What to expect in 2023

Fergal: Hello again. Thanks for joining us on another edition of CMP TV. I'm Fergal McAlinden, news editor for Canadian Mortgage Professional. It goes without saying that the last 12 months have seen plenty of change in the mortgage space from rising interest rates to a killer market. And on today's panel, we'll be looking to the year ahead to discuss some of the most important aspects that will affect the mortgage industry moving into 2023. Here to give their views on that market, new trends that will emerge this year and what they're keeping top of mind in the coming months. I'm very pleased to welcome Nick Kyprianou, president and CEO of RiverRock MIC and Vivianne Gauci, senior vice president of Marketing, Customer Experience and Chief Marketing Officer at HomeEquity Bank. It's great to have you all with us here today. How are things with you? 

Nick: Good. Thank you. 

Vivianne: Hi, Fergal. How are you? 

Fergal: I'm fantastic. It's great to see you all here today. Nick, I just wanted to get started with you. I mentioned, obviously the changes that took place in the market last year, but I'm wondering if you could give me some insight into what you're expecting things to look like as we move into 2023. 

Nick: Well, I think a lot depends on what the Bank of Canada decides to do in January. They did that 50 basis point increase in December. I think the people were split thinking whether it was going to be 25 or 50. They went with the 50. I think it's showing up in the market like things have slowed down even more now. Historically, December is a slower time. So is January and February. So people will wait and to see what the Bank of Canada does in January. It looks like they may put it on hold for a bit. I personally think they should. I don't think that we'll start to see the true impact of these rate increases until sometime in the summer. It takes a while for these rates to kind of flow through the system and people start to react. So I think that if they increase the rate again at the end of January, I think that's going to soften the market a bit more. People buy during certainty, people don't buy during uncertainty. So when there's a lot of uncertainty, even if people have the money and the income to purchase, they just continue to sit on the bench and watch because they think values will drop some more and they'll wait. So if the Bank of Canada in January gives a message that they think they're done, I think there'll be a bit of a spring market. I'm not seeing any kind of value increases. It's kind of more of a flat line, but there'll be a little more activity than there has been if they do increase the rate again or they give a message that they're still going to be increasing rates, I think you could see a bit more softening in the market in 23. 

Fergal: Yeah, for sure. And it'll be so interesting to see how those inflation reports play out as well in the month leading up to that bank announcement. Vivianne, for you, what are some of the things you're expecting to come into play next year? 

Vivianne: Well, I think for us, what we're looking at is people are taking a bit of a pause as they see the dynamics in the marketplace changing. So to next point, things slowing down a little bit. But what we tend to see also is that even though interest rates are going up, inflation has been going up. What happens is it creates a need and the need isn't going to go away. So what we'll see is maybe a bit of a pause, but then people are going to come back and say, no, they still need funds, they still need financing. So what we've seen so far is that, yes, people are taking a bit more of a pause. But but at the end of the day, they realize they still have a need for financing and and they're eventually coming back and saying, okay, what's the next step. 

Fergal: For sure. And I want to get your thoughts as well on what you as a lender are keeping top of mind for for 2023. Nick, maybe we'll come back to you on that one. Anything that RiverRock is keeping top of mind? 

Nick: Well, we're predominantly a real estate lender, so we'll overlook a lot of covenant issues, but we won't overlook real estate issues. So we put a tremendous amount amount to due diligence with respect to the value, the marketability, our exit strategy. So one of the things, you know, at a time like this, when it's been kind of erratic, you know, when values kind of escalated so much the first five months of the year and then they kind of pulled back after that. It creates a lot of mixed data in the system. Right. So appraisers are always looking in the rearview mirror. So we're getting a lot of values that we still believe. I would say 50% of the appraisals we're seeing or more still are a bit optimistic, right, Because they're looking in the rearview mirror at a lot of the numbers. It'd be more helpful if they started including list price listings into the appraisals, saying, here's some recent sales, however, here are some recent listings and how many days they've been on the market and the list price. That kind of gives you kind of a trend of where the house is going. Like if houses have sold for 800 over the last 90 days, but you have listings for 749 and they've been listed for 30 days, you clearly know that the market's still retreating. So we're still very cautious. I'm a little more optimistic on homes under $1,000,000 than I am over $1,000,000 just because the market is so much bigger because they can buy it with 5% down when you get over a million, like I've been saying to the people in the office, if we're seeing appraisals, a million, 25 million, 50 million, 75, let's just treat them as 950 because if we take them back, that's what they're going to be in a blink. That's what I've seen historically in other downturns. The positives are the banks are being working with people, especially with the variable rates. They're not increasing people's payments. They're working with them. They're making sure they'll take them right up to interest only and then just bump them up a little bit. So that's very positive. And then the other thing is, as people come up for renewal, they have the ability to push the amortizations out to 30 years. So you'll see people get that to give them payment relief. So that's positive for the existing people. The other positive is there's a lot of immigration coming to Canada over the next three years. These people come with a lot of education and they come with a lot of funds, so they hit the market pretty fast. So that's positive. However, there's a lot of negative sentiment out there with respect to rates and everything and inflation and the economy. And when you bump rates up this fast and this high, there's going to be repercussions, right? There's going to be an impact on businesses, people, everything. So like I said, we won't start seeing the full impact of this probably until mid-summer of this. 

