31 May

Weaker-than-expected Canadian Q1’24 GDP Growth Increases Odds of a Rate Cut Next Week

General

Posted by: Dean Kimoto

The likelihood of a rate cut next week has increased due to disappointing Canadian GDP growth. Real gross domestic product (GDP) only rose by 1.7% (seasonally adjusted annual rate) in the first quarter of this year, which is well below the expected 2.2% and the Bank of Canada’s forecast of 2.8%. Fourth-quarter economic growth was revised to just 0.1% from 1.0%. These figures have led traders to increase their bets on a Bank of Canada rate cut when they meet again next week.

In the first quarter of 2024, higher household spending on services—primarily telecom services, rent, and air transport—was the top contributor to the increase in GDP, while slower inventory accumulation moderated overall growth. Household spending on goods increased modestly, with higher expenditures on new trucks, vans and sport utility vehicles.

On a per capita basis, household final consumption expenditures rose moderately in the first quarter, following three quarters of declines. Per capita spending on services increased, while per capita spending on goods fell for the 10th consecutive quarter.

Business capital investment rose in the first quarter, driven by increased spending on engineering structures, primarily within the oil and gas sector. Business investment in machinery and equipment also increased, coinciding with increased imports of industrial machinery, equipment and parts.

Resale activity picked up in Q1, driving the rise in housing investment, while new construction was flat. Ontario, British Columbia and Quebec posted the most significant volume increases in resales, while prices in these provinces fell in the first quarter.

New housing construction (+0.1%) was little changed in the first quarter, as work put in place decreased for all dwelling types except double houses. Costs related to new construction, such as taxes and closing fees upon change in ownership, increased in the quarter and were mainly attributable to newly absorbed apartment units in Ontario.

The household savings rate reached 7.0% in the first quarter, the highest rate since the first quarter of 2022, as gains in disposable income outweighed increases in nominal consumption expenditure. Income gains were derived mainly from wages and net investment income.

Investment income grew strongly in the first quarter of 2024 due to widespread gains from interest-bearing instruments and dividends. Higher-income households benefit more from interest rate increases through property income received.

Household property income payments, comprised of mortgage and non-mortgage interest expenses, posted the lowest increases since the first quarter of 2022, when the Bank of Canada’s policy rate increases began.

Bottom Line
This is the last major economic release before the Bank of Canada meets again on June 5. Traders in overnight markets put the odds of a rate cut at next week’s meeting at about 75%, up from 66% the day before. Bonds rallied, and the yield on the Canadian government two-year note fell sharply, reflecting this change in sentiment.

The Bank of Canada has good reason to cut the overnight policy rate next week. Core inflation measures have decelerated sharply in recent months, and the economy is growing at a much slower pace than the central bank expected. The Bank has been very cautious, and there remains the possibility that they will wait another month before pulling the trigger on rate cuts, but at this point, we see no reason to delay any further.

Please Note: The source of this article is from SherryCooper.com/category/articles/
24 May

OSFI says mortgage payment shock poses a key risk to Canada’s financial system

Latest News

Posted by: Dean Kimoto

Canada’s banking regulator says high borrowing costs and a wave of expected renewals in the coming 18 months pose key risks to Canada’s financial system.

With 76% of outstanding mortgages expected to come up for renewal by the end of 2026, OSFI says homeowners face the risk of payment shock, particularly those who took out mortgages between 2020 and 2022 when interest rates were at historic lows.

“Households that are more heavily leveraged and have mortgages with variable rates but fixed payments will feel this shock more acutely,” OSFI said in its Annual Risk Outlook for 2024-25. “We expect payment increases to lead to a higher incidence of residential mortgage loans falling into arrears or defaults.”

OSFI notes that financial institutions could face higher credit losses in the event of a weakened residential real estate market. It added that mortgages that have already experienced payment increases, such as adjustable-rate mortgages, are already showing higher rates of default.

