An Industry in Review!• My name is Betty Talbot. I am a mortgage broker with CENTUM Omni

Mortgage Corp in the Niagara Region. The reason I am here today is to address the many, many changes that have occurred in our business from rule changes to market changes.

• I have worked in the industry for over 30 yrs, surviving a recession and 3 corrections.

• I’ve worked with 1st mortgage rates from as low as 2.5% to a high of 15%. For most of my years as a mortgage broker I have worked in the Niagara Region where unemployment and seasonal employment statistics are very high. The average mortgage size in the area was less than $100,000 and the average time on the market was 120-180 days. To be successful, I’ve had to be adaptable and embrace all of the government changes as well as a challenging market area.

• Here is a DECADE in review. There were approx. 30 rule changes over the past 10 years and we will discuss the major ones today.

Kimberlee Freeman – New Haven Mortgage Corporation

• Helping me today is Kimberlee Freeman!• 20 yrs experience in the mortgage industry. • She started her career with:• Credit Bureau of St. Catharines: 1998-2000• HFC (Household Finance): 2000-2005• CIBC: 2005-2007 • Accredited Home Lenders: 2007-2008• Director of Business Development & Planning for NHMC:

2008-Present

2007

• Who remembers what happened in 2007?• Mortgage Brokers had it EASY!• We had a robust market with liberal lending

guidelines, we could arrange 107% insured financing with a 40 year amortization

• 1st mtg rates were averaging about 6% on “A” deals

• We could use cash back of 3%-5% as part of the down payment if required and we could finance up to a 4-plex as residential if one unit was O/O

2007 - Deal Scenario

• Does anybody remember when we could get a 1st mtg approval with “A” rates for a self-employed waiter/waitress; with no proof of income other than a self-declaration of earnings which could be $300,000 if that’s what was needed to service the debt?

• DO YOU KNOW ANY WAITERS/WATRESSES MAKING THAT KIND OF MONEY???? MAYBE WE’RE IN THE WRONG LINE OF BUSINESS?

Ready for 2008?• The U.S. sub-prime crunch was the beginning of the changes for our industry!• Bad underwriting and lax policies in the US mortgage business created a world

wide financial crises that we are still dealing with today. • The “B” lenders started dropping like flies; the lender pool shrunk

dramatically- there was nobody left in that space. Market correction started with values dropping. What do you do? How do you stay successful?

Solutions

• Close the gap using other product ie) unsecured loans, co-signers, blanket mortgages

• Brokers had to start learning how to deal with private lenders

• Brokers had to switch lanes and source out more “A” business

Enter 2010

• The “A” market is now affected with new rules

• Max LTV of 90% - reduced from 95% for re-finance

• Benchmark rate now implemented for 1-4 yr fixed and VRM – qualify at 5.59%

• investors were required to have a down payment of 20% when purchasing rental properties

Problems • Refinances were a LARGE part of the market• Banks were doing the same thing they are doing

nowencouraging unsecured debt via PLC’s, Credit Cards & Personal Loans. Homeowners eventually became suffocated by the debt load and looked for relief through consolidation.

• The Biggest PROBLEM: Reduced LTV from 95%-90% & the reduction of the max amortization meant there was difficulty for the average home owner qualifying for what they needed to consolidate all debts.

• What do we do? How do we stay successful & in business? How are we going to get these deals done?

How Do We -------

• Re-structure the debt with an “A” lender to the max LTV permitted (90%ltv)

• P/O highest interest rate credit cards with the newly arranged mortgage

• Teach your borrowers how to budget/handle their cash flow

• Possibly look at consolidating the remaining balances with an unsecured loan

Here Comes 2011

• Again the “A” world is hit with reductions in the max LTV from 90% to 85% and more decreases in the amortization rates from 35 yrs to 30 yr max

• The PROBLEM: Consumers are really beginning to feel the crunch of carrying their debt load. We begin to see more bankruptcies & consumer proposals

2011 Purchase Scenario!• Homeowner purchased a house 5 yrs ago - last year

it needed new windows & a roof.• Unable to break the mortgage due to a large

penalty so made use of their PLC for the home improvements.

• Clients intended to consolidate the balance with mortgage at maturity.

• Now the mortgage is up for renewal but the new rule changes and market correction means there is not enough equity to consolidate the PLC as planned.

• What is the solution?

