hundred. There's approximately 150, 150000 condos and 50 thousand homes that single family dwellings, which we have to recognize, is the complete inverse of what we saw in the nineteen eighties and some of the nineties. So overall, the outlook is still positive, but it's important to understand those small details. And for us, particularly in Canada, immigration in the form of formed families plays a driving force and demand for housing. So the issues will remain in the future and the opportunities are to understand our market clearly have a great direction for your business. Understand where your opportunities are to grow and to do it quickly with the use of technology. But the issue still remains. We can't be naive to this supply and price acceleration, so we've got to watch out for government intervention and rising interest rates.

Paul: [00:21:46] Thank you, Meghan and Kate. I think Meghan, just right at the end of of her words there she she touched on a point which I think has to be factored into everybody's equation, and that is the possibility of rising interest rates.

Kate: [00:21:59] Absolutely. And I think it was only a matter of time that rates were going to go up. It can't go much lower, so we should have expected it. I think everybody sees it. It's on the radar. But that doesn't always present a bad news story. When you look at the home price index and property values in so many markets right across the country, from coast to coast, they're going up and they're continuing to go up. Which means if you're not already focused on refinance and transfer business in your in your world, you should be. The purchase market has carried us through 2020 and through twenty twenty one. We are going to face some headwinds this year. We will not have those purchase tailwinds carrying us. And if you haven't diversified your business mix, there's no better time to do it than now. Even as rates go up, they're not going to skyrocket overnight and there is going to be equity in the properties of your entire book of business. So start churning that business, start contacting your customers. We do need to think differently about our business this year. I think that's a theme on the panel this afternoon. And you know, for those of you that aren't getting your head into that space, I would strongly encourage you to do so presents a great opportunity as we continue to move into twenty twenty two

Paul: [00:23:09] Great point Dong, made by Kate there. She talked about refinances. Do you see that as a window of opportunity as well?

Dong: [00:23:18] Yeah, absolutely. Kate brought a good point. And listen, here's the thing, you know, the Canadian Real Estate Association is calling for a slowdown in the supercharged market, but but they're also calling for an eight percent increase in home prices in this coming year. So a good portion of our community or a population live in communities where their home value is in excess of a million dollars. That means that there there's one hundred thousand in newfound equity for a lot of these people. So the opportunity for refinance to take some of that equity out, take money out of your house. Rich asset is an enormous opportunity for brokers to take that and do whatever they want with it. There's the number of people I talked to now that are looking at buying a second home or an investment property is more so than I've ever heard before. And what better way to get that down payment than from refinancing your principal residence?

Paul: [00:24:14] Interesting. And Joe, if I can bring you in as well, I mean, we've had quite a bit of focus on on refinances. How do you see the outlook for the purchase market?

Joe: [00:24:23] So yeah, I think the purchase market is going to be a challenge this year. The supply issue is real across the country and that that leads to a lot of a lot of busyness for mortgage brokers and people in the real estate business. But it doesn't mean that it's going to be actual transactions that are paying you. So, you know, everyone's busy with pre approvals. Everyone wants to get into this market no matter where you are in the country. And a lot of people just aren't being successful on on writing offers, and they've written 10 or 12 and the fatigue is real. So. Mortgage brokers can be very busy helping people, answering questions, potentially doing a mortgage transaction than not having it come through. So I think you've got to be really focused on where your time going. What are you delivering to put people in the best situation to win those purchase deals? But I also think kind of talking along the same lines of what Dong has talked on, what Kate has, what Megan has touched on. There's a lot of opportunities for us as mortgage brokers to kind of step up and provide some value to the Canadian consumer.

Joe: [00:25:25] Right now, when we're looking at rates going up and we're in an environment that there's a lot of concern on, there's a real opportunity for you to make sure that you're doing some rate preservation for the consumer. People are concerned what happens if my rate goes up one and a half, two percent? Well, maybe now is the time to look and see if there is an opportunity for you to do something. Because people are worried about. You know, it's great that their house is going up, but you know, that's a that's a what if, no, if they sell or take money out, but what is going to happen in the with their actual mortgage payment in two years if rates are two percent higher than what they signed up for at record lows in 2020? So there's opportunities to look at your existing book to help with that. The refinance business is huge and I think the purchase size is still there, but to be just focused on that, you're you could be doing as much work as you did in 20 or 21 and making a lot less money doing so.