In response to this risk, OSFI said its previously announced loan-to-income limits for lenders’ uninsured mortgage portfolios will help “prevent a buildup of highly leveraged borrowers.”

In March, OSFI confirmed that federally regulated banks will have to limit the number of mortgages that exceed 4.5 times the borrower’s annual income, or in other words those with a loan-to-income (LTI) ratio of 450%.

“We do not expect these limits to be binding under the current interest rate environment,” OSFI noted, adding that these institution-specific loan-to-income limits are “supervisory actions” and that no additional details could be disclosed.

Additionally, OSFI said its decision in December to leave the minimum qualifying rate for uninsured mortgages unchanged at the greater of the mortgage contract rate plus 2% or 5.25% will “help ensure borrowers can still make payments if they experience negative financial shocks…”

Fixed-payment variable-rate mortgages still a concern

OSFI also once again singled out variable-rate mortgages with fixed payments as a “specific concern.”

These mortgage products, which are offered by most big banks except for Scotiabank and National Bank, keep monthly payments fixed even as interest rates fluctuate. When rates rise, as they have over the past two years, less of the monthly payment goes towards principal repayment and a greater portion ends up going towards interest costs.

These mortgage products currently make up about 15% of outstanding residential mortgages in Canada.

“If mortgage rates remain elevated, the financial commitment required by borrowers to return to their contractual amortization (for example, lump-sum payment, mortgage payment increase) may put financial strain on many of those households,” OSFI said.

This isn’t the first time OSFI has voiced its concerns about fixed-payment variable-rate mortgages. Last fall, OSFI head Peter Routledge told a Senate standing committee that the regulator views such mortgages as a “dangerous product” that put certain borrowers at increased risk of default.

While he said OSFI’s role is not to “impose a judgment on product design,” Routledge did say OSFI believes “the system would be healthier with less of that product.”

Other risks facing Canada’s financial system

OSFI’s Annual Risk Outlook also addressed other risks facing the financial system. Those include:

  • Wholesale credit risk

OSFI says wholesale credit risk, which includes commercial real estate (CRE) lending as well as corporate and commercial debt, “remains a significant exposure for institutions.”

The regulator noted that higher interest rates, inflation and lower demand “have put CRE markets under pressure” and that it expects these challenges to extend into 2024 and 2025.

  • Funding and liquidity risks

OSFI notes that liquidity risks “are a persistent concern” and can arise if depositor behaviour shifts dramatically.

“Funding and liquidity risk remains linked to credit risk as deteriorating conditions can negatively impact securitization markets,” it said. “This can trigger increased liquidity risk for institutions that rely on securitization as a key source of funding.”

In response, OSFI said it plans to broaden and intensify its assessment of liquidity risk.

This article was wrtten for Canadian Mortgage Trends by:

Steve Huebl
Steve Huebl is a graduate of Ryerson University’s School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.
22 May

Homebuyers Cautious As New Listings Surge In April

General

Posted by: Dean Kimoto

Canadian Home Buyers Remain On the Sidelines In April As New Listings Surge.

The Canadian Real Estate Association (CREA) announced today that national home sales dipped in April 2024 from its prior month, as the number of properties available for sale rose sharply to kick off the spring housing market.

Home sales activity recorded over Canadian MLS® Systems fell 1.7% between March and April 2024, a little below the average of the last ten years.

New Listings

The number of newly listed properties rose 2.8% month-over-month.

Slower sales amid more new listings resulted in a 6.5% jump in the overall number of properties on the market, reaching its highest level just before the onset of the COVID-19 pandemic. It was also one of the largest month-over-month gains, second only to those seen during the sharp market slowdown of early 2022.

“April 2023 was characterized by a surge of buyers re-entering a market with new listings at 20-year lows, whereas this spring thus far has been the opposite, with a healthier number of properties to choose from but less enthusiasm on the demand side,” said Shaun Cathcart, CREA’s Senior Economist.

