CMP 7.4

April 2012 / issue 7.4 / $6.95

Strategy Succession planning for brokers page 24

REVENUE Syndicated mortgage investments

PROFILED Daniel Natareno speaks his clients's’ language

MARKETING Making a good First impression

TM TM

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TM HLC Design is a trademark of CIBC.

contents / issue 7.4 NEWS & VIEWS

34

Perfect Storm The time is right for syndicated mortgage investments

8 | Round-up The latest market news from the world of property, economics and mortgages 14 | Product News A round-up of the latest industry product launches to keep you up-to-date 16 | Viewpoint What MortgageBrokerNews.ca visitors are saying about getting documentation from clients upfront 18 | Analysis Housing affordability is improving as prices soften and homeowners benefit from income gains 20 | Big Story A compilation of the top quotes from our weekly multimedia broadcasts 22 | This Time Last Year Taking a new look at what made headlines this time last year

Cover Story 24 | Next in line What’s going to happen when you want to retire? John Tenpenny explains that planning for the future of your broker business means putting a succession plan into place

issue

7.4

THE MORE YOUR DEAL LOOKS LIKE A LONG SHOT THE MORE WE LOOK LIKE ASURE THING.

FEATURES 34 | Syndicated mortgage investments Brokers looking to expand their business have found syndicated mortgage investments fit the bill 44 | Investor financing: Don’t quit your day job yet The past few years of economic turmoil have created a difficult environment for real estate investors. Peter Kinch explains the ways brokers can ensure these clients can still get the financing they need MARKETING 48 | Realtor Marketing Secrets: Doren Aldana explains how the initial face-to-face meeting with a Realtor can literally make or break your chances of winning them as a referral partner and why it’s so important to have an effective approach that compels them to want to work with you

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contents / issue 7.4

62

Opinion Do the big banks have a future with brokers?

profiles

regulars

54 | Broker Daniel Natareno has succeeded with the help of Toronto’s Spanish-speaking community, and his business has matured and grown with his client base

60 | Favourite Things 63 | CMP Service Directory

58 | Insight The finalists for 2012 Canadian Mortgage Awards’ Best Lender Underwriter of the Year share with Caitlin Nobes the reasons why they have such good relationships with their broker partners

Twitter.com/ CMPmagazine 52 | Stats This month’s round-up looks at recent Statistics Canada data, which offers a snapshot of debt holders Expert mobile half page ad_with border.pdf

Like Us on Facebook Canadian Mortgage 17/02/2012 5:47:37 PM Professional

columnS 62 | Guest New guidelines have and will continue to have effects on brokers and where they submit deals, says alternative lending executive Nick Kyprianou

60 NE W !

Expert Mobile

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Contact your Regional Sales Manager to learn more about Expert Mobile

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D+H and its logos are trademarks of D+H Limited Partnership.

2 | mortgagebrokernews.ca

https://m.expert.dhltd.com

As Canada’s longest established national broker network, The Mortgage Centre has earned the reputation of being a quality driven organization. We strive to consistently provide our independent mortgage professionals with a stable and reputable environment to grow their careers.

If you’re a driven, born salesperson looking to join an organization geared to helping you succeed, contact our local franchise office nearest you or:

Ryan Sadler, Regional Vice-President, Eastern Canada

1.866.938.4416 Mike Ashe, Regional Vice-President, Western Canada

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1989

The Mortgage Centre is a division of CIBC Mortgages Inc., a member of the CIBC group of companies. ® The Mortgage Centre is a registered trademark of CIBC Mortgages Inc.

2012

contents / Editor’s letter

Good news, bad news?

While it was a big relief for brokers when the federal Conservative government elected not to make any changes to mortgage rules in its budget on March 29, the mortgage lending market was not untouched.

In his budget, Flaherty effectively rejected suggestions from big banks and some economists that called for a 25-year amortization cap and an increase in down payment requirements. Both ideas were billed as a way of cutting record levels of household debt and slow down the consumer rush to buy homes.

Mortgage lenders however, did receive some direction in the form of proposed new and stricter rules from Canada’s financial regulator in an attempt to tighten lending practices in the housing sector.

For the first time, the Office of the Superintendent of Financial Institutions (OSFI) has put together a framework on mortgage underwriting principles, which if approved would set extensive due diligence requirements for lenders.

The new rules would require banks to take a closer look at how much a property is worth before issuing a mortgage – and to know more about the monthly finances of borrowers before the money is doled out.

The draft rules, which OSFI put out for comment until May 1, are designed to ensure that banks are collecting detailed information about a borrower’s identity, background, and willingness and ability to pay their debts on time. The rules also deal with due diligence the banks should conduct on the value of properties. And OSFI is telling banks that they will have to disclose more information publicly about the risks contained in their mortgage portfolios.

What all this means for brokers is unclear at the moment, but it certainly bodes well for monoline lenders as brokers taking business to banks may find it tougher to get deals approved.

So, as always, I encourage you to contact us with any news related to the broker and mortgage industry or just to share your opinions on how we’re doing. It is exciting times for our industry and we look forward to helping you and your business navigate them.

Cheers.

John Tenpenny, Editor

connect

Contact the editor: john.tenpenny@kmimedia.ca

4 | mortgagebrokernews.ca

COPY & FEATURES Editor John Tenpenny Associate Online Editor Vernon Clement Jones SUB-EDITOR Rachel Naud staff writer Caitlin Nobes contributors Doren Aldana

Peter Kinch

Nick Kyprianou

ART & PRODUCTION Design Production Manager gRAPHIC dESIGNER

Angie Gillies Alicia Chin

SALES & MARKETING

NATIONAL SALES MANAGER Trevor Biggs SALES MANAGER, Mortgagebrokernews Scott Clarke Marketing and Communications Julia Comitale PROJECT COORDINATOR Jessica Duce

CORPORATE PRESIDENT & CEO Tim Duce OFFICE/TRAFFIC MANAGER Marni Parker Events and Conference Manager Chris Davis

Editorial enquiries john.tenpenny@kmimedia.ca Advertising enquiries trevor.biggs@kmimedia.ca Subscriptions tel: 416 644 8740 • fax: 413 203 8940 subscriptions@kmimedia.ca KMI Publishing 312 Adelaide Street West, Suite 800 Toronto, Ontario M5V 1R2 mortgagebrokernews.ca Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as CMP magazine can accept no responsibility for loss.

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contents / Quotables

“If you’re an owner/ manager and you leave, there has to be someone there able to step into your shoes that will be capable, equally or better than you in running that business. You then need to identify those people and mentor them and put together a development plan.”

“Because the mortgage broker business is becoming so cutthroat, it’s nice to be able to branch out and have alternative revenue streams. It’s nice not to have to compete and buydown rates and always be in a defensive mode to make a buck.”

Broker Christopher Molder, offering one reason why he offers syndicated mortgage investments to his clients Page 34

Consultant Bryan Tannenbaum, discussing the importance of brokers having a succession plan for their business Page 24

Broker Sentiment Poll

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News / Round-UP federal budget

Flaherty budget leaves mortgage rules untouched Brokers are breathing a sigh of relief after the Finance Minister rejected calls to tinker with mortgage insurance rules, offering a budget that leaves the maximum amortization cap at 30 years and the minimum down payment at five per cent.

The reprieve, at least for now, was anticipated by mortgage industry leaders from one end of the country to the next, and comes on the heels of broker lobbying efforts, spearheaded by CAAMP. “CAAMP is pleased that the federal government and Minister Flaherty are listening to CAAMP’s key messages,” said Murphy. “CAAMP will continue to work on the OSFI Underwriting Principles and will also continue to work with the federal government on the mortgage ceiling.

Still, the government did move to shore up some areas of mortgage industry oversight: it will bring in legislation to provide increased oversight of CMHC commercial activities; and legislation for covered bonds, which will be administered by CMHC. “The government will propose legislative amendments to strengthen oversight of CMHC and to ensure its commercial activities are managed in a manner that promotes the stability of the financial system,” the budget said.

The budget also stressed it would be moving forward with a legislative framework for covered bonds, which include some loans backstopped by mortgage default insurance and ultimately the federal government.

CMHC will be the administrator of the covered bond program, which will be available to federally and provincially regulated mortgage lenders in Canada.

“A legislative framework will support financial stability by helping lenders find new sources of funding and by making the market for Canadian covered bonds more robust,” according to the budget.

Jim Flaherty

8 | mortgagebrokernews.ca

regulations

Bank regulator proposes more scrutiny of mortgage market

stats

50%

– of all Canadians said they would choose a fixedrate mortgage if they had to decide today, an 11 per cent increase over last year

Source: CIBC/ Harris/ Decima

Draft guidelines meant to bring additional checks and balances to mortgage underwriting could see banks rein in on the HELOC business many brokers object to.

While the proposal from the Office of the Superintendent of Financial Institutions Canada (OSFI) would require bank boards of directors to directly approve mortgage underwriting polices, it would also force them to apply the same scrutiny to home equity lines of credit.

Those more rigid lending standards could see banks shore up their underwriting on HELOCs, making it more difficult to extend clients – especially at the top-end of debt-servicing ratios – those higher-interest loans.

The draft rules, are focused on ensuring banks collect more detailed information about a borrower’s ability to pay their debts on time. OSFI also wants banks to disclose more information about the default risks associated with their expanding mortgage portfolios.

Still, the HELOC question may have the widest impact on broker clients sent to the banks and what if any benefits they’ll glean from being placed in re-advanceable mortgages.

The guidelines come at the same time the government amplifies its concerns about rising household debt levels. While mortgages have been a central area of concern, brokers are asking the federal government to focus on unsecured credit and HELOC credit growth, calling that the real culprit.

OSFI may, in fact, agree.

“These products can also significantly add to consumer debt loads,” said the regulator, in sharing the draft guidelines. “As well, it can be easier for borrowers to conceal potential financial distress by drawing on their lines of credit to make timely mortgage payments and, consequently, present a challenge for lenders to adequately assess credit risk exposure.”

News / Round-UP property

Home prices up in February but gains slowing A soft landing for the Canadian housing market appears to be the most likely scenario, as the latest numbers from the country’s largest real estate association show a continued deceleration of home prices.

The Canadian Real Estate Association said its MLS Home Price Index (HPI), a survey of five major housing markets showed prices continued to rise in February.

However, the 5.1 per cent year-over-year increase in February was the smallest since June 2011. It was also the fourth consecutive month in which gains slowed.

Toronto posted the biggest gain, rising 7.3 per cent, while prices also moderated in Calgary (2.5 per cent) and Montreal (1.6 per cent).

The aggregate composite HPI rose 1.1 per cent on a monthover-month basis in February, with prices for two-storey singlefamily homes up 1.6 per cent. Prices for townhouse/row and apartment units saw smaller gains of 0.4 and 0.5 per cent respectively.

“The index typically rises in February from the previous month as demand ramps up leading into the spring housing market,” said Gregory Klump, CREA’s chief economist. “The monthly price increase in February this year was less than what we saw in either of the past two years, which is more evidence that the trend for Canadian home prices is slowing.”

The index based on single-family, townhouse/row unit, and apartment unit sales activity in Greater Vancouver, the Fraser Valley, Calgary, Greater Montreal and Greater Toronto.

non-banks

Lender sees increase in trailer fee payouts

Aggregate Home Price Index (year-over-year percentage change)

Source: CREA

7.3% Toronto

The broker channel’s biggest proponent of trailer fees said it expects to pay out a whopping $5 million of that trailer fee compensation in 2012, billing it as a validation of the model and evidence of a maturing market.