Paul: [00:26:21] Well, Joe, it seems once the brokers to to step up a little bit, but I think we should give them a helping hand in doing that. So now I'm going to put all of you on the spot and I'm going to ask you to share one tip or take away with our broker audience as they look at the market in twenty twenty two. So what would that tip or takeaway be? Dong come to you first.

Dong: [00:26:44] Yeah, I think I think it would be. Not a surprise to say that everybody worked incredibly hard in twenty twenty one. As much as we had new technologies and tools to make us more efficient. The simple reality is it took hours and hours of extra work to put through all those transactions, and I think everyone is a little bit tired from all that hard work. So, you know, if the Canadian Real Estate Association is right in the market is going to slow down a little bit. And let's say your volume does go down by 10 percent, but you find a way to get off the hamster wheel and learn to be a little bit more efficient because you work with the likes of FCT and MCAP to leverage some of their tools and technologies to work smarter, and you could be 20 percent more efficient than you know what. In reality, you're better head because you know the amount of time that you could put back into your well-being and your families, I think is overdue. And I just want to encourage everyone to not work harder but to work smarter in 2020, too.

Paul: [00:27:45] Thanks, Dong. That's a great message. Not just for brokers, but for everybody, I think. Megan, what about you?

Megan: [00:27:51] Yeah, technology. That's the big one for me. And no, I'm not talking about TIKTOK. I'm talking about real processes that can help you build a great business and help you work with your customers and allow what the mortgage broker market to not just maintain 50 percent of the mortgage market, but grow it. And so aligning yourself with great companies that are pushing technology know Dong mention it. FCT is pushing technology every day, they're connecting with your top lenders across the board to make sure that we are finding that way to work with the Canadian consumer. The best way possible and whether you're choosing partners like MCAP or others, look to your mortgage financing companies. They want to support the broker market. You are the ones that support us. You are our bread and butter and we want to deliver.

Paul: [00:28:42] All right. I like that message, and I have to say that I do disagree. I want to see more brokers on TikTok. Kate, let's get a tip from you.

Kate: [00:28:50] Well, you won't find me on TikTok, Paul, but you know, I love the idea of thinking differently. It's something that is it's one of the things we always talk about at FCT. How do we do this differently? How do we do it better? And I think it's important for brokers to remember that so many Canadians do not know mortgages. You go and talk to your customers. They don't know what you know. In fact, they often will know very, very little. And I think this is a golden opportunity where the market is presenting concerns around rising interest rates. What do I do with this product? I got a variable like educate. Inform. Talk to your customers and identify opportunities to help them and in turn, grow your business. And again, I know we've talked about it today, but refinances and transfers are going to be big this year. We continue to hear it right across all of our lender partners that have so get to, I think, get focused on how you can help not only enable your customers to access that equity, look for new opportunities for investment properties, or just make sure that they're insulating themselves from the rising rate environment.

Paul: [00:29:56] Thank you, Kate. Many Canadians don't know mortgages. Maybe even some mortgage editors don't know mortgages as well. Joe, I'm going to come to you next. You've no pressure at all, but this is the final tip of the day, so you better make it a good one.

Joe: [00:30:09] Well, you know, I wasn't going to go here, but I'm going here now to make it a big one. I think you should embrace TikTokand I'm going to be really serious about it. I think that there's a way to communicate to the consumer, and TikTok is definitely one of those ways. And I think brokers need to realize that, you know, if you ask a broker 10 years ago what they thought about Facebook, they probably would have said, Well, that's silly. That's where young kids are. And then they would have said the same thing about Instagram. And now the young kids are actually buying houses and they're on TikTok. So if you want to deliver the message about how you can help and how you can provide value and how the broker is different than the bank, get on TikTok, be funny and deliver news that way. So there's my trip, TikTok. There we go.

Paul: [00:30:55] Well, there you go. What a fantastic way to wrap things up, I did not expect the conclusion of this conversation to be for brokers to get on TikTok, but there you go. That's how it goes. My huge thanks to Kate, to Dong, to Meghan, to Joe and of course, to FCT for their help in presenting this roundtable today. And you know what? I'm going to say everybody. My tip if you want to make the most of this supercharged market from a mere mortgage editor, well, it's simple. Keep watching us here at CMPTV and we'll see you next time.