Summer - CMBA-ACHC – Canadian Mortgage Brokers Association

Summer 2008
Balancing
theMarket
Tips on
surviving
the market
downturn
Credit life insurance:
The pros and the cons
Talking to CIBC’s
Benjamin Tal
Skills for successful
networking
PM40787580
Issue 1 Vol 2
BrokerBiz
The Voice of the Mortgage Brokers and Agents of Ontario
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Issue 1 Vol 2
BrokerBiz
The Voice of the Mortgage Brokers and Agents of Ontario
Summer 2008
IN THIS ISSUE
DEPARTMENTS
8 President’s Message
10Industry News
FEATURES
12Surviving the slowdown: Ontario mortgage brokers need to sustain
and grow their businesses
By Kelly Parker
18Weathering the storm: CIBC’s Benjamin Tal says Canada is buffered
22
from the U.S. meltdown
By Nestor Gula
rokers and lenders, partners or competitors?
B
By John Bargis
26The necessity of networking
By Beverley King
28Working together: Art Appelberg of Northwood Mortgage Ltd.
By Liz Katynski
31Sales meetings that work for you, not against you
By Kelley Robertson
33Buyer beware: CBC’s Marketplace raises questions on credit life insurance
By Kelly Parker
36Reaching for the sky: Maple Trust’s John Webster shares his secrets
By Derek Brown
38Investor disclosure: Common mistakes that need to be considered
By Matthew Bradford
42Past meets present: Financing a deal for an old order Mennonite
By Kiran Kaushal
44To charge or not to charge?
By Paul De Francesca
Publisher
Robert Thompson
Executives
Editor
Cydney Keith
David Tetlock,
Associate Editor
Roma Ihnatowycz
Independent Mortgage Brokers
Association of Ontario
1500-5650 Yonge Street
Toronto, ON M2M 4G3
Telephone: 416-252-4622
Toll Free: 1-877-564-4622
Fax: 416-987-3780
Sales Supervisor
Sharon Komoski
Production
Team Leader
Zig Thiessen
Sales
Published by:
Mic Paterson,
5255 Yonge Street, Suite 1000
Toronto, Ontario
M2N 6P4
Hayden Dookheran,
Toll Free: 866.216.0860
ext. 229
Steve Beauchamp
[email protected]
Graphic
1 Wesley Avenue, Suite 301
Winnipeg, MB Canada
Design
R3C 4C6
Specialist
Toll Free: 866.201.3096
Fax: 204.480.4420
James T. Mitchell
Ilan Moyle,
President
Kevin Brown
Published
May 2008.
Senior Vice President
Robert Thompson
Branch Manager
Nancie Privé
Publication Mail
Agreement #40787580
All rights reserved.
The contents of this
publication may not
be reproduced by any
means, in whole or in
part, without the prior
written consent of
the association.
www.mediaedgepublishing.com
Please return
undeliverable copies to:
Independent Mortgage
Brokers Association
of Ontario
1500-5650
Yonge Street
Toronto ON
M2M 4G3
Articles and information in this
magazine represent the opinions of
the writers and do not necessarily
reflect the opinions of the
Independent Mortgage Brokers
Association of Ontario (IMBA), its
board of directors or its staff. The
information used within the magazine
was, to the best of our knowledge,
accurate at the time of writing. Certain
names, scenarios or identifying
information may have been changed
to protect confidentiality. Users of any
information contained in BrokerBiz
are encouraged to validate that
information by independent means.
President’s Message
For IMBA...
the best is yet to come
M
y term as president of the Independent
Mortgage Brokers Association of
Ontario (IMBA) has drawn to a close,
and I must tell you it has been a
wonderful experience for me personally.
If you have never served in a volunteer-based
organization like IMBA, I encourage you to do
so. Being on the IMBA’s executive and leading
the organization for the past year, has been a
privilege and an education.
Working with dedicated IMBA volunteers and
staff has taught me about a myriad of issues facing
our profession and the processes required to
resolve them. It also taught me a great deal about
human nature — especially the positive energy
that comes from collaborating with colleagues
who share a common passion for their craft.
Serving on our Association’s executive has made
me a better owner/broker and has brought me
many friendships that will last a lifetime. Clearly,
I received far more from contributing to an
organization like IMBA than I gave.
I sincerely thank all the IMBA directors,
volunteers and staff for their courtesy and
cooperation. Together we met challenge after
challenge and our Association became stronger
each time.
My term as president has taken place at a pivotal
time in IMBA’s evolution and I complete it with
no regrets and lots of hope for IMBA’s future.
Our Association has grown tremendously during
the past eight years in membership, influence,
and in our capacity to nurture professional
development in the mortgage industry in Ontario.
In the past year alone, here are a few highlights.
The Mortgage Brokerages, Lenders and
Administrators Act, 2006, which takes effect
July 1, is an example of IMBA operating as a
professional association should. We provided
valuable input into the creation of this legislation
and, with our “ACT READY” seminars,
have trained scores of IMBA members to be
compliance ready.
• brokerbiz
The Certified Professional Mortgage Broker
(CPMB) and Certified Professional Mortgage
Agent (CPMA) designations launched last year
give cause to IMBA being proud of setting
high professional standards for the industry in
Ontario. Congratulations to the IMBA members
who have met those standards and have been
recognized for doing so.
The new IMBA website is the result of many
hours of hard work. IMBA has approximately
1,600 members throughout Ontario, so it is
hard to imagine communicating quickly and
effectively without the Internet. Not only is
the website IMBA’s communications hub, it is
also a powerful business processes tool for the
administration of the organization. I urge all
IMBA members to visit www.IMBA.ca regularly.
BrokerBiz magazine is another successful
communications initiative launched this year. It
took a tremendous effort by IMBA volunteers
and suppliers to get this magazine off the ground,
and if the reaction to the premier issue is any
indication, this is going to be a valuable and
informative resource for our members and the
industry at large.
IMBA’s new offices opened last month to give us
a better home base at an improved location. We
now have the office and meeting space we need to
administer the Association for the next few years.
It has been an honour to serve as your president,
and I thank you for that opportunity. To those
on the executive with whom I have served, I
urge you to keep up the good work . . . your
efforts are appreciated and they are making a
very positive contribution to our profession. To
those who haven’t yet stepped up to serve on an
IMBA committee, I recommend that you get
involved — it is certainly worth it professionally
and personally.
