I think it’s safe to say that summer has finally arrived. I hear the snow melted yesterday in Calgary, and in Vancouver they’re calling for two days of sunshine, in a row. So summer must be around the corner. But you’ll really know when summer is here when Peter Mansbridge begins the National with the following intro; “Greece is on the verge of declaring bankruptcy….the war in Afghanistan rages on … US unemployment rate hits a staggering 14%…But first our top story…Heat Wave Hits Toronto”. And this is the reason why the rest of Canada hates all things Toronto.

Firstly, as Canadian’s we’re fixated on the weather. Have you ever noticed how much time we spend talking about the weather. Yet for some reason the press elevates the weather situation in Toronto. Look, 33 degrees is hot, but when it’s about Toronto, the humidex factor is always added. It’s not enough to say it’s 33 degrees, the reporter has to say “it feels like 46 degrees”. It’s like some kind of bragging right. Here in Toronto we’re equal opportunists. In the winter it’s all about the windchill. When it’s reported that with the windchill it feels like -28 in Toronto, people in Edmonton and Winnipeg roll their eyes and say “bleeping wimps”. When it comes to the weather, Toronto measures itself by how cold or hot it is. The long range forecast for Toronto, I know this because I’m Canadian, calls for a hot and dry summer. So for everyone living outside of Toronto, don’t be surprised if you hear on The National that the Mayor of Toronto, Rob Ford, has called out the military to help us cope with the heat. The military will walk the streets of Toronto with umbrellas to shade us from the sun.

The summer is a great time of the year, but it can pose challenges for business. Firstly, don’t buy into conventional wisdom that business will slow down because it’s summer. Last time I checked bank’s weren’t boarding up branch windows, with a sign posted on the plywood that say’s…”We’ll be back in September”. It’s difficult but you have to remind your staff, and yourself, that it’s business as usual. Secondly, make a commitment to outwork the competition. Most of your competition will check out, mentally or physically. The majority of people will be lured by the distractions that summer brings. When your competition is playing, you have a great opportunity to eat their lunch. Thirdly, accept the fact that your staff wants to enjoy the summer months, but it doesn’t necessarily mean lost productivity. Flexible hours are an option, and you may decide to knock off early on Friday’s. That’s fine as long as everyone is focused throughout the week. The bills got to be paid.

Until next time.

Cheers

As per my previous blog, I will now address the second question I answered as a panelist at the VERICO Business Forum . “What is one thing that a lender can do today to ensure long term sustainability, and what can mortgage brokers do in kind”.

Simply stated there is no one thing that a lender can do today to ensure long term stability. Usually when we’re asked these questions, in a public forum, the answers are sprinkled with ambiguity, and a pinch of fluff. The reality is, if a business is going to be relevant tomorrow it requires careful planning, and a wee bit of luck.

Careful planning requires a full understanding of your customer’s needs.  Sales today is far different than it was years ago.  The customer is far more sophisticated today, as is the sales person.  At Merix we serve two customers, the borrower and the mortgage broker.  For too long in this industry the mortgage broker has been viewed simply as a conduit between the borrower and the lender.  This has to change.  The evolution of this industry requires that we change how we treat our customers, the mortgage broker.

I believe greater transparency is required between the mortgage broker and the lender.  Our dialogue and operating practice has to change.  We will not be able to thrive and grow our business if we continue to work in an environment where one entities profit is another entities loss.  Long term sustainability of our industry requires the broker owner, the mortgage broker and the lender to profit.  If one of these three is left out of the profit equation the industry is doomed for failure or at the very least stagnation.  Therefore, I believe lenders have to become more transparent about their own business.  If every conversation is about more VB (Volume Bonus) or higher finder’s fee, it’s a race to the end.  The challenge we face today is in understanding one another’s business. We’ll never get there unless we present the facts.  The only way we’ll all be able to grow is by giving each other a look behind the curtain.

In terms of what a mortgage broker can do to ensure long-term sustainability?
Be prepared to face two significant challenges, customer retention and increased competition from the bank’s mortgage sale’s force.

Customer retention is the nasty little issue that no one wants to discuss in an open and honest way.  So I’ll give it a shot. There’s isn’t a lender out there who doesn‘t believe that once a broker accepts the finder’s fee and VB, the customer belongs to the financial institution.  Mortgage brokers believe the lender is renting the customer for five years. I can assure you that every lender you deal with, including MERIX, is allocating more resources to customer retention.  Every lender will fight tooth and nail to retain the customer, and so far lenders have been very successful. For illustration please note the most recent CMHC survey relative to customer retention. The banks are winning the customer retention game, and they plan on keeping it that way.