Fergal: Well, that'll be interesting to see how that plays out. Vivianne, how about over at HomeEquity? Anything that you're noticing or keeping top of mind? 

Vivianne: Sure. We're one of the longer term trends that we've always been very aware of is that at the end of the day, Canadians are aging and frankly, people haven't saved enough. And so we find that many in our demographic struggle with cash flow problems or needing to supplement their retirement income, particularly those that are on a fixed income. So as prices have increased, we talked about the need not going away. That's still something that's going to be very much front and center over the next year. And so facing unplanned, unexpected expenses, needing to alleviate the stress of debt for some individuals who may not have those favorable lending terms that Nick was referring to is still going to be very much keeping top of mind. And so so one of the things that we are keeping in mind is how do we give control back to customers? And so one of the ways that we do that is with, for example, our income advantage product that allows people to take money over time so that people can take just what they need and making sure that people understand that particularly with interest rates being higher, tends to put people more at ease. So these are just some of the things that are top of mind for us right now. 

Fergal: Well, you touched on something that I want to ask to the whole group, and Nick I'll come back to you on this one. Is there anything that you're looking at for next year in terms of maybe new types of borrowers that may not have dealt with you before but could be in 2023? 

Nick: Well, what we've been seeing a lot of this year is a much better quality of borrower because with rates escalating so quickly and with the stress test still not moving, like Gauci just said, that they're not going to change the stress testing or ease up on it a bit. So we're seeing a quality of borrower that's been much better than we've seen historically, right? People have good incomes, good credit, good everything. It's just that they're just missing the mark on the GDS/TDS qualifications because of stress testing. So our quality of borrower has been increasing quite substantially this year, which has been great for us. But I think that's a positive for us on that standpoint. 

Fergal: And Vivianne, was there anything that you wanted to add in terms of new borrowers that you think may be coming over to the HomeEquity side in 2023? 

Vivianne: Well, one of the things that we that we've been noticing over the last little while is that product that I mentioned, taking money over time, income advantage being used a lot to supplement at home health care support. So as people increasingly want to stay away from long term care homes as much as possible, they're looking for ways to help adapt their home and or being able to finance home health care needs. And so that is a very interesting need that has arisen over the last little while. And for that reason, we're seeing a surge in popularity in that product whereby people aren't taking all of the money that they qualify for. They're taking it more as an income stream over time. The National Institute on Aging just released data today actually talking about the fact that the people who are most likely to have financial needs are those individuals who are not not doing as well from a health perspective and obviously those in a lower income bracket. So but that that aspect of the health becoming more and more of an issue, especially as we age, I think that's another key trend that we have our eyes on right now. 

Fergal: Yeah, for sure. That one will be we'll be so interested to keep our eye on for next year. I want to stay with you, Vivianne, for this next question, which is about mortgage brokers. Obviously, they've seen the market change massively over the last year compared with maybe the volume they were doing in previous years. Is there anything that you're encouraging them to keep top of mind as we move into '23? 