For IMBA . . . the best is yet to come. BB
Shane Suepaul
Immediate Past-President
IMBA
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IndustryNews
Letter to the Editor
A
s a practicing mortgage broker in Ontario,
I’m concerned by the
Ontario government’s move to
bring in mandatory fraud coverage as part
of our errors and omissions liability insurance policy. This could be disastrous for
owners of mortgage brokerages and for
our industry.
While I applaud the government’s
action on mandating errors and omissions insurance for every brokerage, the
Ministry of Finance has not consulted
sufficiently with the industry to fully
understand the implications.
It’s no secret that it’s extremely difficult
for Canadian mortgage brokers to get
errors and omissions insurance. One
broker told me he sent out almost 30
tenders to insurance companies and
received interest from less than five. Few
if any other industries demand this type
of coverage.
Industry experts say this fraud coverage
could potentially bankrupt the few errors and omissions insurance programs
available or exponentially drive up the
premiums principal owners would have
to pay in the future
The number of potential claims for legal
fees alone could cause a program to go
broke. I’ve seen legal fees for frivolous
law suits reach up to $40,000. If you
have ten claims to a program in one year
or one large claim, you could wipe out
the total annual premiums of an errors
& omissions liability insurance program.
Will insurance companies stick around
for long if this happens? Without errors
and omissions insurance, mortgage brokers could find themselves losing their
licenses because of the criminal actions
of a few rogue agents.
The imposition of mandatory fraud
coverage to the E&O insurance program
is a case of one step forward, two steps
back. Unless the errors and omissions
insurance program is demonstrably
just and financially healthy, it has the
potential to cause chaos which will be to
the detriment of all mortgage brokers.
Sincerely,
Shayam Kaushal
Interfinance Mortgage Merchants Inc.
Test your skill!
Survey Results
What document takes priority on the title
of a property?
In the last issue of BrokerBiz, we asked readers
about Principal Broker/Lender Contracts and
Indemnity Clauses. Below are the results.
a) Income Taxes owing to Revenue Canada April 1, 2007
b) First Mortgage Registered on January 31, 2005
c) Condominium Fees Lien Registered August 17, 2007
d) Subsequent Mortgage Registered June 15, 2006
e) Arrears of Realty Taxes.
For the answer, please turn to page 11
Do you agree or disagree with the intent of the
Indemnity Clauses?
Agree 25.00%
Disagree 75.00%
Will you sign the Contracts?
Yes 37.50% No 62.50%
2008 IMBA Calendar of Events
DATE
June 19, 2008
July 17, 2008
August 7, 2008
September 11, 2008
September 25, 2008
October 16, 2008
October 23, 2008
November 6, 2008
November 27, 2008
EVENT
IMBA Seminar
IMBA Seminar
SummerFest
IMBA Seminar
IMBA Seminar
IMBA Seminar
IMBA Seminar
IMBA Seminar
IMBA Seminar
LOCATION
Ottawa
Hamilton
Durham
Mississauga
Kitchener
London
Barrie
Toronto Central
Durham
For more information visit www.IMBA.ca
10 • brokerbiz
Survey
The Mortgage Brokerages, Lenders and Administrators Act, 2006
(MBLAA) will require Mortgage Brokers and Mortgage Agents to disclose
details about the compensation that they receive from lenders, and the
lenders to whom they refer mortgage loan transactions.
Your Morning
Chuckle
5 Reasons Not
to Make Sales Calls:
1. Too cold — so they won’t be there.
1. D
o you currently disclose your referral fees to Borrowers? Yes
2. Should disclosure of compensation be expressed as: Mark 1
q
No
q
2. Too rainy — so it’s inconvenient to
see them.
3. Too sunny — they’ll all be on the
golf course.
4. Don’t have my good suit on — so
I’m not presentable.
iii. As a range amount (ie. Between $1,500 to $2,000)? q
q
q
iv. A simple declaration that the lender will
compensate you? q
i. An exact dollar amount? ii. As “basis points” percentage of the loan amount? 3. Do you believe that a majority of Borrowers will “shop your commitment” when you disclose your
compensation to them?
4. Do you believe that it matters to Borrowers
when you disclose to them the names of the lenders
to which you refer the bulk of your business? 5. Do you believe that it matters to Borrowers
that you may earn volume bonuses and non-monetary
compensation such as loyalty rewards? vote at www.imba.ca
5. They’re successful — so they must
be too busy to see me.
Yes
No
q
q
Test your skill!
Answer: What document takes
priority on the title of a property?
e) Arrears of Realty Taxes.
q
q
q
q
c) Condominium Fees Lien
Registered August 17, 2007
b) First Mortgage Registered on
January 31, 2005
d) Subsequent Mortgage
Registered June 15, 2006
a) Revenue Canada doesn’t count.
Romspen Investment Corporation
Nationwide 1.800.494.0389
Toronto 416.966.1100
[email protected]
www.romspen.com
Romspen Investment Corporation is a non-bank mortgage lender specializing
in commercial real estate across Canada. We offer customized mortgage
solutions for term, bridge and construction financing from $1M to $50M.
Issue 1 Vol 2 • 11
Cover Story
As the real estate market in Ontario
starts to slow down, mortgage brokers
need to pull out all the stops to
sustain and grow their business
Surviving the
slowdown
By Kelly Parker
12 • brokerbiz
Cover Story
I
t’s a fact of Canadian life: we neighbour the U.S.A.
The late Pierre Elliot Trudeau once summarized the
relevance of this to a Washington audience: “Living
next to you is in some ways like sleeping with an
elephant. No matter how friendly or even-tempered is
the beast, if I can call it that, one is affected by every
twitch and grunt.”
101, but it comes through skills that not every broker has
developed, according to Ed Karthaus of Filogix.
“Many brokers and agents in the past — because the market
was so strong — didn’t have to work their book as much as they
might in a market where there is more uncertainty,” he says. “If
that is one of the outcomes of this, then that’s a good thing.”
But the burst of the sub-prime mortgage bubble in the U.S. last
year was more like a full-body spasm than a twitch or a grunt
— one that continues to affect economies across the world,
including Canada’s.
Karthaus adds that in an effort to maintain their business,
brokers are moving into the area of contact management —
customer relations management (CRM) — and really starting to
mine their relationships. Referral networks are becoming more
important, not just through real estate agents and lawyers, but
also through existing customers and clients.
The ripple effect has been a shrinking of the real estate market.
