By the time this blog is posted, I’ll be somewhere over the Pacific Ocean heading towards Sydney, Australia.   My final destination is Adelaide, Australia.  The purpose of the journey is to attend the Mortgage & Finance Association of Australia National Conference.  It’s a long, a very long way, to go to attend a conference.  By the time you read this blog, I will be well into my 22 hour flight and, I suspect, I will be going a little stir crazy.  I’ve traveled a number of times to Europe, but an 8 hour flight to Europe is like a walk around the block compared to “going down under.”  It’s a trip I always wanted to make, but I always found a reason to put it off.  Must be the thought of been cramped in a tin can for 22 hours.  But now, there was definitive time and reason to go.  The MFAA is Australia’s equivalent of CAAMP.  As much as I’m delighted to remove an item from my bucket list, going to Australia, the primary purpose of the visit is to represent CAAMP, and to go for my own personal development.

Canada and Australia are similar in many ways; specifically as it relates to the mortgage industry, an oligopoly exists in both countries, but the big difference is the disappearance of mono-lines in Australia.  That was a result of the credit crisis of 2008, or as the Aussie’s like to say, the GSS (Global Shit Storm).  The mortgage industry in Australia changed significantly post-2008.  As mentioned, mono-lines became a footnote in the annals of the mortgage lending history in Australia.  Given limited competition, broker commissions where significantly reduced.  The four major banks in Australia now control 90% of the broker market share.  The banks imposed proficiency exams on brokers to do business with them, at a cost of $750 to write the exam.  The major banks took an equity position in some of the larger broker house’s in Australia, and they exercise their influence and control by way of board seats.  Yet, for all the challenges the Australian broker market has faced since the GSS, they still control a 40% market share.  That’s what I find fascinating.  The Canadian broker market came out relatively unscathed after 2008, and yet broker market share in Canada is not growing.  The data would suggest that broker market share in Canada is actually contracting; so what is it about Australian broker market  that enables them not only maintain their market share but actually grow it?  That’s going to be the first question I ask of any stakeholder in Australia.  I hope to garner some insights and to see if there’s some practical application to our market, given examples from Australia.

What I’m really looking forward to is talking to lenders and brokers who fully embrace a trailer fee model.  Brokers and lenders in Australia are vested and fully committed to this model.  So what I hope to gleam is, how did they get there?  I believe the trailer fee model is now accepted by the broker community in Canada.  It’s no longer viewed as the boogieman or the great unknown.  In large part this is due to Merix’s commitment towards this compensation model, and it pioneering of the trailer fee model.  Many lenders talked about in the past but Merix actually did it.  I commend all the broker lenders in Canada that have created a hybrid of the Merix model.   Lenders in Canada can call them renewal fees if they like but the fact is prior to Merix, lenders were not paying on renewal.  My hope is that every lender jumps on board and helps to create future value for mortgage brokers in Canada.  Who knows, maybe one day Aussie brokers and lenders will ask us, how did you do it?

Until next time

Cheers

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Not long ago CAAMP’s Chief Economists, Will Dunning, said to me that economists base their forecasts on their personality.

It’s hard to imagine that Europe’s economic situation could become more uncertain but you have to hand it to the Europeans, they figured out a way.  The “left” is taking control of the political leavers in Europe, and the response was somewhat unexpected.  The markets did not react negatively to the elections in France, and Greece last weekend.  Pundits on Wall Street are suggesting they have already built in the outcome of the elections.  It’s seems somewhat odd that the markets took the elections in stride given past responses to the European crisis.  Ah, but that was on Monday.  By Tuesday the markets started to react as investors finally took note.  The delayed reaction was surprising because recent history suggests that the markets will respond negatively to all things Europe.  Manchester United loses 1-0 to Bolton; the Dow and TSX down 200 points.

 The stock market aside, this wasn’t a good week for Europe.  Some economists are suggesting that Europe is once again in, and heading towards another deep recession.  Last month Europe’s aggregated economy contracted.  Spain now holds the dubious distinction of having the highest unemployment rate of member countries in the EU.  It’s estimated that one in four Spaniards are unemployed today.  You know Europe is teetering when Germany and France’s economy has come to a sudden halt.  The population of Europe is looking to punish someone for the mess there in.  The first big shoe to drop was in France.

There’s a new president elect in France.  President Hollande is a left wing ideologue.  He exploited the mood of the French population, and convinced them that they could tax and spend their way to prosperity.  He convinced the French population that France could recover without having to impose deep austerity measures.  France’s new president wants to move from transatlantic agreements and focus more on member countries of the EU.  This will impact Canada.  The Harper Government has been negotiating with the EU about a new free-trade agreement but now that Hollande is controlling one of the leavers the free trade agreement may not come to pass.  At the very least it might be put on the back burner.  France is not the only country to move to the left.  Greece, they’re back.  Yes, a new government was elected in Greece last weekend, one that promises to spend their way out of debt.  Correct me if I’m wrong – but I think that way of thinking contributed to mess they’re in today.  It’s worrisome to see the direction Europe is headed in.  But I also understand when people feel hopeless, confused and desperate, the impulse is to roll the dice and hope for a miracle.  How much worse can it get?

It can get worse, a lot worse.  What was unthinkable a year ago, countries defaulting, is starting to look more probable.  The IMF will not put up with Greece if they attempt to increase spending.  There may be no more bailouts, and if that was to happen there’s no way Greece could remain a member of the EU.  There’s a real possibility that we’ll be witnessing history; rather appropriate given a number of countries in Europe appear to be history.

Until next time,

 Cheers.