Vivianne: Well, brokers key competitive advantage in the market is the relationships that they have with customers. So I have I have about three things that I think brokers can can do over the next year to help them keep the keep the taps going, the business flowing. And then as I mentioned during the mortgage summit, I have one bonus tip, which I think is useful for for any broker out there. The first one is just reach out to your customer base, find out how they're doing. We actually at Home Equity Bank do a program called Warm Hug. We do it when our phones tend to slow down. This time of year in December, nobody wants to start a conversation about a reverse mortgage. They tend to they tend to call us in January quite a bit. But in December, the conversations tend to start to slow down. And so we use that time to actually just place calls out to our existing customer base and just check in and say, Hey, how's it going? How are you planning on spending your holidays? Do you have any questions about your financial situation or anything about what's going on right now in in the markets that I can help you with? You're one as a broker. You're one of the financial experts in your clients lives. And you'll be surprised that if you just ask that question, just stay quiet. You'd be surprised at what might come out of that conversation, maybe some opportunities that arise out of it. The second one is related to that. First point is mine your database. You know, I used to be a small business consultant. I used to set all of my small business clients up with an email program and drip feeds. It just it never failed. The moment that you set up, set out an email, you would get leads back in the door, you'd get opportunities. So I would say, absolutely. Look through your database, send out communications there. There are opportunities residing within your own database. The third one is be present in social media. You know, when times of uncertainty, people are looking for sources of advice and expertise. And you, as I mentioned, as a broker, you are a key source of that expertise. So don't be afraid to use social media to share all that. You know, to share, use case studies times where you've helped other individuals because you never know when a situation that you've helped another client with can actually help another person that might be watching you on social media or being subscribed to your feed. So leverage those examples of times where you've helped clients. You can use them in Anonymous. You don't have to name a client, obviously for privacy reasons, just use anonymous names and you could just show the example how you help. Because again, like I said, like I said, never know when you're going to find somebody else with a very similar story to one that you just dealt with. And then the final bonus point tip that I have is as you're making those calls, as you're speaking. Clients. As you're closing a deal, ask them how their parents are doing. And again, just be quiet. But just listen to what the story is about, what your client's parent's situation is. There are so many times where I've heard that they're thinking about their parents or trying to figure out how they're going to help them through this next phase in life. And or your clients themselves might be in a position where they might benefit from some help from their parents, but the parents don't quite know how to do that. So there's lots of opportunity within that conversation of even if you just find out how the parents are doing, there might be an opportunity there for for some additional business. 

Fergal: Yeah, that's very interesting, Vivianne, actually, because I'm mining databases is something that brokers tell me time and time again is what they'll be focusing on at the start of the year. And how about for you, Nick, Is there anything that you're encouraging brokers to be focusing on in 2023? 

Nick: Yeah, and this is what we say here to brokers all the time, especially because we're usually the second or third choice after the bank, right? We say don't over-promise and under-deliver. Right. So make sure you totally understand your client's situation with respect to their income, their ability to prove their income, their credit and things of that nature. Because what happens a lot is the brokers will quote the best rate on the street and then failing to ask, you know, run the credit report or asking questions about their income and then they can't get that. So then all of a sudden they go back to the broker and they say, I can get you this. And they go, But you told me this. And so then they've lost them. And then what ends up happening is they go to another broker and then that broker takes the time to understand what the client's situation is. Quote from the same rate that the other broker quoted. But he gets the deal because they felt that that broker was honest with them, with the other broker, felt like they were doing a bait and switch and it wasn't so much a bait and switch. It was just they didn't take the time to ask the proper questions and figure out what they were dealing with. Right? So it's very important to kind of ask the right questions. Then when they don't fit a bank, explain to them why they don't fit the bank and then say, but there is an alternative is going to cost you a bit more. But you put in one or two years with this other lender and then we can take you back to the bank. But if you don't explain them, explain it to people because everybody thinks you can go to the bank. Right? My brother in law went to the bank. Why can't I go to the bank? You know what I mean? That's how people think that they don't even realize there's a whole secondary market out there that lends to people who don't qualify for the bank. Right? We do it every day, so we're thinking about it. But if you don't like, how many times does somebody get a mortgage in their life? Like probably less than five times, maybe less than three. So and then you look at the three year gap in between each one. They don't even remember how they did it the last time. We've done second mortgages on people's homes and they, we phone them and they don't even realize they have a second mortgage on their house, even though they went to the lawyer's office and signed all the documents. You know, it's amazing. 

Fergal: Yeah, for sure. And one thing that I want to ask as well, and maybe we'll stick with you for this one for now, but from a product standpoint, what type of offering are you thinking are going to be especially valuable for brokers and their clients this year? 