Lenders catering to riskier borrowers are now having a harder
time funding their business, offices have closed and employees
have been laid off. On the other hand, a recent Globe and Mail
article indicated that alternative lender Home Capital Group
(HCG) Inc. had seen business increase as a result of these recent
market conditions.
On that note, step one is simple, as Gary Katz of Unimor
Capital Corporation points out. “One of the recommendations
we would make is to be contacting all of your old clients in this
type of market and finding out if their financial situation has
changed,” he says, “or if they have a need to consolidate, scale
down or re-evaluate their mortgage positions.”
This is according to HCG CEO Gerald Soloway, who also said
that the entry of higher-risk mortgage providers into Canada
had been an anomaly, and that he was happy to see things
normalize again. Soloway said, “I personally think . . . this is
a good thing for the economy long term, because we’ve seen
the devastating effect it’s had on the United States with mass
foreclosures, mass evictions, great disruption. They thought they
were doing a great gift for people letting them into a house with
no money down. But I think in reality the disruption to society
as a whole far outweighs that benefit” (Globe and Mail 3.13.08,
Tara Perkins/Lori McLeod).
Soloway may be right, but the situation still makes for tougher
times in the mortgage game, at least for some. For others, it can
be positive, particularly with the new government regulations
coming into effect on July 1, 2008. “It is way too easy for
someone to presently enter into our industry,” says Gary Katz of
Unimor Capital Corporation out of Windsor, which, given the
auto industry rollercoaster, sees its share of market fluctuations.
“But with the new Broker’s Act, hopefully that will change.
In our region, a large number of people that have entered the
business during good times don’t continue in rough times.”
As well, adds Soloway, operators working off of someone else’s
license who are not hooked up to a national brokerage house
generally flee the market under times of stress, as do agents who
are not brokers working under the national licensing. They
are the first to leave a down-turn market as they become disillusioned with the expenses.
All of this means less competition for the established, experienced broker skilled in the basics.
Work the contact list
One of the most valuable assets that an experienced broker has
in the arsenal is a history, which means a network of clients and
potential new business. That might sound like Salesmanship
Adapt and diversify
While the real estate market may be slowing down, skilful
brokers are keeping busy. According to Karthaus, people who
are being successful are adapting and changing as the market
requirements are changing. Brokers and agents in general are
looking at a larger variety of mortgage solutions than they may
have in the past, when they might have been a specialist in one
particular area.
Now people are looking at a number of different aspects of
the market and trying to become proficient in different areas,
whether that’s prime mortgages, near-prime or insured spaces.
“They’re trying to become better versed in a variety of solutions
that can support their clientele,” says Karthaus.
Jeff Atlin of Abacus Mortgages Ltd. points out that although
some of the lenders who were catering to the sub-prime market
have scaled back or shut down, there is still a lot of money
Rivington
A ssociAtes
commeRciAl
Division inc.
An Eastern Ontario Real Estate Consulting and Appraisal
firm staffed with accredited professionals.
Specializing In Appraisals for:
• Investment, Commercial & Industrial Properties
• Multi-Residential Properties
• Subdivision / Development Lands
• Farm and Land Appraisals – Dairy, Beef,
Equestrian and Recreational
• Golf Courses / Marinas
•Tourist Resorts and Campgrounds
• Insurance and Fire Damage
JoAnn Campbell, Commercial Co-ordinator
Rivington Associates Commercial Division Inc.
• Reserve Fund Planning
(613) 267-2121 ext. 228 • (613) 264-2498 (fax)
www.rivington.com • [email protected]
Issue 1 Vol 2 • 13
Cover Story
around for the fully qualified homebuyer. That translates to
opportunity for the broker with the knowledge and ability to
deal in the private mortgage marketplace.
“If (a broker) got one of those sub-prime loans last year,” Atlin
explains, “they would have gone to one of the sub-prime lenders
with the deal. Now, there are still two or three of those in the
marketplace, but they’re not doing all of the deals that the
others did. If they say no to a deal a broker brings to them, that
broker really has nowhere to turn.”
This, adds Atlin, may cause some brokers to leave the business
because there are a lot of people in the prime marketplace who
will be competing for fewer and fewer prime deals in a down
market. The re-finance market, which depends to a great extent
on sub-prime lending, subsequently has fewer deals to re-finance
as a result.
“For a firm like mine that probably deals only in sub-prime
lending — almost exclusively in the private money market
— it’s a boom because people can no longer run to those subprime lenders for money and will have to turn to firms like ours
to get money,” explains Atlin. “Other brokers will either start
coming to brokers like us on a co-brokering basis, or they won’t
survive, because they have nowhere else to go. They don’t have
other sources developed to (do those deals).”
In Good Company
“Typically, in a
situation like this
where you have a lot of
undifferentiated people
and where there is less
business, the people who
are going to provide the best
value (as opposed to simply
offering better rates) are the
ones who are going to win”
Michael Hepworth, StreetSmart Marketer
THE EVOLUTION OF THE ENTREPRENEUR
BY MORTGAGE INTELLIGENCE
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Mortgage Intelligence network:
• Customized incentive programs
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Find out how Mortgage Intelligence can help you take
your career to the next level. Please contact Martin Marshall,
Regional Vice President, Ontario at: 1-877-667-5483 ext. 7 or
[email protected] for more information
® Registered trademark of Mortgage Intelligence Inc. © 2007, Mortgage Intelligence Inc., all rights reserved.
www.mortgageintelligence.ca
14 • brokerbiz
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Cover Story
Improve your brand
While the experienced broker might benefit from a thinning of
the herd that will result from the current market slowdown, that
can only take him so far. Eventually, the herd will be comprised
of those who have perfected the strategies previously noted.
On the plus side, especially for the customer, all the brokers
remaining will be good.
The downside for the broker is — well… they’ll all be good
— and homogenous, as Michael Hepworth, who heads a
company called StreetSmart Marketer, explains: “Typically, in
a situation like this where you have a lot of undifferentiated
people — most of the mortgage brokers are undifferentiated
with not much to choose between them — and where there is
less business, the people who are going to provide the best value
(as opposed to simply offering better rates) are the ones who are
going to win.”
In Hepworth’s view, there are only three reasons that people
won’t buy, be it from a broker or other business. They don’t
want to buy what you’re selling, can’t afford to buy what you’re
selling or, most importantly, they don’t believe what it is that
you’re saying.