“It’s a good news story for both Merix and the brokers originating 75 per cent of the mortgages under the trailer fee model instead of the upfront one,” said Jason Kay, the monoline’s VP of sales and corporate development. “It also answers skeptics who said lenders wouldn’t be around at renewal to pay out the trailer fees and it’s good for brokers because it has helped them increase the value of their business.”

Merix has been consistent in that messaging for more than six years, although brokers as a whole have been more ambivalent, say analysts. Not all, however.

“One originator, alone, will collect $100,000 in trailer fees this year,” said Kay, pointing to a small team submitting under one broker.

The overall number of brokers moving to adopt trailer fees hasn’t greatly increased since it hit the channel, with few lenders showing any signs of moving to include that compensation as an option.

2.5% Calgary

1.6% Montreal

OverOver 600 Million 600 Million LentLent sincesince 19971997

80% 80%

5.75% 5.75%

6.75% 6.75%

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Independently Owned and Operated. ®/™ trademarks owned by Centum Financial Group Inc. © 2012 Centum Financial Group Inc.

News / Round-UP

property investment

Savings, not credit would finance most renovations With heightened concerns about unsecured credit, in particular the use of HELOCs by homeowners, a new survey reveals the majority of them say they would finance any home renovations with their own money, rather than credit.

According to the latest RBC Homeownership Poll, 83 per cent of Canadians would rather renovate their homes than find a new place to live if their current home needs major work.

When asked about their renovation budget, more than three-quarters of Canadians (78 per cent) estimated they would spend less than $10,000

on their renovations. The majority of renovators (71 per cent) said they would mostly finance these projects with cash or savings, while lines of credit (15 per cent), home equity refinancing (13 per cent), credit cards (10 per cent) and personal loans (four per cent) trailed well behind.

Reasons for renovating ranged from wanting to make their home more attractive (66 per cent), increasing the value (46 per cent) and maintaining or repairing their home (39 per cent). Four in 10 Canadians (39 per cent) said that they want to renovate to increase energy efficiency.

The rooms that typically add the most value to a house - bathrooms and kitchens - were the top home improvement projects on the minds of Canadians, tied at 43 per cent, while 33 per cent plan to renovate their basement. Almost half of respondents (46 per cent) plan to do much of the work themselves, compared to 42 per cent who expect to hire a contractor for their renovations (up five percentage points from 37 per cent in 2010).

Home renovators would finance projects with: Cash or savings Lines of credit Home equity refinancing Credit cards Personal loans Source: RBC

71% 15% 13% 10% 4%

banks

Brokers continue to drive reverse mortgage growth HomEquity’s broker-driven originations increased 20 per cent last year, outpacing its 17 per cent increase in business overall.

“A lot of brokers are feeling the pressure from banks and are not seeing as much growth as previously,” said Greg Bandler, senior vice-president of sales and marketing. “They are looking for ways to increase their business. Reverse mortgages is a small but important portion of that. We have appreciated the professionalism of the brokers we’ve worked with. They are very much businessand client-driven.”

$1.2 billion HomEquity Bank’s portfolio of reverse mortgages as of December 31, 2011 The 2011 increase, according to the company’s annual financial report, followed a banner year in 2010 with the broker segment increasing 110 per cent for the reverse mortgage specialist while business overall increased 87 per cent.

Improved awareness and education about HomEquity’s products had driven the increase, said Bandler. The company had been contacting brokers directly, including attending broker events, to inform the industry about reverse mortgages.

According to Bandler, brokers often referred senior clients directly, but could also find that younger clients with concerns about their parents’ financial situation were interested in learning about reverse mortgages.

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News / Product Round-UP

PRODUCT NEWS A bite-sized guide to the industry’s newest products as they come out of the box

Who: FNF Canada What: Broker Connect The facts: FNF Canada has added new technology to its file management tool Broker Connect for brokers accessing its appraisal and mortgage closing services.

The Broker Connect portal is a web-based technology application that offers brokers the ability to see real-time file status whenever and wherever they wish.

Brokers now have access to the following:

Who: ING DIRECT What: Platinum Refinance Program The facts: For clients asking for fixed legal fees and prompt service in the convenience of their own home, ING DIRECT now offers clients this service through First Canadian Title (FCT).

Product Overview: •

•

•

•

Read/write capabilities – new functionality has been embedded in the portal to allow brokers to communicate, online, directly with the FNF client service team.

FNF Contacts – this section of the portal has been expanded to include information on FNF contacts and is now listed by lender and product.

Resource Section – brokers now have access to new reference materials including welcome letters, funding calendar and FAQs. As new material and resources become available it will be housed in this section of portal.

What they say: “These changes were made in response to feedback received from our Broker Advisory Group. This is another example of our commitment to becoming a strategic partner to the broker community and further enhances Broker’s Choice.”

– Lori Smith, director, business development – broker services

14 | mortgagebrokernews.ca

• • •

Fixed pricing and lower overall legal costs in many cases Convenient in-home signing appointment (n/a in BC or QC) Single point of contact at FCT Prompt funding process

What’s included: All searches, mortgage registrations, payouts of secured and unsecured debts, all discharge registrations and one signing appointment with FCT agent.

What they say: “2012 has been the year of new launches at ING DIRECT: HELOC, Canada Guaranty and our latest and exciting new tool, FCT’s Flat Fee Refinance program. This is such a competitive environment and our timing of launching this Flat Fee Refinance program is great as it allows brokers and agents to bring additional value and choice to their clients. Feedback that we have received from our brokers and agents has been very positive. ” – Kim Luxton, director, broker sales

LAUNCHING A NEW PRODUCT?

Want it to be considered for inclusion on this page, send the details to the editor: john. tenpenny@kmimedia.ca

News

News / comment InternatIonaL

&

u.s.

Viewpoint 90.6% 52.1%

inspectors have found problems; appraisals showed a home was worth less than the bid; a buyer lost a job before the closing.

U.S. housing market worse than thought More than two years after the recession The number of Americans who bought previously officially ended, many people can’t qualify for occupied homes rose in October. But the National loans or meet higher down payment Association of Realtors says it overstated more than requirements. Even those with excellent credit three million sales during and after the Great Recession, and stable jobs are holding off because they fear showing the housing market was weaker than Percentage of that home prices will keep falling. Sales are also previously thought. homeownership being hurt by a decline in first-time buyers, who The private trade group says sales rose four per costs, including are critical to reviving the housing market. cent in October to a seasonally adjusted annual rate of mortgage payments, Sales have fallen in four of the five years 4.42 million. That’s below the roughly six million homes utilities and property since the housing boom went bust in 2006. a year that economists say are consistent with a healthy taxes that take your up a Declining prices record-low mortgage rates housing market. But it’s ahead of 2008’s revised sales, Top broker: Get ‘docs’ in aand row typical household’s haven’t been enough to boost sales. now considered the worst in 13 years. monthly pre-tax Ataway the same time,but home construction hasasks for The trade group revised its sales from 2007 to 2010 It’s a request many brokers fear will scare clients, a top B.C. player income in Vancouver begun a gradual comeback and should add to the down 14 per cent, from more than 20.6 million to ALL nearlysupporting documents right after meeting with a lead – a way of gauging and Toronto, economy’s growth in 2011 for the first year since 17.7 million. Among the reasons for the lower figures, buy-in levels.respectively (RBC the Great Recession began in 2007. Last month, the Realtors group says: changes in the way the Census “It’s reallyEconomics the best way of vetting your clients,” said Dustan Woodhouse, a Housing builders broke ground on an annual rate of Bureau collects data, population shifts and some sales broker with Dominion Lending Centres Canadian Mortgage Experts onrecently.

B.C.’s Trends and 685,000 homes, the government said being counted twice.

Affordability Report) Lower Mainland.

“If they are committed, they will get that list of documents.

If That was a 9.3 per cent jump from October and The Realtors consulted with government and they are not, they won’t.” the fastest pace since April 2010. private housing experts, including the Federal Reserve, Most economists say home prices will keep the Department of Housing and Urban Development,Make no mistake. It’s not a small list. As a rule, Woodhouse sends out a standard falling, by at least ve per it cent, through 2012. the Mortgage Bankers Association, the National email request just after hanging up the phone.

The 13fiitems calls for run the forecasts foresee a rebound in prices Association of Home Builders, mortgage giants Fannie gamut from a job letter and notice of Many assessment to,don’t ahem, a copy of a client’s until at least 2013.

Mae and Freddie Mac and CoreLogic, a California-based “separation agreement showing support payments made/received along with three The high rate of foreclosures has made data firm that first raised doubts about the annual months bank statements and copies of (three months) cleared cheques confirming resold homes cheaper than new ones. The numbers earlier this year. receipt of funds if applicable.” median price of a new home is roughly 30 per CoreLogic has estimated that the Realtors group While other top performers are asking for the ofthat’s documentation as a cent above thesame pricelevel of one been occupied overstated sales in 2010 by at least 15 per cent. before twice the normal markup.

Investors The changing numbers could affect how economists way of speeding an application through the–underwriting process, most haveare advantage of the discounts. view the trade group’s data. It could also affect companies reservations about asking for all that taking paperwork upfront.

The housing market is struggling even that use the figures for hiring and expansion plans.

Some mortgage professionals are limiting their initial requests to a written as the broader economy has improved in Sales are measured when buyers close on homes. application from the client, another way of easing the borrower into what can be a recent months.

But many deals are collapsing before that point. daunting process.

The economy grew at an annual pace of two One-third of Realtors said they had at least one contract But those clients genuinely prepared move a file to submission will,Many in fact, per to cent in the July-September quarter. scuttled in October, up from 18 per cent in September. rise to the challenge of cobbling together the necessary paperwork, said economists expect slightly better growth in the Contracts are being cancelled for several reasons: October-December quarter. CMP Banks have declined mortgage applications; homeWoodhouse.

Each issue we select a story from

The story:

MortgageBrokerNews.ca

that has got the industry talking and publish the best responses. This month – getting documentation from clients upfront

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Voice your opinion Visit mortgagebrokernews.ca to comment on this and other stories making headlines in the industry

appointments Rob Stanfield

I agree with the process and have done it this way for years. The list above may be a little too detailed and scare some borrowers, but if this Intelligence that the process is presented properly, itMortgage works extremely wellannounced at measuring Marg Green, level of commitment your clientSteve has toHeimbecker, you. I don’t see why anyone would Donna Ramsay and Concierge not request documents once they have talked to clients. Doing business Mortgage Group are joining this way makes you look professional, competent and very the company. knowledgeable.

Green in Mississauga, Ramsay in

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Orangeville and Heimbecker in Waterloo, are equal owners in Concierge Mortgage Group.

I agree with this practice and have been doing something similar for Concierge is a do new boutique years. This is only common sense to me. How you do a proper brokerage firm that will focus on pre-approval if you don’t have anything to base fact on? elite and experienced brokers, offering exceptional needs-based

What’s the Issue? customer service. The goal is for Most (if not) all experienced brokers do this (or should do this).

Dustan is Concierge Mortgage Group to have offices throughout Ontario. right about gauging client interest.

A “committed” client will do this. It is willare operate a just smart business practice. I hope Concierge new brokers beingas trained on with Mortgage this at their respective brokers. network The partpartner about some brokers being Intelligence, developing its own hesitant about asking for docs upfront to me equates to being afraid to brand while taking advantage of ask for the business.