The second significant issue mortgage brokers will have to confront is increased competition from bank’s mortgage sales force.  You’re probably familiar with the two banks that dominate the space today, but I can assure you that all the banks are either investing in that channel today or they’re about to do so.  I mean all of them.  The banks learned from the broker channel.  Subject matter expertise, and a focus on service, is a formula that works.  Imitation is the highest form of flattery, so mortgage brokers be flattered.  That being said, the banks are coming, and they have deep pockets.

Until next time,

Cheers

“…it’s all fun and games until someone loses an eye…”
-Mom

I recently had an opportunity to participate in a lender panel discussion. I would like to thank Colin Dreyer and John Kelly of VERICO for graciously inviting me to participate, (VERICO Business Forum in Las Vegas) and for providing and open forum to discuss industry issues. I was struck by the candor of all the panelist’s but I guess I shouldn’t be surprised because leadership requires facing difficult questions, and having an answer. The panel was made up of industry leaders and kudos go out to Moe Forget, Tim Mezik, Jim Smith, Paul Grewal, Hali Standlund, Ron Swift and Mark Squire. Ducking difficult questions and preparing sanitized responses is the easy way out, and no one on the panel took the safe route.

I enjoyed listening to the responses of the other panelist’s. For example, Tim Mezik, Ron Swift and Jim Smith were asked if there respective institutions would ever consider offering trailer fees as a form of compensation. Tim Mezik, and Ron Swift responded respectively by saying maybe and possibly. Jim Smith, in no uncertain terms, said “no”. His position is understandable when you consider that banks are in the customer acquisition business. Therefore, they do not see the need to perpetually pay for a customer that they have already purchased. On the other hand, we at MERIX have a different philosophical viewpoint. We try to balance the need of our enterprise, combined with the needs of our suppliers, the mortgage broker. I believe there is room for both models, and choice in the market place is critical.

I was asked two specific questions about our industry. Firstly, do I believe there’s a level playing field today. Secondly, what is one thing that a lender can do today to ensure long term sustainability, and what can mortgage brokers do in kind.

With respect to a level playing field, do I believe that it actually exists?  Today I can state unequivocally the answer is “no”. Anyone who would suggest otherwise would at the very least be disingenuous. At the very worst they would be insulting everyone’s intelligence. Here are some examples of why a level playing field does not exist today:

• IFRS accounting rules are being implemented this year. Without getting into the specifics, the amount of capital which has to be set aside relative to the funding of mortgages is increasing. Let me ask you this simple question, which entity do you believe is in a better position to deal with capital issues, a bank or a mono-line? Answer, big advantage for the oligopoly.

• Resource allocation, including marketing budgets, is another huge advantage that banks have over mono-lines. These expenses are factored into the entire bank’s expense line. Therefore, their marketing budgets, and their cost to schmooze brokers, is pocket change for them.

• The CMB allocation is another huge factor in the bank’s favour. Why? Because the banks have access to a balance sheet as well as the CMB. The mono-line’s today are faced with a finite number relative to volumes. The banks on the other hand can fund as much as they have an appetite for. They may be satisfied to fund a finite dollar amount due to margins and market share, but that’s their choice, and they can make that choice based on their business needs. Today, the mono-lines do not have that luxury.

All this being I said, I say the following: boohoo…

I don’t expect anyone to shed any crocodile tears for the mono-lines. That’s life, that’s business. As matter of fact many of the challenges we face today are no different than what we at MERIX faced when we launched our business close to seven years ago. We are the guppies swimming amongst the whales, and that hasn’t changed since day one. Frankly, I don’t mind that one bit. All it means is that we have to work harder, be smarter and fight tooth and nail for every market share percentage point. This is the classic story of David and Goliath. It’s not easy going to a gun fight with slingshot and a rock, but it’s the terms of battle we embrace. As my mother would want to say, “it’s all fun and games until someone loses an eye”. We at MERIX plan on having 20/20 vision for a long time to come.

I’ll address the second question in Thursday’s blog.

Until next time.