With the first — someone doesn’t want it — you’ve got a
targeting challenge and shouldn’t be talking to that client, says
Hepworth. “What happens is that a lot of people who are not
effective marketers end up talking to anybody and everybody
simply because they are chasing their own tails.”
It’s a similar issue if someone can’t afford what you are selling.
You shouldn’t really be talking to people who can’t afford
your services, explains Hepworth. As far as the third reason
— that they don’t believe you — people then begin to shop
around. On that score, Hepworth offers the following tips to
establish credibility:
• Educate them on how to buy your product or service. Help
customers understand what their buying criteria should be.
• Tell the truth. Trust will grow and as it does, so will your
business.
• Be sincere. Sincerity is being believable and presenting the
facts in a way your client can understand.
• Use specifics. Precise numbers and details are more believable
than generalities.
• Provide testimonials.
• Establish yourself as an authority. Write and speak on your
specialty. PR is important in building credibility.
Ultimately, as the current market fluctuation evolves, so must
the broker who wants to remain successful. “The (mortgage
professionals) that are adapting and changing soonest are
reaping the rewards,” says Karthaus, “So it’s absolutely a time to
be flexible, nimble and open to new ideas and to new ways of
doing things.” BB
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FEES PAID TO BROKERS:
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REFERRAL LOCATIONS:
Pickering
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866.340.5559
Belleville
[email protected]
613.966.1761
Barrie
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London
16 • brokerbiz
[email protected]
[email protected]
[email protected]
705.797.2097
416.907.7152
519.434.1333
Economic Q&A
Weathering
the storm
By Nestor Gula
Canada will avoid the more serious
challenges facing the market south
of the border, says CIBC World
Markets economist Benjamin Tal
B
enjamin Tal, senior economist with
CIBC World Markets, is confident about
Canada’s economic future for the next
couple of years. He says that because
of our strong commodity prices and lack of wild
mortgage practices, Canadians will not experience
an economic meltdown like that in the United
States. Some sectors will get hurt and the economy
will slow down but, according to Tal, growth will
continue, albeit at a much slower pace.
BrokerBiz: There is fear of a recession growing. Is it a
reality or are there enough economic safeguards that we
can avoid what we had in the 1980s?
Tal: In the U.S., with the downturn, it is still not clear
whether we are or are not in an official recession, but this does
not make a difference. We are slowing down significantly in
the U.S. If it is not a recession, it will feel like a recession.
So as far as the U.S. is concerned, we are clearly in
recessionary territory.
With regard to Canada, it seems that the country as a whole
will be able to avoid a recession for two reasons. One, the
real estate market was not as exposed to those sub-prime
mortgages as our southern neighbours; therefore, we did not
18 • brokerbiz
(Above) Benjamin Tal, senior economist,
CIBC World Markets
Economic Q&A
have an artificial demand and, therefore,
we are not crashing. The real estate
market in Canada is much healthier and
this is the main reason for the slowdown
in the U.S.
The second reason Canada will avoid
a recession is commodity prices.
Commodity prices continue to rise
despite the weakening American
economy and that is because of the
fact that the U.S. is no longer driving
demand. China and India are driving
it. So it seems that the global economy
is still rising and growing despite the
weakness of the U.S. economy. This is
good for Canada because we export all
those commodities that China, India and
the emerging markets are buying.
When it comes to Canada, you really
have two economies. You have the west
and you have the rest. We are not seeing
a recession in Canada because the west
will perform relatively well given the fact
that commodity prices, especially energy
prices, will remain high.
1.3 per cent next year, which will involve
one or two quarters of basically close to
zero growth performance.
BB: We have seen great job creation
in Canada in the past few years. Will
this continue or will there be major
job losses in the future on account of a
slowdown?
Tal: We don’t see a significant slowdown
or a decline in levels of employment
— we see a slower rate of employment
growth. The west will continue to create
jobs. I don’t think that Ontario will be
a major job creator and we expect that
the unemployment rate in Ontario and
Quebec to rise a little.
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Issue 1 Vol 2 • 19
Economic Q&A
BB: What industries/sectors will be
hardest hit?
Tal: Clearly the manufacturing sector
in central Canada will be hit because
of the link to the U.S. economy and
the strong Canadian dollar. These two
factors will continue to be a theme for
the next six to eight months. In the
future, the manufacturing sector, which
is already in a recession, will continue
to bleed. We will see the real estate
market levelling off, especially in central
Canada, but we will not see house prices
falling. In fact, we will see them rising
but at a lower rate. It means that maybe
the construction industry will not be as
strong as it was in the past few years.
BB: What sectors can safely weather
the storm?
difficulties. I think that those that are
relying on imports will also do relatively
well. If you look at the financial sector,
it will probably weaken a little in the
next six months and then rebound. This
broadly based slowdown will not be
a severe slowdown but it will be quite
moderate, perhaps a levelling off as
opposed to an actual decline.
Tal: The slowdown will be broadly
based. The commodities-based sectors
will be ones that will be able to avoid the
“This broadly
based slowdown
will not be a
severe slowdown
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but it will be quite
moderate, perhaps
a levelling off as
opposed to an
actual decline”
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20 • brokerbiz
BB: Since the average consumer has a
great deal of personal debt, will we see
a slow down in consumer spending?
Tal: Yes, we will see the consumer
slowing down a little bit for two reasons.
One is with the housing market not as
strong as it used to be…people will not
borrow as much against their equity;
therefore, they will not spend as much.
Also, with this situation the personal
debt load will slow down the consumer.
Having said that, interest rates are
starting to fall and therefore affordability
will in fact improve so we do not see a
significant slowing down of consumer
spending like we see in the U.S. It will
not be a major slowdown.
Economic Q&A
BB: Will interest rates rise, fall or stay
Tal: People usually tend to look at
BB: Looking at the economic climate, is
the same?
variable rate when the prime rate is going
down. I think we have to be careful not to
focus too much on variable rates. I see with
declining interest rates we are planting the
seeds of inflation. It is not obvious now
that variable is the best option because we
have a situation where the five-year rate has
already fallen in anticipation of a decline
in the prime rate. But we won’t really see a
significant decline and the next move will
probably be up.
it better to go long or short with a fixed
rate mortgage?
Tal: In the short term, the Bank of
Canada will cut interest rates just
to ease the pain. They have already
communicated that they will do so.
So the Bank of Canada will cut by
25 to 50 basis points in the very near
term. Beyond that we see the situation
stabilizing and then starting to go up
in late 2008 and into 2009 as inflation
starts to be an issue. For the long term,
interest rates, at least the five-year rate,
we really don’t see it moving much over
the next few months. They will start
moving up when the prime rate rises.