Mortgage Intelligence’s key resources like compliance, payroll, Tiffany exclusive mortgage products, and marketing.

I think this is a great approach. This allows deals to move quickly and if Intelligence offers clients mistakenly provide you with “Mortgage inflated income numbers you know us competitive compensation ahead of time instead of being caught off-guard. This alleviates problems and the support that Concierge with conditions delays and allows lenders to be more efficient. If needs to be successful,” presented properly, people do not hesitate. said Heimbecker.

Kevin J. Power

Gale Tracey

Mortgage Group Never assume. You have to haveTMG yourThe priorities straight asistomoving where to three of its regional leaders spend your time and it is not on clients that will not provide up youthe with corporate ladder, documentation upfront How many times have youbilling heardthe “Mymove bankas told in keeping with its philosophy of me I qualify for [this much],” only later to find out [the amount] wasn’t promoting from within. Effective even close!

Jan.1, 2012, Bud Jorgenson assumed the position of VP for the Prairie Region; Gord Appel, VP, Alberta Region; and Gerald Krahn, Ontario Region. “These three have already made positive changes in What should the government do to the minimum their respective regions,” said Mark downKerzner, payment? president of TMG. “Their dedication to TMG agents and LeaveTop: itSteve alone 76%is very important for the Heimbecker brokers Middle: Marg Green company’s long-term success. They Middle: Donna Ramsay Increase it 15% Middle: Gord Appel are a great asset to the TMG Bottom: Gerald Krahn family.” CMP Lower amortization 9%

l a e Ownership that makes R sense.

>

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News / analysis

Home ownership affordability

improves With worries about household debt and overpriced housing markets, a new report provides evidence that housing affordability, while higher in some areas, is improving as prices soften and homeowners benefit from income gains

Housing affordability measure for the benchmark detached bungalow 86% Vancouver (down 4.6 percentage points)

52.2% Toronto (down 0.1 percentage points)

40.9% Ottawa (down 0.1 percentage points)

40.1% Montreal (down 0.7 percentage points)

36.7% Calgary (down 0.7 percentage points)

32.8% Edmonton (down 0.3 percentage points) Source: RBC Economics

18 | mortgagebrokernews.ca

Home ownership costs – driven up by dramatic price increases in Vancouver early last year – continued to drop as 2011 came to a close, according to RBC. The RBC Housing Trends and Affordability Report said Canadian homebuyers benefited from softer home prices and income gains that helped lighten the load on their budgets in the fourth quarter of 2011 as affordability improved for the second straight quarter.

“The improvement in affordability was modest for the most part, but still significant enough to dial back the deterioration that impacted the market in spring last year,” said Craig Wright, senior vice-president and chief economist, RBC. “As a result, the cost of owning a home at market price represented slightly less of a pinch on household budgets in the fourth quarter. Continued low interest rates in 2012 will help keep housing costs at bay in the near term.”

The RBC housing affordability measure captures the proportion of pre-tax household income that would be needed to service the costs of owning a specified category of home at going market values.

During the fourth quarter of 2011, measures at the national level fell for all housing categories tracked by RBC (a fall represents an improvement in affordability). The two-storey home category showed the most notable improvement.

“At this point, housing in Canada is essentially as affordable as it was a year ago, and only slightly less affordable on average than it has been over the long term,” Wright noted. “All things considered, the housing market is sitting in a reasonably balanced position overall, despite some minor stress being exerted on housing demand.”

While Vancouver and British Columbia saw improvement in homeownership costs, the proportion of a typical Vancouver household’s income that would go towards owning a home is still extremely high.

News / appointments

The latest industry appointments and moves from across the country Origin opens DLC franchise Dominion Lending Centres announced that Origin has joined its national brokerage.

“Origin is a well-managed, highly dynamic BC-based brokerage with a strategic vision similar to that of Dominion Lending Centres,” said Gary Mauris, Dominion Lending Centres President.

“It’s clear that both companies are intent on Geoff Willis empowering brokers across the industry, and fostering a culture that embraces continuing education and training.”

Origin, an independent Vancouver-based brokerage has chosen to partner with Dominion Lending Centres this coming April. Since its launch in 2006, Origin mortgage brokers have assisted more than 12,000 B.C. mortgage clients.

“We’re excited about this next chapter in our evolution at Origin, and we feel that we have a forward looking partnership with DLC,” said Geoff Willis of Origin.

New regional manager at Invis Mortgage Intelligence

Looking for

the latest mortgage news and talk?

Invis Mortgage Intelligence announced that Paula Hillick has been named new Regional Manager for Central and Northern GTA. Hillick brings over 20 years banking and brokerage industry experience to her role at Paula Hillick Invis/MI. “Paula brings a varied knowledge base and expertise that will help her brokers be successful; particularly in the areas of structuring deals, rate negotiation and prospecting,” said Stan Falkowski, president, Invis Mortgage Intelligence. “I know that she will bring a new dimension and enthusiasm to both the new and experienced brokers with her focus on recruiting and training.”

Home Capital welcomes new Board member Home Capital Group Inc. announced that James C. Baillie, counsel at Torys LLP, has joined the Board of Directors of the company and its subsidiary, Home Trust Company.

Baillie brings a wealth of experience to the company, and is recognized as one of Canada’s James Baillie leading corporate legal practitioners. Throughout his career, he has advised corporations, financial institutions, federal and provincial governments and agencies, and self-regulatory organizations on strategic business issues, complex legal matters and legislative options. He is also past-chairman of the Ontario Securities Commission.

mortgagebrokernews.ca

Big News analysis / MULTIMEDIA

Story

MortgageBrokerNews investigates the burning issues affecting the mortgage industry. Here are the biggest stories highlighted by our weekly newscasts – and uncensored feedback from brokers

the topic

Mortgage fraud Wayne Sudsbury: “Statistics show us that it’s a very small percentage of the total mortgages outstanding in Canada today that are actual fraudulent transactions. Notwithstanding that, I think mortgage brokers should take mandatory courses every two or three years to make sure that they are aware of the red flags that can cause or lead to a fraudulent transaction.”

Ray Leclair: “What we’re telling anybody about fraud is to basically be alert for signs of fraud – things

20 | mortgagebrokernews.ca

that will give you an indication that something funny is going on. That could be that the client is not as interested in the property as they should be; they don’t have an interest in the expenses; they don’t necessarily have the right documentation, they don’t have surveys, they don’t have bills, they don’t have those type of documents that typically clients would have if they were interested in the property. The I.D. may not look right; they may not allow you to deal with the previous lawyer or banker or visit the property. There’s a third party that seems to be governing transaction. Those kinds of things on their own are not suspicious, but as a whole you start to get a flavour and that’s what we’re trying to get [brokers] to look at that point to heighten their sensitivity.”

From the forum

AB Broker

One thing is for certain, there are bad apples in every industry. I challenge the big brokerage houses to root out and push those unethical types out of the industry and not to continue to protect them because they bring in larger volumes.

Longtime Lender

Sometimes it’s difficult to pinpoint the exact source of the fraud, and mortgage brokers are often just one link in the chain, so it’s important as a broker to ensure that you know your client and your source of business.

News analysis/ multimedia

the topic

The Lending Landscape Lee Welbanks: “I can see the pullback from lenders in terms of policy and programs that are offered and the potential loss of major lenders being a little detrimental at the onset. There will be some fallout, but we’re a thriving industry and we’ve come a long way from where we were 15 years ago as the lender of last resort. We’re a strong industry now, so I think we’re going to be better off, we’re just going to have some initial pain. For this business to be profitable for the lenders and to keep them at the table we may have to look at reduced compensation. Margins are too tight and it’s not profitable and that’s why we’re seeing an exodus of lenders. For the more established brokers it will make them leaner, but for those who are newer to this business, they’re going to find it a little more challenging to gain a foothold in this industry.”

Bill Eves: “As a long-time broker, I’ve lived through many ups and downs. It’s good, it’s bad, rules change, governments change, and landscapes change. We have no control over that, so the good broker will, in fact, need to look after their clients, explore all the possibilities of different lending institutions, including banks as well. That’s what a good broker should be doing.

That’s how we’ve being doing business for a long, long time. We’ve adapted, I hope everyone else can do the same.”

Grant Brown: “With changes to the mortgage market I feel that we as brokers need to understand that the banks are really starting to take a bigger piece of the market and we need to become better at adapting, whether that be through tapping into the commercial market, the insurance market or the wealth management market. This, in turn, will allow us to service our customers and add value and ultimately build our book of business.”

From the forum

A. Contento

Although the loss of FirstLine may have many wondering who is next, it does give the brokers and agents in our industry another reason to come together and stay united. With the many monoline lenders out there, as well as TD, Scotia Mortgage Authority, ING, etc. we are not short of offerings for our customers.

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News / this time last year SE BR N O TI M KE EN R T PO LL

www.mortgagebrokernews.ca

APRIL 2011, 6.4

a

awnd the

rd goesa to...

The 20 11 CMA Brok of the Ye ar finalis er ts

NEWS ANALYSIS NEW ACCOUNTING RULES MAY AFFECT BROKERS

MARKETING DON’T BE A PARASITE

BRANDING GET MORE BANG FROM YOUR BRAND PUBLICATIONS MAIL AGREEMENT #41261516

6.4_Cover.indd 1

2011

4/13/11 12:35:26 AM

BC MIC managers are stronger united British Columbia’s newest private lending association is calling a meeting with the province’s securities commission a significant first step in addressing concerns about new federal regulations and their potential impact on Mortgage Investment Corporations.

The new investment rules are focused on streamlining registration requirements and exemptions for securities dealers and advisers from one end of the country to the next. At the same time the federal instrument will impose new registration requirements for investment fund managers.

It’s that last objective that raised eyebrows in B.C.’s MIC community and helped drive the formation of the new association, which was formally announced at the Mortgage Brokers Association of British Columbia (MBABC) Conference last month in Vancouver. BCMMA now has 16 members, managers of $1 billion in lending capacity.

The new association promises to better position MIC managers to lobby government and address regulatory and external issues that directly affect their business, said Alan Cross, president of the BCMMA. “We feel that we can present a common voice to regulators,” he said. “Instead of each MIC hiring a lawyer to understand compliance issues, in the future we’ll be able to do that together.”

22 | mortgagebrokernews.ca

This time

Last year ONE YEAR LATER A year on Alan Cross says the British Columbia MIC Managers Association has been more successful than he imagined.

“The organization has reached a position that I didn’t expect. I knew it was necessary, I just didn’t have an idea of how useful it would be to our industry,” said Cross. “We’ve never had a common voice and Alan Cross now we can talk to regulators and lobby the federal government. Prior to this we were doing it independent of one another, now we have strength of numbers.”

The association has been recognized by other industry groups and the regulatory body and as they build relationships Cross hoped they would be able to enter discussions before changes were made so MIC managers could explain the possible impacts of legislative and regulatory changes.

The organization, which launched its website last year, now has 20 members – representing more than a billion dollars in lending capacity – who meet quarterly to discuss industry issues. Each meeting also had a speaker, including from BCSC, an insurance company and a foreclosure lawyer.

The group lobbied hard against aspects of Bill C-13, which aimed to close loopholes in tax exemptions. BCMMA members were concerned about the decision to move MICs to a “prohibited investment” list in terms of RRSP and RRIF tax exemptions. The bill passed at the end of

last year.