It can be the most unnerving, and for some terrifying, experience.   There are those who make it look so easy but I suspect their secret to success is the ability to suppress the fear and anxiety of public speaking.  There are plenty of courses for those who want to become better at public speaking but no course is as valuable as practical experience.  Presenting in front of a large audience teaches many lessons, and the lessons are usually painful.

 There’s nothing more humbling than walking off the stage and saying to yourself, “well, that sucked”.  I’ve done enough public speaking over the last few years to honestly judge my own performance.  Really, that’s what public speaking is.  Either you’re “on” or you’re not.  There have been times when I’ve been in a middle of a presentation and I know it’s working.  The words seem to flow, the pace of speech is just right and the audience is engaged.  I measure audience engagement by Blackberry use.  Then there are other times when I know I’m not connecting with the audience, and god forbid if I have another forty minutes to fill.  That has to be one of the loneliest feelings in the world.  There’s no teammate on stage that can cover for you.  It’s just you and the audience wishing they were somewhere else.

Every time I go on stage to do a presentation I’m nervous.  Not to any paralyzing degree but enough to get the feeling in the pit of my stomach, accompanied by sweaty palms.  It doesn’t matter how many times I do it that feeling is there.  It was no different last week when I spoke to a group of realtors in Oakville.  For context, a great supporter of Merix, Mark Mighton, asked me to speak at event he was sponsoring.  It was the Oakville Real Estate Association continuing education session, with some 250 realtors in attendance. The presentation was being held in a movie theatre.  It was an interesting day to say the least.  My morning started by doing the opening remarks at the CAAMP Symposium in Laval, Quebec.  Off to the airport from Laval to catch a flight to Toronto so that I can make it on time for the presentation in Oakville.  Of course the plane was delayed by an hour which means I would be cutting it real close.  I’m providing ETA updates to the organizers of the event, and I know I was causing them some angst.  As luck would have it I arrived with 10 minutes to spare.  No time to decompress or really gather my thoughts, its show time.  So I’m introduced by the host of the event, and I say “Thank you and good afternoon ladies gentlemen’”.   Just then I noticed a woman, right in the middle of the theatre, dead to the world.  I mean she is out cold, head tilted to the side, mouth wide open, she’s in a deep sleep.  It’s funny what goes through your mind in about second.  My first instinct was to laugh, and then I started to rationalize.  “Christ, it can’t be me…I’ve been on for only 3  1/2 seconds”.

For 45 minutes I tried to avoid looking at the woman in a coma.  That’ not an easy thing to do because I know she’s there and I’m wondering if she’s really going to sleep through entire presentation.  She did.  In fairness to the slumbering woman, when the audience clapped at the end of my presentation it startled her awake.  She rose to her feet and joined the others in clapping.  I made eye contact with her and mouthed, thank you.  What a thrill for me.  I received a standing ovation from one person in the audience who didn’t hear a single word I said.

 Until next time,

 Cheers.

I suspect everyone in our industry is familiar or has some basic understanding of OSFI’s responsibilities.  The Office of the Superintendent of Financial Institutions is an independent agency of the Government of Canada, and the agency reports directly to the Minister of Finance.  OSFI’S mandate?  Simply stated OSFI’S role is to ensure that Canadians have confidence in the financial system.  Given what’s transpired in the rest of the word since 2008, I suspect Canadian confidence in our financial system has not waned, at all.  Yet most Canadians wouldn’t know who or what OSFI is.   Maybe that’s not a bad thing.  Regulators in the US have come under heavy criticism for their role or lack thereof leading to the financial crisis of 2008.  The criticism that regulators in the US have received over the last four years contributes to the erosion of consumer confidence.  When regulators make headlines you know change is coming.  Consumer confidence is the underpinning of any established economy.  If consumers are concerned about their jobs, they don’t spend.  If Canadians ever questioned the stability of our banking system, well, the net result could be cataclysmic.

So what exactly is the responsibility of this shadowy agency that so few Canadian know about or even know of their existence? 

1.       Supervise institutions and pension plans whether they are in sound financial condition

2.       To ensure that financial institutions are complying to law and supervisory requirement

3.       To advise institutions of material deficiencies, and to require management and boards of said institutions to implement corrective measures

4.       Create policy and procedures designed to mitigate risk

5.       Monitor and evaluate system-wide or sectoral issues that may impact institutions negatively

We’re getting firsthand experience as it relates to the fifth mandate.  OSFI has significant concerns about the state of lending in this country and the risk posed to financial intuitions if current lending practices continued.  Lending practices are being questioned and change is coming.  What’s unknown is the degree of change.  OFSI requested for CAAMP to respond to their draft guideline – B-20 Residential Mortgage Underwriting Practices and Procedures.  CAAMP was grateful for the opportunity to respond to OSFI and once again it demonstrates that CAAAMP has become the guardian of our industry.  CAAMP’s response was well measured and focused.
For a copy of a CAAMP’s full response, please click here. 

As a teaser, CAAMP’s response focused on the following lending practices and procedures;

1.       Loan Documentation

2.       Debt Service Change –Additional Assessment Criteria

3.       Loan to Value Ratio

4.       Down Payment

5.       Home Equity Lines of Credit

It is clear that OSFI is reviewing every aspect of lending and specifically the fundamentals of credit decisions.  As an industry it would be naïve to believe that change would have no impact on our business.  Change is coming and one has to hope that change is measured and based on facts.  Over reaching changes to lending policies poses a risk.  Confidence in the financial system is critical.  However, if Canadians don’t believe that banks want to lend prudently, they’ll respond accordingly.  There are different ways for Canadians to lose confidence in the banking system.  It’s not just about writing bad loans…it’s also about writing no loans.

Until next time,

Cheers.