Tal: I do expect interest rates and
inflation to rise in 2009 and 2010.
Beyond that it is really difficult to
predict. It is possible that five years from
now we will see a situation where the
fixed rate is lower. BB
BB: How will this affect housing prices?
Tal: Housing prices in Canada will level
off and will rise in line with inflation. In
Alberta they are no longer doubling in
price during the course of breakfast. So
we are going back to something that is
much more normal, as opposed to the
U.S. where the increase in house prices
between 2004 and 2006 was artificial,
and was based on these mortgages.
BB: Will we see a collapse of the
housing market like in the 1980s?
Tal: No we do not see this. We have not
seen the same kind of exotic mortgages
like in the U.S. We did not have the
artificial demand created in the real
estate market. We do not see house prices
crashing down, we see them levelling off.
BB: How will the mortgage market be
impacted in the foreseeable future?
Tal: The mortgage market right now
is very, very strong. It is growing at
about 30 to 40 per cent a year. We see
this sustainable for the next few months
but then we see it slowing down to
something more normal like nine per
cent or so which is still extremely strong.
The mortgage market will not be able to
continue to grow by 40 per cent.
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BB: Will there be a greater demand for
variable rate mortgages versus fixedrate mortgages?
Issue 1 Vol 2 • 21
Have your Say
We need to look squarely at recent industry
changes in order to properly evaluate
the future direction of our business,
says John Bargis of Mortgage Edge
Brokers and lenders,
partners or competitors?
By John Bargis
I
’ve been in the broker industry for the past 17
years, and have had the privilege of seeing it evolve
from an industry off the radar screen to one that is
now very much on. With the recognition of the value
of broker business by the majority of institutional lenders in the
last 12 to 14 years, brokers have forged some strong relationships
with many lenders and have gone from originating three to five
per cent of all mortgage business nationally in the early ’90s to
arguably over 30 per cent today.
If we reflect on some of the more recent changes in the
mortgage market, perhaps we can develop a clearer picture of
what we can expect… .
After a number of years in the broker market, Bank of Montreal
abruptly decided to shut down its broker services unit in
January 2007 to instead concentrate on developing consumer
direct relationships through their retail channels and captive
sales force.
After several successful years of growth through its broker
services channel, TD Canada Trust decided to implement the
in-branch fulfillment program to develop a stronger connection
22 • brokerbiz
with the broker-referred client, which will more than likely cut
the broker out of the loop in the long run.
This formation of alternative channels and quasi broker sales
forces by a couple of the major banks includes the mandated
expectation, of course, that approximately 80 per cent of their
business will be placed through their own bank branded channels.
Let’s not leave out the most recent round of aggressive
discounting practiced at the retail level with five-year fixed rates
as low as 4.70 per cent when these very same lenders preach to
the brokers that the margins are very tight through their channel,
and cost of funds too high. The argument used is that the retail
branches offer products beyond just the mortgage, which allows
them to selectively cut much more deeply into the rate.
Changing times?
Are all of these recent changes a sign of things to come? Has
the mortgage broker market grown to the point of discomfort
for the very lenders making the changes? Are the lenders paying
far too much to all of the aggregate volume bonus firms,
without the value added in return? Can the banks afford to fully
discount all of their own mortgage business, and the billions of
Have your Say
dollars they generate through the broker channel? Will the very
banks that compete with the brokers through their retail and
captive sales force channels ever offer access to their ancillary retail
products, so that the brokers have the same ability to discount as
deeply on the mortgage product in order to compete on more of a
level playing field?
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In 2007, mortgage brokers originated approximately $62 billion out
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of the banks, and for this reason can be considered to be a skewed
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does the broker market share go from here?
Personally, I believe that brokers need to seriously re-evaluate
going forward in order to both significantly increase their market
share, but also to address the issues plaguing our industry today.
This re-evaluation will ultimately help us to assess whether or not
brokers and lenders are partners, or competitors.
John Bargis is a mortgage consultant with Mortgage Edge, a
licensed mortgage originator that has been active in the Canadian
mortgage market for the past 25 years. BB
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Hamilton
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Issue 1 Vol 2 • 23
MarketingStrategy
By Beverley King
Once considered an add-on, networking has now become
essential to building relationships and business
The necessity of networking
T
he importance of networking cannot be
underestimated, especially in the mortgage
industry. As a mortgage broker, networking is
a crucial part of developing and growing your
business. Your ultimate success rests on the people you
know and the new relationships you build.
Understanding what networking is, how it can benefit you, how
to go about it, and honing the skills you need to perform it well
is therefore vital.
To start, networking is about making personal connections. Then
it turns into developing and maintaining relationships with a
variety of people and groups. And it’s as much about helping others
as it is about helping yourself. The emphasis is on developing the
relationships by getting to know people and finding out how you
can help them, then determining what they can do for you.
It’s important to get one misconception about networking out of
the way: networking is not selling. People who use networking
opportunities to initiate a sales pitch may not only miss out on
developing a relationship, they may end up actually jeopardizing
the sale.
For example, in a networking situation you are developing and
deepening relationships with your contacts; you might ask them
about their business, how things are going. In a sales situation,
on the other hand, you would take the opportunity to tell your
contacts about the specific products or services you offer, all with
the aim of achieving your sales targets. If you are in doubt about
which approach to use, avoid the hard sell unless you have been
specifically invited to discuss your products and services.
Building relationships
Trust and respect are essential to building mutually beneficial
relationships. Successful and personally rewarding networking is
about developing relationships where parties genuinely wish each
other well and act out of a desire to see the other party succeed.
26 • brokerbiz
Relationship marketing emerged in the 1980s. It places emphasis
on building longer-term relationships with clients rather than
on individual transactions. At its core is customer retention. By
making promises and keeping them, trust develops, and out of
trust, long-term relationships grow and thrive.
Tom Appleton, president and CEO of aircraft manufacturer
Piaggio America, nicely articulates how networking works:
“Networking means showing concern for my customers’ goals,
interests and concerns,” he says. “It means seeing them when they
don’t have problems so that when problems do arise, your good
relationships will return dividends. Networking works best when
you build and maintain relationships with people who share
similar ethics and principles with you, because then your concern
and willingness to help is (and is perceived to be) genuine.”