They were happier with the results of the appeal against National Instrument 31-103, which would have nationalized securities regulation. The Supreme Court of Canada found the regulations change was unconstitutional.

“That was a huge relief for us. We were quite worried about the implications to our ability to raise capital. We still have to work with the BCSC and see what they want to do going forward but we do have dialogue with them,” said Cross.

“When we started we were asked if we wanted to be a national organization. I felt it was too much to take on, plus most of our regulatory regimes are provincial so it makes sense to be a provincially based organization,” Cross says. “It’s been an overwhelming success – more than I imagined.”

– Caitlin Nobes

We’ve never had a common voice and now we can talk to regulators and lobby the federal government.

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Cover / SUCCESSION PLANNING

Strategy What’s going to happen when you want to retire? John Tenpenny explains that planning for the future of your broker business means putting a succession plan into place and making sure your future is bright hinges on implementing that plan early enough

For small business owners like mortgage brokers, thoughts of retirement eventually lead to questions, including ‘When I retire, will I leave my business to a family member or a third party?’

Sadly though, like many entrepreneurs, brokers may leave the question unanswered or fail to act until it’s too late.

A recent poll from TD Waterhouse revealed that three-quarters of Canadian small business owners don’t have a succession plan.

Having spent a lifetime building their business, sadly 76 per cent of the small business owners admitted they didn’t have a succession plan. Those surveyed also said the reason they don’t have a succession plan for their business is they are still trying to figure out what their plan will be (45 per cent) or that they just haven’t gotten around to it yet (31 per cent).

Not being fully prepared for the day when they will no longer be running their business can leave

mortgagebrokernews.ca | 25

Cover / SUCCESSION PLANNING brokers disappointed and delay their plans to step back or exit the business altogether.

“It’s an important matter to address earlier, rather than later,” says Bryan Tannenbaum, partner, Financial Advisory Services with Deloitte.

“Succession is really a strategy in creating value. You want to start early enough so you can position yourself at a further point with how you’re going to sell your business or how someone is going to succeed you in that business.

“If you’re an owner/manager and you leave, there has to be someone there able to step into your shoes that will be capable, equally or better than you in running that business. You then need to identify those people and mentor them and put together a development plan.”

For Gord Wintrup, president of VERICO Bayfield Mortgage Professionals in Vancouver, putting off succession planning is a disaster waiting to happen.

“Without planning it could be gone tomorrow and that would be a shame,” says Wintrup, who has been in the business since 1972 and opened Bayfield in 1982. “Suddenly one day you wake up thinking, ‘I got old and now what am I going to do?’”

Putting a plan in place also means you won’t have to try and sell the business, which for Wintrup would be a poor decision. “I don’t believe you can just sell your book of business,” he says. “I don’t think that is doing your database any favours and I don’t think you would be getting the best value.

“Why walk away and get pennies on the dollar, when if you plan properly you’ll have an income for life.”

Gary Meger, co-owner of Neighbourhood Dominion Lending Centres in Barrie, Ont. is of the same mind. “At the end of the day, a lot of brokers may have a database to sell, at best, which you won’t get a lot for upfront,” he says.

Without planning it could be gone tomorrow and that would be a shame, suddenly one day you wake up thinking, ‘I got old and now what am I going to do?

Gord Wintrup

“The best I observed was where the owner stayed actively involved over a period of time. He worked with his successor over years, gradually shifting more of the income to that person. He worked with them during that transition, getting them comfortable with their referral sources and that’s key. That’s what we’re doing.”

The seed of succession was planted Meger says at a conference workshop a few years ago entitled “beginning with the end in mind.”

“That was the first time we really starting talking about it, about what would you have to do? What would that look like?”

The “we” Meger is referring to is his 24-year-old daughter Danielle Cawley, who has been working alongside him for the past two years.

“I’m blessed that she’s got the ability, drive and is

Why plan for business succession?

A good succession plan can help make the transfer of your business go smoothly, and allow you to maintain good relationships with employees and business partners. Succession planning helps you: • • • • • •

Protect the legacy of your business Maintain a service for your community Build value for your business Provide financial security for you and your family Deal with unexpected events (illness, accident or death) Prepare for the future

(Source: Business Canada Network www.canadabusiness.ca)

26 | mortgagebrokernews.ca

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Cover / SUCCESSION PLANNING

When do you start planning and how?

Start planning early if you intend to retire or exit from your business as the process could take up to five years. A business succession plan can help you make important decisions about ownership, maximizing your company’s value and tax strategies. A plan should touch on some of the following areas:

Goals and objectives • •

Develop a vision for the business.

Determine your retirement or post-business ownership goals.

Decision-making • •

•

If appropriate, involve family members in the development of the plan.

Have a conflict resolution mechanism — a pre-established plan to resolve any conflicts between family members, partners and/or employees.

Select a successor.

Training • •

Identify the core skills and competencies that your successor will need.

Plan for training of the new owner(s).

Estate planning •

Prepare a financial plan and determine the tax implications of the transition of your business.

Succession is really a strategy in creating value. You want to start early enough so you can position yourself at a further point with how you’re going to sell your business or how someone is going to succeed you in that business Bryan Tannenbaum

Contingency planning •

Have a contingency plan that includes the financial resources required to ensure the survival of your business in case of illness, accidents and even death.

Corporate structure and transfer methods • •

Determine your options as a sole proprietor, partner or owner of a corporation.

Decide whether you wish to transfer or sell the business to your successor.

Business valuation •

Find out the fair market value of your business.

Exit strategy •

Establish a timeline for easing your way out of the business.

Implementation and followup •

Review and update your plan regularly.

It is a good idea to contact key advisers such as accountants, bankers and lawyers when developing your succession plan. Communication with your successor(s) is important in order that they understand their roles in the business and collaborate in the transition process.

(Source: Business Canada Network www.canadabusiness.ca)

28 | mortgagebrokernews.ca

a family member, because I probably wouldn’t have looked at somebody without any experience otherwise,” says Meger. “There was no urgency, where I had to have her in place next year, so it’s been a gradual process where she’s learned through osmosis.”

“We started this when I was in university. From there I went and worked at a major bank for a couple of years and gained a good understanding of that side of the industry,” explains Cawley.

For Meger, it was important that Cawley learn from the bottom up and soak up every aspect of the business.

“There’s no way for me to gain 30 years of experience in only a few years,” says Cawley. “It’s a gradual process. My dad gives me a lot of rope, but he also trusts that if anything comes up or if there are any questions that I have, I will come to him right away.

“We have daily communication about the process. We talk a lot about it, probably because I’m eager and I push a lot and put a lot of energy into this,” she says, adding that they are at a point now where things can run smoothly at the office whether her father is there or not.

At Bayfield, Wintrup has been grooming his

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Cover / SUCCESSION PLANNING

People deal with us because of the experience they have, so try and create that same experience with my team. At the first possible moment we introduce the team concept and we tell people that Danielle is my daughter.

Gary Meger

stats

76%

– of small business owners admitted they don’t have a succession plan.Source:

TD Waterhouse Business Succession Poll (Oct.2011)

30 | mortgagebrokernews.ca

successor for the past four years. In the last two, Inder Matharu, VP in charge of broker recruitment and development, has been on the front lines of the brokerage that currently has 47 agents and broker as well as a staff of six.

“As I ease out Inder would be in my chair,” says Wintrup, whose idea of retirement is to spend a few days a week in the office. “At this point I can honestly say I will probably never retire, I love the business and I still have the same passion for the business that I had 40 years ago.”

Inder, who oversees training for the company is ahead of the curve on technology, according to Wintrup and that’s something he thinks the brokerage needs going forward.

Going forward also means letting go and ensuring the hands you leave the business in can care for it.

Wintrup has tried other candidates over the years, but feels confident in his choice of Matharu.

“Inder and I think alike. We have similar goals and have the same values and ethics and that’s so important,” says Wintrup.

“Where you have multiple employees and brokers, every one of those people has to respect and feel comfortable working with your replacement.”

Clients will also have to feel comfortable with your replacement or it could impact the business’ bottom line. Communicating your plans to customers is key, says Meger.

“People deal with us because of the experience they have, so try and create that same experience with my team,” he says. “At the first possible moment we introduce the team concept and we tell people that Danielle is my daughter.”

It seems to be working.

“More often than not, when people find out we’re related, all of sudden walls come down, as clients are more than happy to move forward with me because

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Cover / SUCCESSION PLANNING there is that solid foundation,” says Cawley. “As long as clients are feeling confident in my abilities, I find that they are happy and willing to work with me.”

You also have to give the process some time, says Wintrup.

“You know your database and you’ve taken years to build it up and it’s going to take some time for your referral sources to get comfortable with your replacement and it’s going to take some time for your replacement to get to know the needs and wants of your clients,” he says. “The person handling your succession has to understand how and why you do things and you have to give it ample time.”

You owe that much to everyone who comes in contact with your business.

“I feel at Bayfield we have a duty of care to brokers, agents, employees and to our investors (the company manages three MICs). You can’t just walk away. Over the years there has been a lot of trust built,” says Wintrup.

“It’s an evolution over time, where people like Inder are attending all the meetings and dealing with the brokers and agents to the point now where brokers will call Inder instead of myself in some instances.”

And you have to be prepared to share your position, says Wintrup. “You can’t micro-manage. If you have the right people in place, then let them do

their job. You know within when it’s time and you have to give it time.”

That might be hard for some, but in order for the plan to work, you have to be clear about what you want and how you’re going to achieve your retirement goals.

“What is it you’re trying to achieve?” asks Wintrup. “In my case, if I were to step back my lifestyle could change, so is my plan going to give me the cash flow I require? I would like to see Bayfield continue long after I’m gone, but I’d also like a comfortable retirement.”

Being really clear about what’s important has made it easier for Meger to envision what the future will look like, even though he’s still passionate about the business.

“Eventually I’m going to remove myself from the day-to-day routine that all of the brokers are immersed in,” he says. “I hope I can still be coming into the office 10 or 15 years from now. It might be only five per cent of my time, but could still be involved to some extent.”

But Meger knows with the succession he’s put in place, his involvement won’t be required to guarantee the business will be successful over the long term. If he needs any reassurance, all needs to do is pick up the phone.

“I call clients after closing and I’m getting a great response from those that have dealt with Danielle and some of the other brokers. And that gives me confidence in letting go.”

More often than not, when people find out we’re related, all of sudden walls come down, as clients are more than happy to move forward with me because there is that solid foundation

Danielle Cawley

How do you prepare for transition?

• • •

• •

Establish clear but flexible timelines to help keep you on track.

Set milestones for achieving goals and objectives.

Keep the succession plan up-to-date to reflect any changes or decisions; review and modify your plan at least once a year as things can change quickly in the business world.

Prepare a communication plan for notifying your successor, employees, and customers of your succession plans.

Seek professional advice.

(Source: Business Canada Network www.canadabusiness.ca)

32 | mortgagebrokernews.ca

FEATURE / Syndicated Mortgage Investments

A perfect storm Engaged with banks in the rate wars on one side and facing dwindling origination business on the other, brokers are increasingly looking to expand their streams of revenue while at the same time retaining their client base. Some have done just that with syndicated mortgage investments

34 | mortgagebrokernews.ca

How can brokers make better use of their most valuable asset – their database? That was the question Roy Deeks asked himself as he was looking for a way to capitalize on something he’s spent the last 30 years building. The answer for him, he discovered, was syndicated mortgage investments. “Over the past few years there has been a lot of talk about how mortgage brokers have to diversify and that some other financial services need to be added to their suite of products in order to build a fence around their client and try to retain or grow market share in a market that is actually diminishing

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FEATURE / Syndicated Mortgage Investments and getting increased competition from the banks,” says Deeks, principal broker with Unity Financial Services-The Mortgage Centre in Richmond, Hill, Ont. “That’s where I got onboard.