Bottom Line

With sales down and new listings up in April, the national sales-to-new listings ratio eased to 53.4%. The long-term average for the national sales-to-new listings ratio is 55%. A sales-to-new listings ratio between 45% and 65% is generally consistent with balanced housing market conditions, with readings above and below this range indicating sellers’ and buyers’ markets, respectively.

There were 4.2 months of inventory on a national basis at the end of April 2024, up from 3.9 months at the end of March and the highest level since the onset of the pandemic. The long-term average is about five months of inventory.

“After a long hibernation, the spring market is now officially underway. The increase in listings is resulting in the most balanced market conditions we’ve seen at the national level since before the pandemic,” said James Mabey, newly appointed Chair of CREA’s 2024-2025 Board of Directors. “Mortgage rates are still high, and it remains difficult for many people to break into the market, but for those who can, it’s the first spring market in some time where they can shop around, take their time and exercise some bargaining power. Given how much demand is out there, it’s hard to say how long it will last.

The upcoming CPI data for April, released on May 21, will be crucial for the Bank of Canada. Given the strength in the April jobs report, the Bank is likely to hold off cutting interest rates until July.

Please Note: The source of this article is from SherryCooper.com/category/articles/
20 May

CMHC reports annual pace of housing starts in April down 1% from March

General

Posted by: Dean Kimoto

Canada Mortgage and Housing Corp. says the annual pace of housing starts in April edged down one per cent compared with March.

The seasonally adjusted annual rate of housing starts in Canada came in at 240,229 units for April, down from 242,267 in March, according to a report Wednesday by the national housing agency.

The overall drop came as the annual pace of starts in urban centres essentially flatlined in April month-over-month at 220,123.

The pace of multi-unit urban starts in April fell one per cent to 178,462, while single-detached urban starts rose two per cent to 41,661 units. The annual pace of rural starts was estimated at 20,106 units.

The downward trend in housing starts was largely driven by fewer multi-unit starts, particularly in Ontario, said CMHC chief economist Bob Dugan.

“The multi-unit volatility observed in Toronto, Vancouver, and Montreal in recent months is unsurprising as we continue to see last year’s challenging borrowing conditions reflected in multi-unit housing starts numbers,” he said in a press release.

“We expect to see continued downward pressure in these large centres.”

Housing starts were lower in all three of those major cities due to decreases in both multi-unit and single-detached starts, the agency said. Starts were down 38% in Toronto, 30% in Vancouver and 3% in Montreal compared with April 2023.

CMHC said the six-month moving average of the monthly seasonally adjusted annual rate was 238,585 units in April, down 2.2% from 243,907 units in March.

Despite the overall decline, TD economist Rishi Sondhi said starts “continue to run at a healthy level,” with government measures and rapidly rising rents supporting the construction of purpose-built rental units.

“In addition, solid gains in pre-sales made a few years ago when borrowing costs were low are boosting condo construction,” he said in a note.

Sondhi said TD is forecasting housing starts will continue to decline through the remainder of this year, “reflecting more recent weakness in pre-sale activity in key markets like Toronto, elevated construction costs, and high interest rates.”

Separately on Wednesday, The Canadian Real Estate Association released its latest home sales data for April, which showed the number of homes changing hands for the month rose 10.1% compared with a year ago, but fell 1.7% from March.

Slower monthly sales amid more new listings meant there was a 6.5% jump in the overall number of properties on the national housing market, which marked the highest inventory levels since just before the onset of the COVID-19 pandemic.

This report by The Canadian Press was first published May 15, 2024.

Article found on Canadian Mortgage Trends.

17 May

2024 recession now expected to be “shallower and shorter,” says Oxford Economics

General

Posted by: Dean Kimoto

While Canada’s economy is still expected to enter a technical recession this year, Oxford Economics now believes the downturn will be less severe than initially thought.

In a recent research report, the firm said it expects GDP growth will contract in the second and third quarters before turning positive again in the fourth quarter.