Good networkers always seek opportunities to meet and
interact with people. The more people you meet, the better
your chances of finding information you need or the lead you
want. Even if the people you meet cannot help you, they may
know someone else who can. Effective networkers have excellent
communication skills, show a genuine interest in others, are
willing and enthusiastic to provide help and support, and follow
through when they say they are going to do something.
Consider setting weekly goals for yourself on how many people
you will contact, and start thinking about ways you can start
helping people in your existing network. It is especially critical
to create and maintain an up-to-date file of contacts. Keep
an electronic file of your contacts like the one in Microsoft
Outlook, which is already set up and leaves plenty of room for
you to add information.
To get the most out of your network, you’ve got to spend time
looking after it. The only way to build meaningful relationships
is to establish trust, and the best way to do that is by giving,
following through with what you say you’re going to do, and by
keeping in touch. This can mean keeping in touch with existing
contacts or re-establishing contact with people from the past.
First impressions
It is extremely important that people
have a good first impression of you.
Either you make a good impression or
you will suffer for it because it affects
how your contact views you for the
rest of a conversation. A good first
impression can affect how quickly a
new business relationship gets going.
I will.” The key is to be positive and
confident in yourself and your abilities.
Networking is a complicated process
that involves effort, dedication,
communication skills, confidence,
assertiveness and sensitivity to situations
and people. And it’s one of the keys
to developing trust and growing a
successful business.
Beverley King is a national training leader
with Genworth Financial Canada. The
company offers a course to help improve
communication skills, boosting confidence
and assertiveness, as well as improving the
ability to generate business and interact
with clients. BB
There is nothing you can do that will
endear you more when first meeting a
person than to smile. A sincere smile
will come from a person who is relaxed
and happy.
And make eye contact. Your eyes
communicate much about your
emotional state. Greet people warmly.
Let your voice and face show that you
are glad to see them. Shake hands
— physical contact is disappearing
from business today and the handshake
is all we have left.
When you enter a crowded room,
remember that most people will
be just as nervous as you are, and
will respond favourably to someone
who is genuine, interested and not
aggressive or pushy. When mingling at
a networking event, at some point you
want to turn small talk into a more
focused discussion about business. But
stay away from selling.
If you find yourself in a situation
where it is appropriate to make a pitch
about yourself, you will have about 30
seconds in which to do so. You have
to give someone a nutshell version of
who you are and, more importantly,
what you offer. Think of your pitch
as a radio or television commercial all
about you. It’s short, snappy, makes its
point and enables you to remember the
product name.
Beforehand, tape or record your pitch
to make sure you like how it sounds
and practice in front of the mirror
or a video camera. Chin up, bright
smile, make eye contact and put your
shoulders back.
And in your conversations, avoid
using words or phrases that signify or
imply doubt, such as “if only I could,”
“possibly,” “I’ll do my best,” “soon
C
M
Y
CM
MY
CY
CMY
K
A leading mortgage lender since 1987,
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and commercial / industrial term loans.
Paul Rayment
416-488-5300, ext. 288
[email protected]
Ivan Stone
416-488-5300, ext. 222
[email protected]
Visit our website at www.foremost-financial.com
for complete details and lending matrix.
Issue 1 Vol 2 • 27
Professional Profile
Working
together
By Liz Katynski
Art Appelberg, president,
Northwood Mortgage Ltd.
Art Appelberg credits solid teamwork and hard
work for the tremendous growth and success of
Northwood Mortgage Ltd.
A
rt Appelberg had a vision of how a successful
mortgage brokering company could succeed and
grow. He felt that people working in cooperation
would do much better than various people
working alone.
He applied the idea to Northwood Mortgage Ltd, the company
he founded with a partner in 1990. The company grew to 14
people, then shrank by necessity to just Appelberg, its president,
in the tough times of the early 1990s. In 1995, a new partner,
Steve Kates, joined him as vice president.
Together, the two built the company and its professional
business structure. They are now running a successful business
with 200 staff and plans to increase that to 300 within the year.
In September 2007, they moved into their current 10,000square-foot office space in Markham.
Initially, Appelberg started out underwriting his own deals and
became good at it. He used to do 15 deals a month and ran the
company on weekends. In the mid-1990s, he found himself
working seven days a week, and learning much in the process.
Then he realized it was as far as he could go by himself.
Appelberg now works with his staff to provide professional,
quality service to residential, industrial and commercial clients.
“When they do a good job, we do a good job,” he likes to say,
and together the team produces a powerful synergy. He took
the time recently to speak to BrokerBiz about his history in the
industry and his strategy for success.
28 • brokerbiz
BrokerBiz: What is your personal background and how
exactly did you become involved in the mortgage industry?
Appelberg: I have an honours degree in math and computer
science and an MBA, both from York University. I worked
for the Bank of Nova Scotia as product manager, computer
analyst and senior financial analyst. I earned my real estate
license in Ontario and explored the vacation property market
in the southern U.S. I left the bank to find out what I could
do. It is easier to stay working for a big company than to do
it for yourself, but I cut the umbilical cord; I had that much
confidence. To me, initially, mortgage brokering was a backroom
kind of business but I saw an opportunity in it. I worked for
a mortgage broker for a year, did some financial analysis for a
friend who was a broker, and we partnered to start the business.
BB: What were the early days like?
Appelberg: I named the company after my wife’s
hometown, Northwood. It’s a friendly name. Our logo is a tree.
I had a phone and a desk, but I couldn’t get credit to get any
equipment. I used to take client information to the stationary
store across the street to fax it out. We bought used equipment
and we eventually had an answering service and pagers.
BB: How would you define your business approach?
Appelberg: For us, it’s about financing lives in the most
effective way possible. It’s not just about a house or a rate. We
advocate for our borrowers, and help them to finance their lives.
Professional Profile
We added our own deal placement managers to give files to
the most appropriate lender. Sales reps are responsible to the
borrower, our client. The individual salesperson is not left on
his own. This corporate structure allowed us to grow. Our
business structure focuses on the GTA. We specialized. We
realized we can’t be knowledgeable about all of Canada,
but we can strive to be the best in our area. This is an age
of specialization.
BB: They say we are entering a slow real estate
market. What tips do you have for surviving tougher
financial times?
Appelberg: Times were tough from 1991 to 1994 and
many left the industry. But we kept our costs low. We had
office space that cost ten times less than what we rent now.
We bought used equipment. The only fixed cost is our rent.