“I’m also at that age where I’m asking myself, ‘How can I work less and make as much or more then I was before and accomplish what I want without having to create a whole new model and work twice as hard to get the same revenue.”

With this product Deeks could go to his database, many of whom have aged with him. Deeks say many of them are now at a stage where they are wealthbuilding and they’re sitting on existing funds such as RRSPs and TFSAs, all with a moderate rate of return. They also have unused RRSP contributions and they have equity in their homes.

“It was a perfect storm for me,” says Deeks. “It’s not for everyone, but a lot of brokers see this as not only a great tool for their clients, but also a recruiting tool for their mortgage business because very few brokers currently offer this kind of product.”

I’m also at that age where I’m asking myself, ‘How can I work less and make as much or more then I was before and accomplish what I want without having to create a whole new model and work twice as hard to get the same revenue.

36 | mortgagebrokernews.ca

Watch the video

Recently, Roy Deeks spoke about his experience working with syndicated mortgage investments with MortgageBrokerNewsTV. To view the video, visit www. mortgagebrokernews.ca/tv “The mortgage market is shrinking and the stock market has been volatile since 2008, which presents a challenge to both our clients, as investors, and to brokers to increase their book of business and to survive in these trying times with the banks being more aggressive. I believe that I’ve found a solution to adapting to the change we’ve been presented with and that is a syndicated mortgage investment.

It’s within my expertise level; I don’t have to go outside of the box and bring in insurance products or investment products that I don’t understand. It’s something that I can go back to my database with and actually provide value-added to what I provided when I first met my clients. Like most brokers, I spend a lifetime building this client base and how do I capitalize on that? There’s no market for selling my business and I’d rather be spending less time at work and more time doing the things I want to with my life. So how do I do that? When I did my due diligence on this product I realized that most of the work would be done by the product provider and all I have to do is go back to my clients and offer them something they're already focused on, which is wealth preservation, wealth growth and income generation. I’m using it in my business and it’s been a runaway success as far as I’m concerned. The beauty of the product is that it is a secured investment that gives the client an eight per cent return over a three-year term, plus a 12 per cent profit participation at the end of the project and they have direct, registered ownership in the mortgage that’s registered against real security. So, guaranteed returns, real, tangible security, with bank-quality projects, developers with a proven track record and real estate that you can touch and feel when you want to see how your investment is doing. The referral fees are greater than what I was earning on my standard mortgage business, so it’s resolved another issue for me and I don’t have to worry about selling my book of business.”

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FEATURE / Syndicated Mortgage Investments

Mortgage Investments Mortgage investments take various forms and can be tailored to suit most investor needs and risk profiles. Below are three mortgage investment types that people can invest in.

#1: Direct Mortgage Investment (DMI) In a direct mortgage investment you act as a private lender providing all of the funds to a borrower. You’re like the bank. The mortgage contract which contains the interest rate and repayment terms is registered in your name through a lawyer. Depending on the agreed upon terms you receive a regular monthly mortgage payment.

#2: Syndicate Mortgage Investment (SMI) Together with a number of other lenders you pool your money and provide funds to a borrower. The mortgage contract is registered proportionally in your name through a lawyer and depending on the agreed upon terms you receive a regular monthly mortgage payment proportional to your contribution to the mortgage. It shares the risk and doesn’t tie up all the capital in one mortgage. In a SMI there are multiple lenders and the investor can allocate available capital to more than one investment, whereas the DMi is tied up in one property.

#3 Mortgage Investment Corporation (MIC) In a MIC you invest in a corporation and receive shares. The mandate of the corporation is to invest your money in a portfolio of mortgages held in the name of the corporation. At the end of the year, dividends are paid out to you and you can choose to keep these as cash or reinvest in the fund.

38 | mortgagebrokernews.ca

My clients already trust me because I arranged their mortgage for them, but what [a syndicated mortgage investment] allows me to do is give them options for investing

Christopher Molder

For Christopher Molder, a broker with Tridac Mortgages-The Mortgage Centre in Toronto, the opportunity to offer something to existing clients is the best part. “We really miss half of a market or half an opportunity that we have as brokers,” he says.

“Traditionally what a mortgage broker really does is connect the people who need money with the people who have money.”

A product like a syndicated mortgage investment allows Molder to extend his services. “My clients already trust me because I arranged their mortgage for them, but what [a syndicated mortgage investment] allows me to do is give them options for investing.”

Working with product providers, Deeks can offer his clients secured investments that pay a return of eight per cent per annum over a three-year term, secured by way of an Interest Reserve Fund held in trust by the Administrator or lawyer, plus a 12 per cent profit participation at the end of the project and they have direct, registered ownership in the mortgage that’s registered against real security.

According to Lance Kotton, president of Titan Equity Group, the firm Deeks works with, term mortgages have less risk and less return, so they took a look at the construction industry where the margins were better.

“By using select and proven developers we could leverage that history and provide them with this type of funding and get a higher rate of return,” he says. “We’re taking equity with the developer and converting that into a yield for the investors. By

stats

1.042

trillion

– outstanding mortgageloans as of Mar.2011, an increase of 7.7% from the previous year..

Source: CMHC 2011 Canadian Housing Observer

FEATURE / Syndicated Mortgage Investments doing that it allows an A-quality deal with a top developer enabling a higher return for clients.”

Titan started small six years ago and it has grown to the point where “the best thing that could have happened to us was the market crash because that’s when people realized that the markets weren’t the best place for them to be,” says Kotton.

“Titan is a real estate development and investment company that provides sound investment solutions for a diverse client base, we have a complete line up of stable and rewarding products to serve and provide generous returns on investment,” says Kotton. “Investors with Titan products assured that their capital, which is asset-backed, is optimally employed to assure efficiency and effectiveness.

“What [Titan] brings to the table is trust, transparency and tenacity, offering the opportunity to grow and excel in a stable and accelerating real estate environment. With a flexible product line-up, experienced management and tact analysis coverage Titan provides investors the ability to succeed in the real estate market seamlessly, securely and successfully. Having Titan asset backed products

instead of debt-based products ensures strong and consistent returns.”

Traditionally, says Deeks, brokers have acted between a consumer-borrower and a lender. Under the syndicated mortgage product “you’re a broker between the lender and the borrower: lenders are the investors now and the borrower is the developer.” According to FSCO guidelines and the Mortgage Brokerages, Lenders and Administrators Act (MBLA) every client has to have their documents reviewed with a registered mortgage agent or broker.

“It’s a rebirth of sorts for us,” says Deeks. “And enables us to go back out there and gain market share because these products have to go through a mortgage broker.”

To get started brokers just have to go through their database and identify clients that have RRSPs, says Kotton. “Then you say, ‘What are you doing with your RRSP? How would you like to make a decent return and actually provide for your retirement as opposed to what you’re doing now?’”

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FEATURE / Syndicated Mortgage Investments interest rates and their growing force of mortgage specialists.

“Banks are pushing brokers out of the marketplace to a certain extent as well as not having the same commitment to the broker channel that they’ve had in the past,” says Kotton. “And here’s a product that helps them retain their client and earns them a good income at the same time.”

Not having to constantly worry about buying down rates is a welcome respite, says Molder. “As the broker I get a finder’s fee and because the mortgage broker business is becoming so cut-throat, it’s nice to be able to branch out and have alternative revenue streams and not to have to compete and buy-down rates and always be in a defensive mode to make a buck.”

Deeks concurs about making five to 10 per cent base on the amount of the investment. “The referral fees are greater than what I was earning on my standard mortgage business, so it’s resolved another issue for me and I now don’t have to worry about selling my book of business.”

It’s also changed the way Deeks deals with mortgage clients. Now he makes sure to get more

detail about where their investments are because most of the time they are held by a competitor for the same mortgage he’s trying to place.

“There’s a chance to get the mortgage and do something for their investments that the competitor can’t do – it’s no-brainer,” says Deeks.

What’s also simple is how the syndicated mortgage investment ensures clients keep coming back.

“If you send a client to a bank, you’re not going to see them again,” says Kotton. “You have to create a scenario that gives your clients a reason to come back to you. The beauty of this product is that it’s a term product. It could be a one- or a three- or a five-year term, but your clients are coming back to you. And if it’s timed with their mortgage renewal, you’re not going to lose them to the banks either.”

He is also quick to point out that his company doesn’t get in between the broker and the client.

“It’s the mortgage broker’s client, not ours,” says Kotton. “They’re our client to the extent of the product itself and that’s the only time and place when we deal with them.”

For Deeks, syndicated mortgage investments are

The zero mortgage Property Value

New Secured Line of Credit

$600,000

$200,000 @4%

Existing First Mortgage

Invest Equity Takeout

$200,000 @4%

$200,000 @8%

Syndicated Mortgage Investment (SMI) interest rate and payment covers the debt service on the entire $400,000 mortgage financing, effectively reduces the out-of-pocket carrying cost of the original $200,000 to a net zero.

There are different benefit scenarios to the above example, depending on the situation of the investor. The above example assumes a simple cash investment of $200,000 and the interest cost of the original $200,000 is not tax-deductible but there is a huge benefit to increasing the monthly cash flow by the amount of the monthly mortgage payment.

Some investors will elect to continue paying the mortgage payment equivalent to the original first mortgage if cash flow is not an issue but the choice is theirs and does not

40 | mortgagebrokernews.ca

diminish the benefits individual to them.

However, consider that the investor has unused RSP contributions and applies part of his investment amount to topping up his RSP, which generates a tax refund that can be very significant, depending on the investor.

Further, the tax refund can also be reinvested into RESP, TFSA or other investment choices for net worth enhancement. – Roy Deeks

FEATURE / Syndicated Mortgage Investments

You have to create a scenario that gives your clients a reason to come back to you. The beauty of this product is that it’s a term product. It could be a one- or a three- or a five-year term, but your clients are coming back to you.

Lance Kotton

also helping to generate new referrals, giving his business a new lease on life by expanding his database with referrals he would have never gotten before.

“Most of the new business is coming from word of mouth,” he says. “I have clients telling their friends, ‘You should see what these guys did with my investment. If you don’t like what you’re doing with your portfolio, call these guys. It costs you nothing to talk to them.’

That list of established clients that a broker possesses also offers brokers the same opportunity to expand their revenue stream, and all it requires is

reaching out to people who already know them.

“We have built a lot of trust with our clients over the past 35 years,” says Molder. “We’re very much in touch with them already regarding their mortgage, so, for us it’s an easy sell to switch hats and say ‘by the way, we don’t usually advertise this, but we have these great opportunities for you to invest your money if that’s something you would like to pursue.’”