“GDP is now expected to contract 0.5% peak to trough from Q2 to Q3, 0.2 [percentage points] shallower and one quarter shorter than last month’s forecast,” they wrote. “The shallow downturn reflects the enduring impact of mortgage renewals at higher rates on consumers, as well as weakening new homebuilding, muted business investment, and much slower inventory accumulation.”

Oxford said it now expects GDP rose 0.1% in the first quarter, an upward revision from its previous expectation of a 0.1% quarter-over-quarter decline.

“The upward revision largely reflects broad-based strength in domestic demand, including stronger government spending as the 2024 Federal Budget showed little restraint,” they wrote.

The improved economic forecast follows the release of the Bank of Canada’s latest quarterly Market Participants Survey, which showed that most financial experts anticipate a reduced likelihood of an imminent economic downturn.

Based on the median of results, the respondents believe there is a 35% chance of the economy being in recession in the next six months, down from 48% in the previous quarter.

Expectations of a Canadian recession keep being pushed back as the economy continues to perform better than expected by certain metrics, including strong employment growth. Last year, many economists saw the economy slipping into recession by the end of 2023.

But Oxford Economics says consumption is still expected to contract modestly in the second quarter and remain weak throughout the year as consumers are faced with the impact of mortgage renewals at higher interest rates.

“Moreover, muted business capital spending, weaker new housing investment, and a slowdown in inventory accumulation will help push the economy into a modest recession this year,” they said.

Improvements by year-end

However, the economy should start to improve once again by the end of the year, according to Oxford.

“We anticipate a modest recovery will emerge in Q4 as interest rates ease in Canada and abroad, economic sentiment improves, and federal and provincial budget measures support growth,” the Oxford economists noted. “Consumers will slowly start to increase outlays as hiring resumes and real incomes grow, while business investment should pick up with returning demand and stronger profits.”

They add that housing starts should also pick up by the end of the year due to easing mortgage rates and government efforts helping to boost housing supply.

Overall, Oxford expects 2024 GDP growth of 0.1% expansion, which it revised up from its previous forecast of a 0.3% contraction.

“This mainly reflects stronger Q1 GDP growth and a shallower recession due to higher government spending in the 2024 federal and provincial budgets,” Oxford noted. “The Canadian economy is still forecast to grow at a moderate 2% pace in 2025, unchanged from our previous view.”

15 May

Why you shouldn’t fear a credit score drop when applying for a mortgage

General

Posted by: Dean Kimoto

In the complex world of home financing, a common concern among our clients involves the impact of credit inquiries on their credit scores. Often, the thought of a mortgage credit check can make potential borrowers hesitant and fear it might lower their overall credit scores.

We’ve all heard it before…

“Can’t you just use my free Borrowell report?”

“I don’t want anyone to pull my credit, it will hurt my score!”

Oh sure, sometimes our prospective clients just want a judgment call on their borrowing power and in most cases, I am comfortable assessing files without having to pull their official credit history. I’ve taken several client files pretty far without going through a hard inquiry.

However, without a complete history and proper credit report, my advice and opinions on their borrowing power will be filled with disclaimers, just in case there are any outstanding balances, loans, or late payments my client has either forgotten or has not yet disclosed to me. And, of course, sometimes there are outright errors in the credit report.

Understanding credit inquiries in mortgage applications

As mortgage professionals, it’s our duty to clarify and reassure clients about the realities of credit inquiries and the minimal impact they typically have.

Let’s dive into why borrowers shouldn’t worry excessively about their mortgage credit inquiry. To be clear, if someone wants a formal mortgage pre-approval or even a rate hold, then yes, absolutely, we have to pull a credit report.

Here’s the reality:

  • Minimal impact: A single credit inquiry usually has a very small effect on your credit score, potentially lowering it by just 5 to 8 points.
  • Credit score buffer: Most diligent credit users have a score buffer that more than compensates for the minor deductions caused by inquiries.
  • Purpose of building credit: Remember, a big reason for maintaining a good credit history is to utilize it when making significant decisions like buying or refinancing a home.