We can reduce advertising. We are always cautious. It’s a fine
balance.
BB: Tell us about your other two companies.
Appelberg: Northwood Mortgage Life Insurance
Corporation was founded in 2006 to provide disability, critical
illness, and life insurance to all of our clients. Creditor insurance
has limitations but our insurance is not tied to a lender. Families
need protection. We know a lender’s insurance is not always the
best option. Ours is related to major insurance companies and it
is pre-underwritten, not post-underwritten.
Northwood Mortgage Investment Corporation was founded in
2003. Investors share in the profits. It is RSP- and RIF-eligible
and investors earned nine per cent last year. It’s a low-risk fund
with no losses to date. Investor money is pooled, to share risk.
All profits are paid to shareholders. Mortgages are 100 per cent
residential with all borrowers putting at least 20 per cent down.
BB: What’s your personal business style?
Appelberg: It’s one of professionalism. We will find a
We have had 13 years of good times, but we never forget.
In 1992-93, we had 14 people. Then I was operating the
company by myself. Now we have 200 and are growing. I
have never lost my vision despite the ebbs and flows.
solution to meet our clients’ needs, to finance their lives and
take their worries away. Being professional is having experience
and continuing education to keep on top of things.
BB: What are some of the biggest changes you have seen in
entering this field?
the industry?
Appelberg: Interest rates in the late 1980s were 10 to 12
per cent for five-year terms. Now they are half that. This is
the longest time that things have been good, but we realize
things change. In the 1990s, the banks only paid us a half a
per cent for mortgages. That’s not enough. You can’t live on
that. I think you need at least three-quarters of a per cent to
live. Now we get as much as 1.35 per cent.
Also, today people are more aware of mortgage brokers. We
are not just dealing with people the banks won’t touch. We
help them to get the mortgage they want. They pay Firstline
Trust for the help and get a better deal in the process. First
Line Trust and Maple Trust worked hard to help lenders and
mortgage brokers participate in a more organized way.
BB: What advice do you have for anyone considering
Join a company you trust and gain the experience you need.
Don’t start on your own. Steve has been in the business since
the 1980s, with a commercial and industrial background. I had
the residential side. This is a very established industry. It takes
some years of knowledge to start on your own.
BB: Any insight on what you feel the future holds?
Appelberg: We are always hiring. We retain a strong
management team. We continue to grow. We believe in the
value of 200 heads being better than one. We focus on helping
others to be successful, taking a professional approach. I listen
to every complaint personally. The challenges of the industry are
something we continue to sleep with at night, but we are totally
committed to the future of the mortgage brokerage industry. BB
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Issue 1 Vol 2 • 29
2008
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MarketingStrategy
By Kelley Robertson
Sales meetings
that work
Too many sales meetings are
unproductive and ineffective.
Read on to learn how to make
your sales meetings work for
rather than against you
S
ales meetings are a fact of life and they’re
important for a variety of reasons. They allow
larger companies to address the entire sales
team as a group. They offer opportunities
to provide additional training (product, skills, and
technical). They help keep your team up-to-date. And
they present a tremendous opportunity for your team
to connect and develop stronger relationships with
each other. Unfortunately, many sales meetings are
unproductive and not nearly as effective as they could
be. Here are a few of the most common mistakes people
make when scheduling and running sales meetings.
They try to pack too much information into the meeting
This is often the case with larger organizations when the entire
sales team only gets together once or twice a year. The meeting
planner — owner, president, vice president, sales manager,
etc. — believes that the more information that is reviewed, the
better the return on investment.
I recall one of my managers once stating, “Since we have them
here for three days, let’s make sure we cover everything.” He then
scheduled each day of meetings to start at 8:30 a.m. and finish
at 6:30 p.m. But meetings should be more than informationdumps. People can only absorb so much information in a given
period. When their capacity is reached, attendees begin to tune
out and the effectiveness of the meeting diminishes.
Solution: Recognize that marathon sessions are seldom
effective. If you have a team that is spread out geographically,
consider scheduling tele-conference meetings or use Internet
technology to communicate regular changes to your team. A
sales manager I know has a weekly meeting with his team to
keep them abreast of sales results, new products and updates.
However, he only reviews a few topics and keeps these
meetings relatively short (one hour or less) to ensure people
stay focused.
Too many meetings
In smaller companies, it is easy to fall into the trap of holding
meetings too frequently. I have worked for companies and
been required to attend meetings every week. While some of
these meetings were valuable, many of them were not a good
use of time because they focused on issues that only pertained
to a few employees.
Solution: Watch for signs of frustration or impatience
during your meetings. If your team expresses their concerns
about meeting every week, consider the content that is being
delivered. While it is important to keep people up-to-date, you
can often communicate updates via email, your company’s
Intranet or bulletin board, or even voice mail blasts.
The boss dominates the meeting
I have attended countless meetings where the boss dominates
the air-time and lectures to his team. This is one the fastest
ways to lose your team’s attention and their respect. Another
approach that is just as ineffective is to reject new ideas without
first listening to them.
Issue 1 Vol 2 • 31
Marketing Strategy
Solution: Make sure various people have the opportunity
to present ideas, changes, updates, etc. This gets your team
involved and makes them feel like they are a bigger part of
the team. And never, ever, reprimand people in a public
meeting. Contrary to popular belief, public humiliation is
not a good motivator.
They get off-track
Countless meetings veer off-track on conversations or
discussions about topics not on the agenda. These side
conversations are distracting and often relate only to a
handful of people. This can also cause meetings to run
beyond their scheduled end times which can be frustrating
and an ineffective use of time.
Solution: Make sure that every meeting has an agenda and
that it is distributed before the meeting. Then follow the
agenda and keep to the scheduled time. If you get off-track,
advise attendees that you will discuss that topic in a side
conversation after the meeting.
If your meeting is an all-day event, allow plenty of time
for breaks. The general rule of thumb is to break every 90
minutes for at least 15-20 minutes. This gives people time to
briefly recharge and it allows them to check voice mail and
respond to customer requests, questions or concerns.
Attendees do not have input into the meeting content
Because most meetings are organized by an executive of the
company, the agenda follows his or her concerns and issues. Rarely
do sales people have input into the content or agenda. However,
this one action can make a significant difference.
Solution: Involve your team when setting the agenda. One
manager I worked for always had at least one sales person deliver
a presentation and, at the very least, he sought input for meeting
topics. Getting your team involved in the meeting increases their
level of interest, improves their buy-in and demonstrates that you
take their ideas and input seriously. It may take time to get people
on-board when you first implement this approach, but after a few
meetings the process gets easier.