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mortgagebrokernews.ca | 41

FEATURE / Syndicated Mortgage Investments

Private lending for

brokers The private lending community is as diverse as any other in Canada, says Dean Larson, business development manager for Alta West Mortgage in British Columbia. It’s important brokers are aware of both those similarities and, indeed, the many differences that exist between individual lenders. He offers a primer. Private lending rates reflect the higher risk private-lender investors take on. They’re higher than those of the banks and monoline lenders in both prime and

subprime spaces and start anywhere from eight to 10 per cent and run all the way] up to 18 per cent. “Rates have more to do with where the actual source of the funds are coming from,” said Larson. “When a private lender is funded by a MIC, they have to return a good rate of return back to their investors.” Private lenders use loan-to-value maximums that tend to go no higher than 85 per cent, although many private lenders prefer 75 per cent as a ceiling, at least in B.C., said Larson. “As for the floor, there is none.” While many brokers have their own lists of private individuals looking to invest in mortgages, most private lenders represent a group of investors – either syndicates or mortgage investment corporations. The first is a group of investors usually focused on funding a particular property or project. MICs, on the other hand, pool together the money of their investors and make it available to several deals as they come available and subject, of course, to their lending guidelines.

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learn more achieve more 42 | mortgagebrokernews.ca

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your day job yet Canadian Real Estate Wealth contributor, Peter Kinch explains the ways brokers can ensure their BFS investor clients can still get the financing they need

a

s a self-employed real estate investor, the Canadian mortgage lending environment will be more challenging in 2012 than it has been in past years, but sophisticated investors will learn that this can create opportunities for those who understand the rules and learn to work within them. While others continue to complain that things aren’t the way they ‘used to be’, savvy investors will be prepared to do a little more paperwork to get approvals. The key is to understand the position that the lender is in.

Given the global and political environment, lenders are not going to be open to clients who want to take shortcuts and provide the bare minimum when it comes to documentation. Statistically, self-employed real estate investors have been amongst the highest percentage of borrowers who default for Canadian banks over the past four years.

So it should come as no surprise that lenders are going to scrutinize those files more than others. At the end of the day, banks want to mitigate their risk – real or perceived. Your job is to make sure your clients provide them with enough information that they can feel confident with the file and do not see them as a risk.

44 | mortgagebrokernews.ca

Prepare for more paperwork The first thing a self-employed real estate investor will realize is that banks do not applaud you for having a ‘creative accountant’ who helped you to minimize your taxes by reducing your ‘verifiable income’ down to nothing. Congratulations, you now don’t have to pay taxes – but don’t turn around and expect to qualify for a mortgage. From a bank’s perspective there is a huge difference between a borrower buying a principal residence and a rental property. Again, the statistics bear the real truth.

Statistically speaking, Canadian homeowners have less than a one per cent default rate on their mortgages – when it is owner-occupied. Conversely, the largest amount of fraud and default that lenders experience is with those mortgages that are arranged for investment purposes. As such, there are two sets of rules for mortgage borrowers – one for homeowners and one for investors.

Nowhere is this more evident than with the self-employed individual. Many banks are still willing to accept the fact that self-employed borrowers have a tendency to write-off as much as possible and therefore have a correlating low

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FEATURE / SELF-EMPLOYED INVESTORS

verifiable income. If it is for the purchase of an owner-occupied home, they will grant them a degree of flexibility and even allow a high-ratio mortgage at fully discounted rates based on ‘stated-income’ (if deemed to be reasonable).

However, if that same borrower were to go to the same bank to ask for a mortgage for a rental property purchase, the rules would be completely different. The mortgage for the rental property would now have to be ‘fully-income qualified.’ This poses a problem for the majority of self-employed borrowers – especially if you’ve only recently become self-employed. The majority of lenders define ‘verifiable’ income as a two-year average of line 150 on your tax return. Line 150 is the amount of ‘taxable’ income that is ‘net’ after all expenses.

They will also ask for copies of your T1 General to determine the source of the income. For example, a lender will want to make sure that the income as stated on line 150 is derived from business income and not capital gains.

Selling real estate or cashing in RRSPs is not a sustainable source of income and will not be allowed. The lender will also ask to see the company financials to determine the revenue trend. Some owners pay themselves a healthy salary but do so at the expense of the bottom line. Banks will want to see that the company financials are strong and can sustain the income it is paying to the owner. Long gone are the days where you can simply give a lender a Notice of Assessment or a job letter that you’ve written yourself and tell them that should be sufficient. In today’s market that simply won’t do.

SubPrime options For investors who still hope to buy real estate but are finding it challenging to qualify for conventional mortgages, there are still a few unconventional options in today’s market. Home Trust, Equitable Trust, and Optimum Trust amongst others still offer ‘stated-income’ mortgages for self-employed borrowers who can show ‘reasonability’ of income.

The maximum loan amount will only be 75 per cent.

The interest rate will be about one to two per cent higher than fully discounted rates and there will be a 1 per cent lender’s fee. The cost is obviously higher, but still a cheaper alternative to having to bring in a joint-venture partner and give away 50 per cent of the deal just so they can help you qualify.

In the end, you simply have to balance the cost versus the benefits.

46 | mortgagebrokernews.ca

info

Going commercial If you are a self-employed real estate investor and you’re still concerned about how to qualify for mortgages in the current market environment, there is some good news. Everything mentioned in this article pertains to ‘residential mortgages.’ The easiest way to circumvent the strict rules surrounding the residential mortgage market is to simply shift your focus to multi-family purchases. If you buy a property with six units or more, you move into the ‘Commercial Sandbox’ and commercial mortgage rules are completely different than residential.

Among other things, in the commercial sandbox, the focus shifts from you, the borrower, and your verifiable income to the building and the amount of cash flow therein. Commercial financing has other issues and it is certainly not for everyone, but for the self-employed investor who is being inundated with negative headlines in today’s marketplace – this just may be the answer you were looking for. But until you decide which direction you’re going to go – don’t quit your day job ( just yet).

This is an edited version of an article that appeared in Canadian Real Estate Wealth magazine, a KMI publication.

Canadian Real Estate Wealth is available on newsstands. For more real estate investing news and tips, visit

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Cover

FEATURE / SELF-EMPLOYED INVESTORS

The Year ahead

Do’s and Don’ts for Today’s Market Dos:

Don’ts:

reality out there instead of trying • Create a balance between what is a reasonable amount of • Don’t take out a new lease in your personal name for to sell income around to it,write-off then people willdeclare. Banks will always want versus the most expensive vehicle you can afford. For every trust us.” to see that you can service your personal consumer debt dollar of personal expense you create, you will need But any efforts the industry may with 40 per cent of your verifiable income. to show more verifiable income. undertake as a whole will have no • ifKeep a very brokers clean and clear • Don’t shift from a full-time employee to become a effect individual don’t do paper trail. If your company makeswhich all the payments ‘consultant’ in your field without doing a full analysis their parts, means givingon your Visa card, but the card in your personal name, make sure you can prove it as to how this will impact your ability to qualify for clientsisthe best value-added service, improving and funding • Lookeffi forciencies opportunities for one spouse to maintain a more mortgages. ratios regular with lenders, andverifiable of course,income. In a spousal job with • Don’t start up a new business venture in a new field of homeowners say they placingrelationship, clients with both the right lenders parties are typically on title for the of business that will take a few years to show a profit for their needs. areestate in a good position to mortgage. What many don’t realize is that often one if you are planning to buy real as well.

“Focus on the best interest of the spouse qualify for a mortgage on their own with • Don’t quit your day job to become a a full-time real client fi rst andcould foremost,” said weather potential downa relatively modest income. estate investor. You may think of it as a business Therien.

“We are at a crossroads: weIf that’s the case, and both housingIfmarket are on title, then the choice, banks simply seeturn you in as the unemployed. you either spouses go back to being the person youfact that the other Source: Mortgage Insights: go to when the banks say no as it was spouse is self-employed may not be a huge issue.Highlights from choose CAAMP’sto Fallquit 2011your day job, the only options for 25• years ago,are or become truly trusted If you planning to shift from an employee to consumer a mortgages would be: Spousal income; Complete and industry surveys advisers to our customer and move ‘contract’ worker, arrange toup make any rental property reliance Canada) on joint venture partners; Private money (CAAMP/Martiz Research to the next level.” CMP

71%

purchases before you make the move.

48

morTgagebrokernews.ca

with higher down payments.

mortgagebrokernews.ca | 47

Business / marketing

Realtor

marketing secrets

Doren Aldana explains how the initial face-to-face meeting with a Realtor can literally make or break your chances of winning them as a referral partner and why it’s so important to have an effective approach that compels them to want to work with you

48 | mortgagebrokernews.ca

Business / Marketing In my last month’s article, I taught you how to follow-up with your Realtors by email and phone so you can get their attention, pique their interest and invite them to a face-to-face meeting. That leads us to the next step in my seven-step formula.

STEP 5 - Conduct a Face-to-Face Meeting The initial face-to-face meeting with your Realtors is kind of like a “first date.”

Not in a romantic sense, of course, but it gives you an opportunity to connect, build rapport, feel each other out and determine if you’re a good fit to work together. How you conduct yourself during this first meeting can literally make or break your chances of winning them as a referral partner. That’s why it’s so important to have a clear, concise, effective approach that compels your Realtors to want to work with you. Here’s how you do it:

1. Dress for Success This probably goes without saying but if you want to attract a top producer, you’ve got to look like a top producer. As you know, you never get a second chance to make a first impression, so make it count. Show up to your meetings looking like a million bucks – well groomed and dressed for success.

2. Be Punctual Being late can be a major deal-killer for a lot of people. Not only does it reflect poorly on you and your respect for their time, it also undermines your credibility. After all, if they can’t trust you to be on time to a meeting, why would they put their business in jeopardy by trusting you to close their clients’ mortgages on time? Since punctuality is one of those little things that make a big difference, plan on arriving 15 minutes early, just in case you get stuck in traffic or the kids hide the keys behind the couch. You’ll never regret the added peace of mind that comes from proper, proactive planning.

3. Do Research in Advance Before the meeting, review the Realtor’s profile on Facebook and the “About Us” page on their website. A little research can go a long way toward helping you build rapport when you meet. If you find out they’re interested in hockey, talk about hockey. If they’re interested in kite surfing, talk about kite surfing. If they’re passionate about their dogs, talk about their dogs. The point is, do a little research in advance so you can have some easy talking points when you meet.

4. Set the Stage Before you start the meeting, it’s always a good idea to address the “elephant in the room” by saying something like, “If you’re anything like me, the last thing you want to do is volunteer for a sales pitch where the person just shows up and throws up, talking about how great they are and why you need to do business with them.

Can you relate to that?

Exactly. Let me reassure you that won’t happen with me. My main objective during this initial meeting is to ‘lift up the hood’ on your business so we can identify the biggest holes in your marketing and uncover the hidden opportunities for breakthrough in your business. Then, based on the answers you give me, I can give you a custom-tailored proposal on how I can help you take your business to the next level. Fair enough?”

If you address this objection upfront, you’ll be amazed how quickly any pre-existing resistance and tension dissipates. Empathy is very powerful. Not only does this approach address the Realtor’s fear about being “sold,” it also

As you know, you never get a second chance to make a first impression, so make it count. Show up to your meetings looking like a million bucks – well groomed and dressed for success.

mortgagebrokernews.ca | 49

Just like a good doctor, who diagnoses his patient’s pain before prescribing a cure, you’re going to identify the Realtor’s pain points first, before offering solutions.

provides them with clarity as to what they can expect from the meeting. Just the mere fact that you want to learn more about them and their business, instead of flapping your lips talking about how great you are, will come as a great relief and a breath of fresh air.