In essence, avoiding a credit check could hinder your ability to get pre-approved for a mortgage. It’s crucial to let your mortgage professional proceed with the necessary checks to ensure you’re on the right track to securing your home loan.

Canadian home sames soften in June

Real-world insights into credit inquiries

Note to our readers: For client privacy, the names of the subjects in this story have been changed. The values mentioned in this story are accurate and true. These case studies are presented to educate Canadians in a couple of different home purchase situations. One is for move-up buyers, and the other is about first-time homebuyers.

Case Study 1: The high achievers with credit concerns

  • Client Story: Tiana & Leo
  • Combined household income: $181,600
  • Current home value: $695,000
  • New home value: $910,000
  • Client goal: Selling their townhome to purchase their forever home

Tiana and Leo live in a townhome in Kitchener and recently they came to us wanting to be pre-qualified for a mortgage. They and their two kids are excited about moving up to their forever home. But there was a snag—Tiana was very hesitant about us pulling her credit report. She feared it might negatively impact her credit score.

Their outcome: Why it pays to check even if you’re scared!

With a bit of guidance and reassurance about the process, Tiana and Leo agreed to let us proceed with the credit inquiry, which of course is a standard step in the mortgage pre-approval process.

Drum roll please…

When we checked her credit, Tiana had a pristine score of 900! The absolute pinnacle, something we only see once in a blue moon! Clearly, she had nothing to worry about. It doesn’t get any better than 900!

Naturally with that credit score (Leo’s score was also very high), securing the pre-approval they wanted became a piece of cake!

Case Study 2: Multiple inquiries, minimal impact

  • Client story: Fiona & Bart
  • Combined household income: $251,700
  • Current home value: N/A – they are first-time buyers
  • New home value: $1,600,000
  • Client goal: They Are Ready To Purchase Their First Home

Fiona and Bart, a forward-thinking couple in their early thirties, approached us with a clear goal: they were ready to purchase their first home. Unlike many first-time buyers, they were quite relaxed about the entire credit scoring process, understanding its necessity in the home-buying journey.

Their outcome: Stable scores through multiple inquiries

Given that a credit report’s validity lasts only 30 days, we found ourselves needing to pull their reports multiple times as we journeyed from pre-approval to final approval, while at the same time negotiating with two different lenders over a few months.

Additionally, each bank required their own credit pull. Despite the frequency of all these inquiries, the impact on their credit scores was really minimal.

Here’s how it played out:

  • Initial score: Fiona started with 823, and Bart with 834.
  • During the process: Fiona’s score fluctuated slightly, dropping to 817 before returning to 823, showing her credit score’s resilience. Bart’s score dipped modestly to 822.
  • Final score: By the end of the process, both scores remained strong and high, demonstrating that multiple inquiries (in this case, five consecutive inquiries in the span of three months), when done within a proper context, do not have a significant detrimental effect.

Credit score comparison

This is a comparison chart for all the dates and inquiries we made for Fiona and Bart. You can clearly see that even with five credit inquiries, there were minimal changes to both of their scores.

This experience underscores the importance of not sweating the small stuff. Multiple inquiries might sound daunting, but in the structured environment of mortgage applications, they are just part of the process and are less impactful than often feared.

Why mortgage credit inquiries should not deter you

Understanding the nuances of credit inquiries can significantly ease the concerns of both mortgage professionals and their clients. Personal credit expert Richard Moxley notes that multiple mortgage-related inquiries over 45 days only impact your Equifax Canada score as a single inquiry, and with TransUnion Canada, the same is true over a 15-day period.

This minimizes the impact on your credit score and highlights the importance of proceeding with necessary credit checks during the mortgage application process.