• Re-finance to max allowed LTV-85%• Re-finance balance on unsecured loan with fixed

monthly payments – extremely important at this point to reduce outstanding debt

• Possibly also arrange a private 2nd to 90% BUT what is the exit strategy for the private- how will it be paid out? Clients MUST:

2012 Brings More Changes to the “A” World

• Elimination of High Ratio HELOC• Decrease in max am to 25 yrs• Max TDS for High Ratio set at 44%• Another reduction in LTV from 85% to 80%• No insured purchases over $1 Million

The Problems…..

• Even though these were changes to “A” deals, it had an effect on all types of mortgages.

• Previous “A” files no longer met guidelines so were now considered “B” files.

• Demand for funds increased on “B” and private lenders • WHAT DO YOU DO? WHO GAVE UP?

More Problems...

• Private lenders started to cut back on LTV from 90% to 80%-85% max

• Money was tighter so rates & fees were increased. • Private rates were previously in the 9-11% range

and they rose to 12-14%• How do you stay successful now???

Solutions• Look at new ways to get business - get out and pound the

pavement to get more leads. Make phone calls, ask for referrals. Look at ways to diversify your book of business. Use your CRM-stay in touch with past clients. Communication is key.

• The biggest challenge now revolves around refinances so shift your focus and look for more/different referral sources for purchase transactions.

• Develop relationships with realtors, financial planners, book-keepers, accountants, home builders, lawyers, bankers and the rent to own providers.

• Sometimes there really is no ready solution you have to adapt & diversify!

2014 - B 21 Changes Announced

• These new rules made changes to BFS documentation• They were meant to detect & deter fraud- as I explained in

a previous slide, stated income and actual income may differ substantially

• With “A” deals cash back & rebate programs were no longer acceptable as part of down payment

Changing Lanes to Different Types of Problems…

• This created a BIG change for BFS deals• Clients were confused and angered by the changes. They

were approved last year under the old rules and this year (even though they have earned more money and believe their situation has improved) they were turned down by their existing lender.

• WHAT DO YOU DO?

Don’t Bring Problems w/out Solutions!

• If necessary - arrange max equity 1st mtg (maybe 50-65%) through an “A” or “B” lender and private 2nd for the balance required.

• If possible renew with the existing lender for another year but try to set up re-payment terms rather than interest only.

• Educate your borrower that they may want to consider declaring more income.

2016 – It’s Not Over Yet

• The “A” World gets HIT again!• Feb 2016 - CMHC now requires 10% down

payment for purchases over $500,000• Oct 2016 - all High Ratio deals must now

qualify at the benchmark rate with a 25 yram

• The average 5 yr rate is 3% but the benchmark rate is 4.64%

New Problems!

• Example: customer is purchasing for $750000 • Previously min down was 5% ($37,500) and they

would qualify with income of about $131,000• Under the new rules the same customer would

need a down payment of $62500 for a $750,000 purchase but would now need an annual income of $150,000 to qualify under the new 25 year amortization

• HOW DO YOU EXPLAIN THIS TO A PURCHASER? WHAT DO YOU DO?

Your Solutions!

• Look for possible co-signer• Consider an unsecured loan for the balance of the

down payment• Possibly gifted down payment from a family

member• Look at a lower priced property

Present Day – 2018!• More changes implemented for everyone!• Regulated lenders no longer allowed to “bundle”

mortgages or allow 2nds behind them to more than 80% LTV

• Regulated lenders are required to appropriately consider risk on each and every deal

• Brokers are required to provide proof they know who their clients are and that they have the ability to pay

• Borrowers with more than 20% down payment must now qualify using the GREATER of the contract rate plus 200 BPS or the benchmark rate

Our New Problems…

• Max LTV 65% now for non-conforming mortgages (low beacon/spotty credit/inadequate proof of income)

• Lender cut backs on LTV in certain areas• More documentation required for proof of

income• All lenders now require photo ID • Lenders are also restricted as to how much

they can lend for a non-resident purchase

Solutions for Success!

• Learn the lenders- which ones are regulated by OSFI? • Get to know the BDM’s for the lenders and use them – run

your deals by them prior to submitting• Develop a relationship with credit unions- they can still do

HELOC’s to 80% LTV, use contract rate for qualifying and in some cases use an extended am

In SummaryYour Decade in Review!

• If you want to be successful in this business you have to be adaptable, flexible and eager to learn.

• Specializing in “A” deals is not the answer• A real mortgage broker is able to handle deals of any

nature from “A” to “Z” including rent to own and commercial scenarios.

• There were 30 rule changes in the past decade. There are MANY more to come.

• Do NOT be afraid of change.

Remember:“With Change comes great opportunities for SUCCESS!”