5. Diagnose First, Prescribe Second The primary focus of this first meeting is to simply diagnose the Realtor’s business frustrations, pain points and challenges using what I call the “Realtor Needs Assessment.” This is a comprehensive questionnaire that allows you to identify the gaps, holes and missing links in the Realtor’s business. So, instead of just giving a “data dump” with all the reasons why the Realtor should work with you (which usually bores them to death), your goal is to simply ask questions, listen and take notes.

Just like a good doctor, who diagnoses his patient’s pain before prescribing a cure, you’re going to identify the Realtor’s pain points first, before offering solutions. You see, until and unless the Realtor becomes aware of – and even disturbed by – the gaps in his or her business, chances are, they won’t be very receptive to your recommendations. That’s why your first meeting should always be dedicated towards diagnosis (where the Realtor comes to realize they suck, they need help, and you’re the person to help them). Once they reach this point, it’s only natural to schedule a second meeting, where you can do a “show ‘n’ tell” and prescribe specific solutions to what ails them. info Learn more from Doren at The Mortgage Summit.

www.TheMortgage Summit.com

50 | mortgagebrokernews.ca

6. Take Notes There’s an old saying that, “People don’t care how much you know, until they know how much you care.” Studies show that we tend to give people more credence, and are more compliant to their wishes, if we believe they truly care about us as individuals. Perhaps one of the easiest ways to show that you care

News

Industry Business / Marketing

Your trusted news source

is to ask questions, listen intently (with eye contact, nodding gestures, etc.) and take notes. The act of taking notes shows that you aren’t just merely interested, but that you care enough to capture it in writing so you can review first-time buyers, or mortgages that start under a have expanded their unsecured lending products. it again in the future. specific price (remember restrictions in 1992 when What our government fails to realize is that the first-time buyer program was implemented? unsecured lending has a larger impact on cash 7. Strike Whilelending. the Iron is Hot Should we look at something similar?) When “Red flow than mortgage Particularly when By the end of thehas initial “discovery meeting,” a pretty Ed”have Clark at TD good was screaming for more home ownership already been proven to you be should on mortgage lending, what more thanor renting inismost areasyou want togovernment senseaffordable as to whether not this someone work with. Acontrols few he was Do really saying (Vancouver is currently a rarethis: exception).

Whatgood rapport? helpful questions to confirm Do you have they have awas that lenders can’t police themselves. bank A will do the deal why can’t they (government) do see the most powerful positive attitude? Are theyisan energy-giver or an energy-taker?

AreIfthey open bank B? If Johnny jumps off the bridge, would you lobby group in the country saying “it’s mortgage to testing new approaches? Do they have enough listings? If they seem to jump off a bridge? What kind of people do we have lending that is the issue.” respect and appreciate what you’re bringing to the table, then the logical running ournext banking system? The real culprit in – Paul Therien step is to invite them to a second meeting, ideally within the next week twoleast regulated and that is this whole mess isorthe (thejust sooner theget better). other words, strike iron card is hot.

Don’t give credit debt.

Put some sense back in the They don’t it, do In they?

Economics 101, while says the system, put them the boots creditAldana card lenders, cool offtoo a hot market it more to you them much time by formaking their interest todifficult wane before provide with to theDoren is considered by many to be Canada’s understanding that it will impact the economy borrow, heat a cooling solutions to up their biggest economy challenges.by loosening leading Mortgage Marketing Coach. Since 2005, he has significantly, especially goods.

Gradually up lending. are cooling off inwondering many markets, PerhapsWe at this point you’re how the heck you’re supposed to retailbeen dedicated to helping mortgage professionals tighten the mortgage underwriting “standards” that were never as hot as Toronto and Vancouver. come up with these so-called “solutions.” Well, hold your horses, Bessie, we’ll attract more clients with less effort, regardless of that have been perverted over the last 10 years.

Canadian institutional (read bank) mortgage get to that we need getdrunks you trained on how getpain? yourNo doubtmarket theretobe aboutconditions. it. But an For a free online workshop on “How lending has shortly. been onFirst, a 10-year roll,tolike on a upWill Realtors to actually commit to working with you. In next article, I’ll givenow, beats to Turn Your Realtors’ Listings into a Flood of Red-Hot uncomfortable pain an agonizing pain bender, abetted by their “drinking buddy” CMHC. I my you four strategies for converting more Realtors into loyal, Mortgage Leads,” visit: www.UltimateRealtorMarketinglater. agree thatspecific a 30-year amortization is too long a of your time in general, but maybe it should allowed for committed referral partners for life. be Stay tuned …

System.com.– GTA Broker

About the Author:

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Suite 955 808-4th Avenue SW Calgary, AB T2P 3E8 Fax: 403-266-5002 Email: calgary@peoplestrust.com

CMHC/Conventional Financing Brian Kennedy 604-331-2211 Jonathan Wong 604-331-2218

CMHC/Conventional Financing Dennis Aitken 403-205-8203 Daniel Stewart 403-205-8202

Toronto Suite 1801 130 Adelaide St. West Toronto ON M5H 3P5 Fax: 416-368-3328 Email: toronto@peoplestrust.com CMHC/Conventional Financing Michael Lombard 416-304-2078 Ady Steen 416-304-2089

Single Family Financing Tom Wollner 604-331-2210

19

mortgagebrokernews.ca mortgagebrokernews.ca | 51

STATISTICs / HOUSEHOLD DEBT

National picture

at-a-glance This month’s roundup looks at recent Statistics Canada data, which offers a snapshot of debt holders While debt has definitely increased in the past few years, Statistics Canada’s snapshot of debt holders in 2009 in its “Household Debt in Canada” report shows some surprises. People might assume they are typically homeowners and parents, but surprisingly they also tend to be people with sound financial knowledge.

The picture, based on StatCan’s Canadian Financial Capability Survey, shows those with higher incomes and education owe more. For example, households with incomes of at least $100,000 owe about $60,000 more than those who earn less than $50,000. And post-secondary grads owe about $26,000 more than those with less than high school diplomas. In all, two-thirds of households had outstanding debt, which averaged $114,000. The survey also asked 14 questions about financial knowledge.

One might think those with poorer financial knowledge would

carry higher debt loads. But the survey found the opposite – those who answered more questions correctly were likely to have higher levels of debt, even after controlling other factors usually associated with debt.

As well – those who said they were “very knowledgeable” about financial matters averaged $29,000 more debt than those saying they were “not very knowledgeable,” when all else was held equal.

“These results indicate that individuals who were more knowledgeable about financial matters held more debt and were likely more confident in their ability to assess the purposes, risks and terms of borrowing than those who borrowed less,” the paper says.

Debt levels generally went down with age and were “much lower” for retirees than for workers of a similar age.

Unsurprisingly, debt levels were higher for homeowners than rentals – by almost $100,000. Parents with kids under age 25 tend to have $37,000 more in outstanding debt than other family types.

Average Debt by Household Type 160,000

Source: Statistics Canada

130,000

100,000

70,000

40,000 Unattached individuals

52 | mortgagebrokernews.ca

Married couples only

Married couples with children and/or relatives

Lone parents

Others

STATISTICs / HOUSEHOLD DEBT

Average Debt by Level of Education 160,000

Source: Statistics Canada

Average Debt by Household Income 200,000

140,000

160,000

120,000

120,000

100,000

80,000

80,000

Less than postsecondary

Postsecondary: non-university

Postsecondary: university

40,000

Source: Statistics Canada

Under $50,000

$50,000 to $99,000

$100,000 and over

Average Debt

by Region Atlantic $69,300

Alberta $157,700

Quebec $78,900

British Columbia $155,500

Man. and Sask. $84,900

Ontario $124,700

mortgagebrokernews.ca | 53  

Profile / broker

Planting

a seed

Daniel Natareno has succeeded with the help of Toronto’s Spanish-speaking community, and his business has matured and grown with his client base

54 | mortgagebrokernews.ca

profile / broker

When Daniel Natareno got his start as a mortgage broker 11 years ago he had the advantage of two growing markets that helped launch what has become a successful career: real estate and the Spanish-speaking community in the Greater Toronto Area.

“The advantage for me at the time was that the community was growing very quickly while at the same time the real estate market was taking off,” says Natareno, a mortgage consultant with Mortgage Intelligence in Oakville, Ont. whose parents immigrated from Central America.

“Starting at that time allowed me to establish a pretty good database of clients and at the same time grow my volume,” he says, noting that he also had an additional advantage of there not being many Spanish-speaking brokers at the time. “Now our database and portfolio has matured and right now we’re basically working with 90 per cent of our past clients and past client referrals.”

Natareno almost didn’t become a broker. It was only after spending a summer working as an assistant for a friend who was a mortgage specialist at a big bank that his career path took a detour.

“Prior to that I had wanted in financial planning,” he says. After his introduction to mortgage brokering, Natareno says it came down to a choice: taking people’s money or helping them get money.

“It’s more difficult to ask people to invest with you than say help people buy their first home,” says Natareno, who began his career with Nortlite Financial Services before it evolved in Mortgage Intelligence. “From a fulfillment perspective, it kind of made sense to me, so I veered off in that direction.”

Natareno has two other agents working with him, including his wife, Dayana Cartusciello and Simon Lyn, an associate based in Mississauga.

Initially he grew his business across the GTA, not focusing his growth in any one geographic area, but that’s beginning to change.

“One of our initiatives for growing our business is to market to the community where we live in Oakville,” he says. “To do this we’ll focus on more grassroots methods such as sponsoring local sports teams, arena signage and articles in our local newspaper. That will be the next phase of our business going forward as well as starting to add agents to our team.”

Virtual connection Working with the Spanish community has bred a lot of loyalty, according to Natareno. This might surprise some as most of his work is done by phone, fax and email.

“I have clients who I’ve done multiple mortgages for over the past eight years and they’ve referred friends and family and we speak numerous times throughout the year and we’ve become friends yet I’ve never met them face-to-face,” he says. “It’s basically a virtual relationship, but we’re still able to make that connection.”

Building loyalty from those relationships is the key, says Natareno.

“Many of the people we deal with are new to the country, so you become a touchstone, someone they come to with financial questions that are not necessarily related to mortgages. What we’ve always done is always be willing to help and guide them if we can.”

While Natareno has continued to focus on his niche area of language, the number of Spanishspeaking clients has actually dropped to about a 60-40 split. The growth of the non-Spanish speaking clients is a natural outgrowth of the Spanish community’s maturation.

“Some of our clients are second-generation, like myself, and so have a wider range of referrals, not just Spanish-speaking ones,” says Natareno “And even the Spanish-speaking clients are now referring other people, such as their co-workers.”

Continued growth will depend on sound database management, says Natareno. “Each client is a seed and your job as a broker is to make sure they grow into future referral sources.”

Daniel Natareno

Change management Dealing with a niche market also means Natareno and his team have to be well-versed in the products from lenders that their clients will be accessing.

“Programs for new immigrants have been good,” he says. “But you have to be aware of changes.

“From one lender to another there might be small differences as far as what they are willing to accept, or what documentation they require.”

Natareno admits that the underwriting for stated-income and self-employed lending products has become more of a challenge lately.

“The guidelines from the insurers haven’t changed,” he says, “but what has changed is that

mortgagebrokernews.ca | 55

Profile / insight before they might have required slightly less documentation or had a quicker turnaround time or the decision-making might have been a little more lenient. Now it has to be a very strong deal to get consideration for approval.”

Media savvy A new challenge is the media attention being given to interest rates. “The biggest thing right now is the media,” says Natareno. “Never before have I had clients

56 | mortgagebrokernews.ca

calling me to tell me what the interest rates are.”