Key takeaways:

  • Educate clients: As mortgage professionals, it is our responsibility to educate clients about the true impact of credit inquiries.
  • Reassure borrowers: Reassure your clients that a high credit score is built to withstand such inquiries, particularly when they are crucial for securing a mortgage.
  • Encourage transparency: Encourage clients to consent to credit pulls to facilitate a smoother pre-approval process.

By demystifying the impact of mortgage credit inquiries, we can help clients move forward with confidence, knowing their credit health is secure and their home financing is on track.

12 Apr

Mortgage Policy Tweaks: From Rumour to Reality?

General

Posted by: Dean Kimoto

So, here’s a ‘coincidence.’ The day after we run a story on potential mortgage changes, JT plays coy when reporters ask him about 30-year insured amortizations:

“On mortgages, we will have more to say between now and the budget date on April 16, and perhaps we will save it for April 16.”—Justin Trudeau at a news conference Friday

Trudeau’s poker face has a tell. And with any luck, he might have an ace up his sleeve: a pro-mortgage-growth ace.

The money’s on 30-year amortizations

You don’t have access to this post on MortgageLogic.news at the moment, but if you upgrade your account you’ll be able to see the whole thing, as well as all the other posts in the archive! Subscribing only takes a few seconds and will give you immediate access.
This article was written for mortgagelogic.news by Robert McLister
10 Apr

Canadian Job Market Whimpers in March While US Roars

General

Posted by: Dean Kimoto

March’s Weak Jobs Report Sets the Stage for a June Rate Cut

Today’s StatsCanada Labour Force Survey for March is much weaker than expected. Employment fell by 2,200, and the employment rate declined for the sixth consecutive month to 61.4%.  Total hours worked in March were virtually unchanged but up 0.7% compared with 12 months earlier.

The details were similar to the headline: as full-time jobs dipped, total hours worked fell 0.3%, and only two provinces managed job growth. Among the type of worker, a 29k drop in self-employment was the primary source of weakness, while private sector jobs managed a decent 15k gain. The issue for the Bank of Canada is that wage gains are not softening even with a rising jobless rate. Average hourly wages actually nudged up to a 5.1% y/y pace, now more than two percentage points above headline inflation. With productivity barely moving, these 5% gains will feed into costs and threaten to keep inflation sticky.

The unemployment rate in Canada jumped to 6.1% in March of 2024 from 5.8% in the earlier month, the highest since October of 2021, and sharply above market expectations of 5.9%. The result aligned with the Bank of Canada’s rhetoric that higher interest rates have a more significant impact on the Canadian labour market, strengthening the argument for doves in the BoC’s Governing Council that a rate cut may be due by the second quarter. The unemployed population jumped by 60,000 to 1.260 million, with 65% searching for jobs for over one month. Unemployment rose to an over-seven-year high for the youth (12.6% vs 11.6% in February) and grew at a softer pace for the core-aged population (5.2% vs 5%).In March, fewer people were employed in accommodation and food services (-27,000; -2.4%), wholesale and retail trade (-23,000; -0.8%), and professional, scientific, and technical services (-20,000; -1.0%). Employment increased in four industries, led by health care and social assistance (+40,000; +1.5%).

Average hourly wages among employees rose 5.1% (+$1.69 to $34.81) year over year in March, following growth of 5.0% in February (not seasonally adjusted). This is still too high for the Bank of Canada’s comfort.

Bottom Line

The central bank meets again next Wednesday, and a rate cut is unlikely. I still expect rate cuts to begin at the following meeting in June. The Canadian economy, though resilient, will suffer from rising mortgage costs as many mortgages come under renewal over the next two years. Delinquency rates have already risen. Moreover, the planned reduction in temporary residents will also slow economic activity.

With the US jobs market still booming, it is likely the BoC will begin cutting rates before the Fed.

Please Note: The source of this article is from SherryCooper.com/category/articles/
29 Mar

BMO ramping up its broker channel division with new network partnerships

Latest News

Posted by: Dean Kimoto

Since its official launch in late January in Ontario and Atlantic Canada, BMO’s BrokerEdge division has been making waves and slowly growing its presence in Canada’s mortgage broker channel.