Cheers

I say that with tongue firmly planted in cheek. The month of June has been one long road trip for me. I’ve spent a grand total of 6 days at home this month. It was one of those months where my work obligations and responsibilities to CAAMP converged at the same time. Mission accomplished, and I’m going to be grounded for a while. For those of you that don’t have to travel for occupational reasons, I can honestly say professional travel isn’t very glamourous. Being away from family, living out of a suitcase, and eating way too much crappy food catches up with you. The worst part of traveling today is the air travel. Most people are less than thrilled about air travel today. The destination you’re going to is great, but it’s the getting there that’s a pain. Air travel changed after 9/11.

The need for security is real, but some of the security practices at airports seem to be an exercise in optics. Really, A woman’s lipgloss was confiscated going through security! I know, many a plane has been taken down by lipgloss. Admit it, I think we all believe that whatever is confiscated at security is later divvied up amongst the security staff. Protestations to the contrary by the airport, well, I don’t buy it. But on a positive note, at least when you’re going through that security shakedown the security staff makes the experience pleasurable. It must be due to all that extensive training they received. I believe the classroom training consisted of the following; “Everyone’s a threat, treat them accordingly. Congratulations, you’ve just completed your training”. I get it, nothing about that job seems enjoyable. But no one forced these people to take the job.

I would be remiss not to mention the role that the airline staff could play in making air travel a little more tolerable.

I primarily fly Air Canada because, well, brokers aren’t the only one’s who want to earn status.

I’m sure we will all remember the AC strike of 2011. No, you don’t remember it? That might be because the strike only lasted 3 days. I flew twice with AC during the strike and can honestly say that I didn’t notice any difference in service levels. I’m thinking that if employees withhold their services, and no one notices, they have a problem. I have a suggestion for AC employees when they negotiate their next contract with management. Create a new bonus structure. For example, the employees would receive a 50 cent bonus for every time they say the following to a passenger; “good morning, good afternoon, good evening, thank you, you’re welcome, hello, goodbye, please let me know if I can be of any further assistance, it’s wonderful to have you back with us”. Oh, and maybe there could be an additional 25 cent bonus if an airline attendant didn’t treat you like you were a member of a sleeper cell because your seat wasn’t in the full upright position prior to landing.

Until next time

Cheers

This was a term we were all too familiar with back in August and September of 2008. It is also the name of a new HBO movie which chronicles what transpired at the beginning of the sub-prime mortgage meltdown. HBO assembled an outstanding cast, and given the subject matter the movie was rather entertaining. I would highly recommend watching the movie. It is a good reminder to all of us that the term boom and bust is as applicable today as it always has been.

In typical Hollywood fashion, a liberal bias amounting to revisionist history, the movie tried to blame George W. Bush and Ronald Reagan for the meltdown, and all other evil things. The truth is you can go back to the Jimmy Carter administration, and the passing of the Community and Reinvestment Act. That work of art stated that home ownership was a right, and not a privilege. This is where the slippery slope began. Then old Slick Willie, aka “which way are the political winds blowing today because that’s what I’ll stand for”, Bill Clinton, put that program on steroids. Suffice to say the responsibility for the meltdown, and the nuclear fueling of the problem, is equal parts Republican and Democratic.

The movie is a great reminder of how perilously close we came to an economic meltdown. How our standard of living was at the precipice. If you think this is hyperbole, because this was really a US issue, the reality is that this carcinogen (sub-prime mortgages) infected world markets. I can’t help but to think about the auto worker in Windsor and Detroit, the welder in Germany, the machinist in France, all, asking the same question: “Tell me again why my pension has taken a hit because of some mortgage problem?” No one from Wall Street could explain what happened in laymen terms. The average person cares little about default swaps, derivatives and mortgage-backed securities. All the layman cares about is finding out who the hell let this happen. That question has still gone unanswered.

The movie doesn’t deal with the who. The movie played up of the part about the moral dilemma the government faced. Who did the government decide to bail out, AIG, and who did they allow to fail, Bear Stearns and Lehman Brothers. All very fascinating and dramatic. But after watching the movie I couldn’t help but ask myself the following question: “How the hell has no one gone to prison over this?” I’m all for a free market system, and the pursuit of wealth, but reckless endangerment of our economy and standard of living should not go unpunished. There were individuals and institutions who knew full well they were passing on toxic assets. They were passing on the risk so they didn’t care. They could care less about the consequences. Yet none of the perpetrators of this ingenious fraud has ever been charged or convicted. You would think at least a couple of them should be experiencing the joys of being passed around in prison for a carton of smokes.

Until next time

Cheers