You have to be careful how you position yourself to the client, he says, so they always know you have their best interests in mind. “You have to explain why one deal is better than another,” he says. “You also have to be prepared to answer their questions and talk about factors other than interest rates.”

Brokers should also be preparing their clients – especially those coming up for renewal a few years from now – for the eventual rise of interest rates.

“People are starting to get used to rates, so that when they do go up, people will think they’re sky-high, when in fact they are still historically low,” says Natareno.

At the end of the day, Natareno says the secret to his success is working in the best interest of his clients, no matter what the size of the mortgage, because every client holds the key to future business.

“Eighty-five per cent of our current clients are from past client referrals,” he says. “Remember that you’re adding someone to your portfolio of clients and that person is going to likely do another mortgage with you and refer friends and family.”

FACT FILE Daniel Natareno Mortgage Consultant Mortgage Intelligence Oakville/ Mississauga, Ont.

Funded volume 2011: $100 million No. of loans: 313 Achievement/ Awards: Mortgage Intelligence Award of Excellence (200311); ranked in the top-20 nationally with Mortgage Intelligence past five years; last year was ranked fourth

Target for 2012: $110 million

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June 1st, 2012 | The Carlu

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Profile / insight

Secrets of their

The finalists for 2012 Canadian Mortgage Awards’ Best Lender Underwriter of the Year share with Caitlin Nobes the reasons why they have such good relationships with their broker partners Top Tips for Brokers 1. Have all the right documents upfront to save time and complications.

2. Be honest about your client’s situation so the underwriter can find the best solution for them.

3. Have patience. It might take time to get the best result for your client.

t’s all about communication for the nominees of this year’s Canadian Mortgage Awards Best Lender Underwriter.

“Communication is the key to being a good underwriter,” says Radius Financial’s Janice Tinker, who has been underwriting for more than a decade. “Making sure you have contact with brokers when a file comes in, calling them if you have questions, staying on top of calls and emails.

Being open to suggestions and being able to communicate your issues back is vital.”

For others, it’s about understanding each applicant individually, rather than speeding through with a “one-size-fits-all” attitude.

“I think the fact that I take the time to really understand what my brokers are looking for and what would be the best possible outcome would be for the client as far as offering them a mortgage and what the rates would be,” says Erin Anemaet, from

58 | mortgagebrokernews.ca

Home Trust.

Robert Sanita from First National says getting to know your brokers personally and understanding their individual expectations is the best way to build a strong relationship.

“My relationship with my brokers is really important to me so I work really hard to make sure we are in constant contact about files,” he says.

“Each broker works differently so it’s important to keep that in mind when you’re underwriting a file.”

Michelle Gosal-Campbell, from Merix Financial, says looking beyond brokers to focus on all those involved in a deal means everyone is happier with the outcome.

“I look at not only the broker as my client, but also the end borrower, solicitors – everybody. I over-deliver on my customer service,” GosalCampbell says. “I’m known to answer my phone and email after hours –I’ve worked on both sides of the

profile / insight industry so I understand the importance of quick responses.”

Changing times, tightening rules As regulations change, relationships can become strained between brokers and underwriters, but a good foundation makes it easier to maintain that connection.

“Regulation regarding lending guidelines has tightened for the better in my opinion,” Street Capital’s Ken Lee says. “There are a lot more aggressive new brokers and bank specialists all competing for business, and tighter regulation is needed to prevent any type of collapse…what will separate one lender from another is their customer service and turnaround times.”

In this kind of environment, it’s the established relationships that will help underwriters thrive.

“We really have to be careful of what we’re doing with our deals and how we’re treating our brokers and clients,” says Becky Kim, from Merix Financial.

“If you have a good relationship to begin with it’s a lot easier to maintain through tougher times, because they value the relationship a lot more than rates.”

Better broker relations The No. 1 way brokers can help underwriters? It’s all in the details: have as much information as possible when you send in your request.

“Obtaining documentation upfront – that is huge – some of my bigger volume brokers I notice they

always have income and down payment main sources that tend to be the most difficult part of the file,” says Jenna Sherrit, from First National. “When that is provided upfront, the deal goes much more smoothly.”

Honesty and openness was another vital aspect.

If everyone involved was upfront then the system would work efficiently, and underwriters could find solutions specific to your client.

“Just tell us what your customer is looking for right from the beginning and no surprises at the end,” says Scotiabank’s Silvana Vaccarella. “That way the customer doesn’t get affected and it’s a smooth ride through the process.”

“The best brokers out there aren’t worried about how quickly you turn the deal around, they just want quality underwriting,” Stacey Williams, from Merix Financial, says. “It might take you six hours to make the deal work, rather than taking an hour and sending a decline. And if you can’t make it work then at least they know you tried.”

If an account is under some time pressure, let your broker know – just don’t try it for every deal.

“If a matter is urgent, tell the underwriter it’s urgent, but do not abuse this,” says Lee. And the best are all about challenging themselves – AGF underwriter Jason Galea says brokers should keep sending new, exciting business.

“The more challenging the deal is, the more you learn from it,” Galea says. “That’s a big way that brokers can help you – send more challenging deals and give you the experience of a new area or situation.”

Top Tips for Underwriters 1. Build relationships and rapport with your brokers so you can go back to them easily and comfortably.

2. Stay available: answer calls and emails promptly and keep brokers informed about where their application is in the process.

3. Take the time to understand the end borrower – what’s the best solution for them?

Erin Anemaet

Jason Galea

Michelle Gosal-Campbell

Becky Kim

Ken Lee

Robert Sanita

Jenna Sherritt

Janice Tinker

Silvana Vaccarella

Stacey Williams

mortgagebrokernews.ca | 59

Profile / favourite things

Favourite things‌

Ingrid Wolf

Mortgage Agent, Dominion Lending Centres Mortgage Village, Mississauga, Ont. Movie: Lord of the Rings Drink: Red wine

Vacation: Costa Rica

Food: Thai

Music: Classic rock Sport: Basketball Book: The Morland Dynasty series, by Cynthia Harrod-Eagles

Hobby: Cooking

Place: Niagara-on-the-lake

60 | mortgagebrokernews.ca

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GUEST / column

Peas in a Pod Nick Kyprianou

New guidelines have and will continue to have effects on brokers and where they submit deals, says alternative lending executive Nick Kyprianou

A new proposal from the Office of the Superintendent of Financial Institutions Canada (OSFI) would require bank boards of directors to directly approve mortgage underwriting polices. The draft rules, are focused on ensuring banks collect more detailed information about a borrower’s ability to pay their debts on time. OSFI also wants banks to disclose more information about the default risks associated with their expanding mortgage portfolios.

The immediate affect has been a quick pullback and in some cases, leaving the business-for-self (BFS) lending space by some banks that discovered the business wasn’t as profitable as they thought.

The banks focus on what I call “pea-ina-pod” stuff, the segment of the market where people that can prove their income and can pay their bills, so that they can cross-sell them credit cards, lines of credit and RRSPs. In this new regulatory environment [banks] are going to have to do an extra level of due diligence. They’re going to have to look at the houses, not credit scores, which is something they’re not built for.

I suspect they are asking themselves, “How big of a business is this for us?” and “What is this costing?” When they do the math, perhaps they will come to the conclusion that the additional reporting and training of underwriters is not worth the extra effort. To re-engineer a process and a model is very costly.

To me, it’s doesn’t make a lot of sense.

They should focus on their core competencies and they should come to the

realization that you can’t be everything to everybody.

For me, it fits into the banks’ long-term strategy of not dealing with mortgage brokers. Now I don’t have any basis for this, but in my opinion, when I look around at what’s going on and do the math and see all the money that banks are putting into their own sales forces, I think it make sense.

I think the situation creates an opportunity for the alternative lenders because they are built to do the extra due diligence and reporting and all the other things that the regulators will be looking for.

For brokers, it means that if they were historically doing those deals with banks, they’re going to have to start building relationships with alternative lenders.

It means they have to re-examine who they’re going to partner with. Who’s going to be there for them? And how do they see their business going forward. If I was a mortgage broker, I would focus on the non-bank lenders, such as our company – Equity Financial Trust – and others like Merix and First National. That’s where I would focus my business; with somebody who is not going to try to steal my business, somebody who doesn’t really want to do business with me and somebody who is not supporting me.

It’s all about managing your business and I think is just another step in a number of steps that are coming over the next few years where you will see banks reducing their product lines for the mortgage broker.

service / directory

Banks

Optimum Mortgage A Division of Canadian Western Trust www.OptimumMortgage.ca Ph: 866 441 3775 Page 41

Bridgewater Bank www.bridgewaterbank.ca Ph: 1 888 837 2326 Page 9

HomEquity Bank www.homequitybank.ca Ph: 1 866 522 2447 Page 37

Genworth Financial Canada www.genworth.ca Ph: 1 800 511 8888 Outside Back Cover

Stewart Title Guaranty Company www.stewart.ca Ph: 1 888 667 5151 Page 29

Peoples Trust www.peoplestrust.com Ph: 1 800 663 0324 Page 51

Broker Networks

National Bank www.nbc.ca Ph: 1 888 483 5628 Page 39

Centum Financial Group Inc. www.centum.ca Ph: 1 604 257 3940 Page 11

Radius Financial www.radiusfinancial.ca Ph: 1 877 369 6398 Page 31

Non-Bank Lenders

Capital Direct www.capitaldirect.ca Ph: 780 868-0550 Page 10

Dominion Lending Centres www.DominionLending.ca Ph: 1 888 806 8080 Page 15 and 33

Street Capital www.streetcapital.ca Ph: 877 416 7873 Page 5

Equitable Trust Company www.equitabletrust.com Ph: 1 866 407 0004 Page 23

The Money Source www.mymoneysource.ca Ph: 416 699 2274 Page 56

TM

Home Loans Canada www.hlcmortgages.com Ph: 1 866 452 1821 Inside Front Cover

Commercial Lenders

FirstLine Mortgages www.firstline.com Ph: 1 877 658 3660 Inside Back Cover

ROMSPEN Investment Corporation www.romspen.com Ph: 1 800 494 0389 Page 1

Mortgage Alliance Company of Canada www.mortgagealliance.com Ph: 1 877 366 3487 Page 45

Canada Guaranty Mortgage Insurance Company www.canadaguaranty.ca Ph: 1 866 414 9109 Page 27

The Mortgage Centre www.mortgagecentre.com Ph: 1 800 423 0107 Page 3

Insurance

Home Trust www.hometrust.ca Ph: 1 877 903 2133 Page 7

mortgagebrokernews.ca | 63

service / directory

Real Estate

Canadian National Association of Real Estate Appraisers www.cnarea.ca Ph: 1 888 399 3366 Page 16

RMAI Financial Group www.rmaifinancial.com Ph: 1 866 955 7624 Page 17

VERICO www.verico.ca Ph: 1 866 983 7426 Page 13

Technology & Software

Real Estate Institute of Canada www.reic.ca Ph: 1 800 542 7342 Page 42

Best Points Travel www.bestpointstravel.com Ph: 1 800 551 8786 Page 47

Real Estate and Mortgage Institute of Canada www.remic.ca Ph: 1 877 44 REMIC Page 35

Services

The Lions Share Group www.lionssharegroup.com Ph: 1 866 726 5159 Page 12

D+H Limited Partnership www.dhltd.com Ph: 1 866 345 6449 Page 2

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