The bank kicked off its return to the broker channel—following a 16-year hiatus—in a “small and very deliberate” way, Justin Scully, Head of BMO BrokerEdge, told CMT in a recent interview.

That involved working with a small group of brokers from DLCG (Dominion Lending Centres Mortgage Group) and M3 Group during its soft launch in January before expanding to a select group of brokers from TMG the Mortgage Group in early March.

“We have been in a controlled state with a very small group of select brokers to ensure that all the functionality is working as intended and that we can deliver on providing an excellent broker and customer experience,” said Paula Oliveira, BMO’s Regional Vice President, Ontario and Atlantic Canada. “That’s our main priority right now.”

Scully added that despite all of the team’s preparations in the lead-up to the launch, “we’ve learned a few things and we feel even better about coming back into the channel.”

“Basically we’ve been able to test the different intake points to make sure things worked with each network, each sub-network, each POS [Point of Sale], different deal types, and it’s all gone according to plan,” he added.

And so far, feedback from the bank’s broker partners has been positive.

Scully confirmed that BMO expects to be operating in the broker channel nationwide by fiscal 2026, with a West Coast roll-out up next.

Working to expand its product offerings

BMO has also confirmed that it is actively working to introduce more of its lending products and programs to the broker channel.

For now at least, access to certain specialty lending programs are only available through BMO’s proprietary channel. This includes the bank’s Canadian Defence Community Banking program, which caters to members of Canada’s armed forces, as well as BMO’s Homeowner ReadiLine, the bank’s revolving home equity line of credit (HELOC).

“We don’t have our HELOC product yet, but we will,” Scully confirmed, adding it should be available by the end of the year or early 2025. “I would say the risk appetite in both channels is the same. We do not have a different appetite by channel.”

Oliveira noted that broker clients do have access to some of the bank’s other popular programs, including its short-term rental financing program, which caters to services like Airbnb and is unique in the A-lending space.

Other programs include new construction financing, which uses the current appraised value of the property to determine the loan-to-value (LTV), and a program for high-net-worth clients that allows them to use liquid assets as an alternate source of down payment up to a maximum LTV of 80%.

“So products like this will give us the leverage to be very respected in the broker space,” Oliveira said.

In addition to these product offerings, BMO has also been promoting the benefits of its team of Welcome Advisors, who will connect with clients in the post-approval and pre-funding phase and work with them again post-funding.

“It’s about really understanding what the client needs and how can we help ensure they are in a better financial position after going through such a large purchase,” Oliveira said.

“The design decisions we’ve made around the welcome advisor team and the way we can help customers with all their other financial needs, and the way we envision that ultimately interfacing as a value add to brokers, has been really well received,” Scully added.

A focus on customer acquisition

Since it first publicly announced its return to the broker channel last summer, BMO has been open about its goal of building holistic relationships with customers rather than merely securing mortgage deals.

Interestingly, Scotiabank has recently embarked on a similar path, reporting that in the first quarter, 70% of its new mortgage deals involved clients who had multiple financial products with the bank. This move signals a broader industry trend of banks wanting to deepen their relationships with clients across various financial products and services beyond the traditional mortgage offering.

“This is about customer acquisition, not just mortgage acquisition for BMO,” Scully said. “And so, we’re looking for brokers who want to be with us on our journey to franchise customers, to take a mortgage customer and have a real, meaningful conversation about how we can help them across their financial needs.”

Scully acknowledges that it’s not a vision that will necessarily be shared by all brokers. “If our broker doesn’t support that and doesn’t understand that’s the most critical element for BMO, it’s okay,” he said. “So, there will be brokers for whom BMO BrokerEdge is not a fit, and we’re good with that.”