Nick: Well, from a RiverRock standpoint, where we're lending to people that get declined by by lenders, right? So we don't have a minimum beacon score. We'll end up somebody that's in legal action with a bank. We don't have tedious requirements. We'll take self declared letters. The only thing that we care about is the property, is the value. Right? And is there a clear exit strategy? So most, like I always say, there's a hierarchy of debt, right? Your house is at the top of the pyramid. So somebody may have had some challenges in their life. Their credit's a bit soft. They may be able they make a decent living, but they can't prove it. People pay like it's our arrears are lower than the banks. It's because people have people have things in priority. They deal with us. So I think that, you know, I think that's the issue. That's the thing that we can do that everybody else can't do for the most part. 

Fergal: And Vivianne, for you, anything from a product standpoint that you want to highlight. 

Vivianne: We talked about the fact that health being something that that is more prevalent as a as a topic, especially as the population ages. So I think for us, the income advantage product is is been more and more relevant. It provides income flow for people who are looking for solutions to help them age at home, particularly at home health care. But it also provides a sense of control so people can take their money over time versus taking it all up front. And for some people that that that really resonates and make sure that they're being responsible with their with their money. The other thing that I would say is one of the things that we saw, particularly in the early part of this year and I think is going to reemerge as an ongoing need is as the younger generation is increasingly pressured to come up with down payments and ways to finance a new home purchase. One of the. One of the challenges that people sometimes assume about our product is that it's a product that takes away from the legacy that parents can give to their kids. But in fact, what we've seen is quite the opposite, is that parents are using their legacy, their home, this very smart investment decision that they made many, many years ago in this asset and turning it into a way for their children to enter the market just as they did many, many years ago. So it's in fact turning an opportunity or a challenge right now with the younger generation and making it into an opportunity by giving kids the money that they need now versus maybe ten, 20 years from now when they might not be able to use it. So it's another trend that we've been that we've been that we've been seeing. 

Fergal: Fantastic. One last question for you before I let you go, Nick. You mentioned I'll see earlier and that maybe wasn't a surprise, the decision that they took on the stress test. But on a regulatory standpoint, is there anything that you would like to see changed or anything that you think should be amended? 

Nick: Well, I'd like to see a lot of things changed, but it's not going to happen. I would like it to be much more difficult to get an agent license or a broker license. I think it's far too easy to get the license. I think the education requirements are very simple. I think at the same on the mixed base, it's far too simple to get an administrator's license. So I think when you make something very easy to get, it lowers the bar. And there's a lot of great mortgage brokers and there's some good mortgage administrators out there. But when the bar is so low, you bring down the level of quality. So I would like to see that improved. I know there is some efforts going on to improve it, but it's in my mind it's not fast enough and it's not tough enough. I think that with respect to honesty, like I always said to brokers, I don't know why they keep fighting the stress test. The greatest thing that ever happened to the mortgage brokerage community was the stress test. Now all of a sudden, more people need mortgage brokers to get financing. Why are they fighting that? Like, you know, that didn't make any sense to me. Somebody's helping you to get more business and then you're fighting it like you don't want more business. So that's so I would like to see more regulation with respect to education, with respect to getting licensing and everything else. Like, that's what I would like, but I think most people are against me on that. 

Fergal: And Vivianne, we'll give you the last word on this one. Anything from a regulatory standpoint you think should be changed? 

Vivianne: Well, Fergal, I think there's regulations aren't going to go away. And in fact, if anything, the trend is towards more regulations, both from a we're a federally regulated schedule and chartered bank. So we have both OSVI and the SCC that we deal with. And so what we see is there's an increase in the number of regulations that we are dealing with. And so my advice is from from our perspective is we lean into it and we say, okay, how do we actually turn these regulatory requirements into opportunities? You know, there's the example of complaints management right now. Well complaints are actually a great source of information about your processes, your procedures, you know, how do you optimize them, how do you make them better? How do you turn that potentially into competitive advantage in terms of how you're dealing with customers? So so I think the trend is going to be more, not less, regulation. And so my my advice is lean into it and try and see how you can turn it actually into competitive advantage. 

Fergal: Okay, fantastic. Well, I think it is safe to say that interesting times are ahead, as always, in the mortgage market. I want to thank each of you for coming on today. We really appreciate your insights. And I'm looking forward to hearing more from all of you in the year to come. Thanks for coming on. 

Nick: Thank you. 

Vivianne: Thank you for having us, Fergal. 

Fergal: That's just about all we have time for on today's show. My thanks again to HomeEquity Bank and RiverRock MIC for joining us today. Thanks to you for watching and we'll see you next time.