The brokers BMO wants to partner with

Once BMO BrokerEdge is fully expanded across the country, Scully said the bank will continue to be selective about the brokers it chooses to work with to maintain a focus on quality and BMO’s business objectives within the channel.

“We’re really transparent about what matters to us. We we want brokers that run a really clean business, with a propensity to do a lot of A-, bank-type business,” he said.

“We do know that in the broker channel there tends to be a little bit more focus on first-time homebuyers who tend to be a little bit more in default insured business,” he added. “And so, that’s certainly part of the approach and we intend to be very competitive in those spaces.”

Q&As

Both Oliviera and Scully addressed a variety of other topics during the interview, with some of the key highlights below.

  • On the bank’s commitment to offering same-day pricing responses to brokers:

“Definitely one of our commitments to our customers and to the brokers is to be responsive and to have everything aligned for them in order to provide an answer to their clients,” said Oliveira. “I’m not that in the beginning everything is going to be perfect, because we are going through a transition, but that’s our objective.”

  • On the reputation BMO is trying to build:

“We’re being really transparent with the brokers upfront. We’re going to do a lot of training on our appetite. What types of deals we like, what types we were less favourable, Because, if you’re going to meet a broker a year from now and you ask them about BMO, I want them to say we’re really efficient, we’re fast to yes, and we’re really reliable. And if they said those things, then I’d be thrilled.”

  • On the bank’s plans to continue offering fixed-payment variable-rate mortgages in light of concerns from OSFI:

“As we evolve, we’ll evolve the same across channels. When we did a fixed-payment variable rate product we did it because, in a rising rate environment, it gives customers time and flexibility to manage payments, and that’s been proven right,” said Scully. “Customers can take voluntary actions, whether they make a lump sum payment or they increase their payment, and many are doing so prior to renewals so that they minimize the payment increase. And then in a declining rate environment, the benefit would be that they’ll pay off their mortgage sooner.”

 

This article was written for Canadian Mortgage Trends by:

Steve Huebl
Steve Huebl is a graduate of Ryerson University’s School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.
25 Mar

How could the US’s seismic real estate settlement impact Canada?

General

Posted by: Dean Kimoto

Multimillion-dollar agreement could have ripple effects north of the border

A recent settlement announced by a trade body in the US could have ripple effects on Canada’s real estate sector and allow home sellers to make more on their deals, according to a CBC News report.

 

The National Association of Realtors (NAR) has agreed to settle a lawsuit filed by American home sellers claiming that the group artificially inflated commissions.

The NAR used to require listing brokers to offer a commission to the buyer’s agent upfront. The commission was around 6% of the home’s sale price, to be divided between both the seller’s and the buyer’s agents.

US home sellers said in their lawsuit that this forced them to enter into commission-sharing agreements to market their properties on multiple listing services (MLS) without missing out on potential buyers.

As part of the settlement, the NAR agreed to pay US$418 million and abolish the practice.

Tom Davidoff, a University of British Columbia associate professor specializing in real estate economics, said the NAR settlement strengthens the possibility that the same thing could happen in Canada, especially as a similar suit has made its way to the Federal Court.

What does this settlement mean for Canada’s real estate sector?

The Canadian Real Estate Association (CREA) and several brokerages were recently named defendants in a proposed class action alleging that there is “conspiracy, agreement or arrangement” to illegally inflate residential commission prices.

Canada largely mirrors the broker commission model seen in the US, with real estate brokerages charging commissions based on the sale price of a home to be split between buyer’s and seller’s agents.

Garth Myers, a partner at the law firm Kalloghlian Myers LLP, which is handling the Canadian lawsuit, believes the US settlement undermines any justification the CREA might have for maintaining current commission rules.

“We think that the consequence of our lawsuit will mean more money in the pocket of home sellers and it’ll reduce the cost of residential real estate across the country,” he said.

The lawsuit against CREA was filed in January and has yet to be certified as a class proceeding, according to CBC.

 

This article was written for CMP by Mar 21st, 2024.