Lastly, one of the most important questions to answer is WII-FM.
Every sales person wants to know “What’s In It For Me?”. When your
meetings address this concern, attendance and active participation will
increase, as will the buy-in for any necessary changes.
Sales meetings are important business tools and when you avoid
these mistakes you can increase the effectiveness of your meetings.
Kelley Robertson, author of The Secrets of Power Selling helps sales
professionals and businesses discover new techniques to improve their
sales and profits. Robertson conducts workshops and speaks regularly
at sales meetings and conferences. BB
You know you’re a great broker.
Now there’s a way to prove it.
No matter how successful you are as a broker,
there’s always a way to close more deals and
exceed customer expectations.
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Check the status of all your deals anytime;
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800.465.0039
32 • brokerbiz
FN_MerlinAd_BrokerBiz_April.indd1 1
“Merlin is a better system than anyone else has and
makes all of my deals easy to access.”
– P. Sobieski, Mortgage Intelligence Inc., B.C.
Vancouver • Calgary • Toronto • Halifax • Montreal
www.firstnational.ca
3/20/08 7:02:49 PM
Insurance
rker
By Kelly Pa
gram on
o
r
p
e
c
la
p
t
e
C Mark
A recent CB
ised some
a
r
e
c
n
a
r
u
s
mortgage in
of brokers
e
c
i
t
c
a
r
p
e
h
nt
questions o
e insurance
f
li
t
i
d
e
r
c
g
issuin
L
ate in 2007, the CBC consumer watch program
Marketplace aired a segment which hit the industry
radar like an enemy bogy, and most certainly alarmed
mortgagees who suddenly weren’t sure whether they were
actually covered by the mortgage (credit life) insurance they’d
purchased at the time they finalized their mortgage.
The problem, Marketplace said, was that this insurance was
post-claim underwritten — the underwriter didn’t assess the
eligibility of the insured until a claim was made. In the piece
(CBC Marketplace: In Denial) a CBC source, Jim Bulloch,
stated that there was “virtually no chance of a consumer filling
out the (application form/health questionnaire) accurately,” and
suggested there was an increased chance, by design, that the
underwriter would deny these life insurance claims.
The CBC documentary further stated that, “a routine test at
the doctor could be reason to deny your claim if you don’t
mention it. Had a cuff inflated on your bicep (during your
annual physical)? That counts as being tested for high blood
pressure,” and “bank staffers selling mortgage insurance are
unlicensed and rarely trained to explain the details and legalities
of those insurance products.”
If that were the case, mortgage brokers are exposing themselves
to bad press at best, or litigation at worst, for being implicated
in a transaction where the mortgagee thinks he has insurance
from day one, whereas in reality, according to Bulloch, “all
they’ve qualified to do is pay premiums.”
BrokerBiz contacted several industry representatives for a
closer look at this issue. Muneer Habib of AIMM Affinity
Insurance Marketing and Management Inc., for one, is a big
proponent of creditor insurance. “Just looking at some of the
stats showing the number of people who are under-insured
— anywhere from 24 to 32 per cent of households have no
form of insurance, none whatsoever — so it’s important that
there be a product that is readily available to a client at the
time he or she is making that financial commitment and which
looks after that commitment.”
The problem with post-claim underwritten insurance, says
John Klotz of Northwood Mortgage, is that “it’s cheap and
you get what you pay for. You’re potentially buying it from
someone who is not trained in insurance. It’s kind of an afterthe-fact kind of thing.”
Harold Kennedy of REA Mortgages agrees. “I said to a person
at a bank just recently that no one is qualified to advise people
on this. He replied that in their case (and others) the client fills
out the form, and the client is sent a booklet, and that is the key
to the whole thing. If you want the insurance, you have to read
the booklet.” In other words: buyer beware.
Reading the fine print
Unfortunately, a buyer is caught up in the typical riot of
paperwork, stress and the endless “to-do” lists of a move. That
booklet is often shuffled, unread, to the bottom of a box somewhere in the basement. That’s why some people are advocating
Issue 1 Vol 2 • 33
Insurance
that brokers refer their clients to insurance professionals to
make sure that they don’t inadvertently fall through the cracks.
Klotz raises another issue with bank credit insurance. If you
have a mortgage insurance policy with one bank, he explains,
and you decide to move your mortgage to another bank for
a better deal, that bank insurance is not portable. So, for
example, if you had a heart attack three years ago and are now
uninsurable, and you want to make that move, your current
bank will say that they will only cover you as long as you stay
there. Move to the other mortgagor, and you’ve lost your insurance, adds Klotz.
“A mortgage broker who will typically want to be able to move
his clients around from mortgage to mortgage and house to
house without having to deal with getting new insurance each
time (should be recommending a portable insurance policy),”
stresses Klotz. “What a mortgage broker has to say is, I need to
step back for a minute and do what’s best for my client, and
what is best for my client is getting him coverage that really
sticks by taking him through a more involved application
process to get him appropriate coverage. A mortgage broker is,
after all, a fiduciary.”
In fact, in an effort to tackle this problem, Harold Kennedy
recently attempted to implement a system but ran into a brick
wall with the very brokers who should be looking at all avenues
34 • brokerbiz
The CLHIO’s advice
to any consumer
would be to read
the application
carefully prior to
completing it and to
answer the questions
honestly and completely,
remembering that it is
better to err on the
side of caution
Insurance
to protect their clients. “I was trying to set up a system with
a very reputable insurance company in Toronto,” he explains.
“We were going to have them meet with each of our agents to
tell them what insurance products were available, and to just
have them handle the whole thing. But I ran into a bit of a
problem: our agents don’t want their client information given
to a third-party life insurance guy. Well, all we need is one
lawsuit, and that’ll change. Get over it.”
According to Klotz, brokers need to do what is best for the
client. Everything will work out better for the broker if the
client’s best interests are looked after. The mortgage business,
he says, is similar to the insurance business in that it’s relationship-based. Brokers can acknowledge that they can’t be an
expert in all things and refer the client to someone they trust
— another insurance person — and it works very well. “In
fact,” says Klotz, “a lot of insurers are referring a surprising
volume of mortgage business to the broker in return. It’s really
a symbiotic relationship.”
As to the issue of post-claim underwritten claim denials with
bank insurance, Mary Boles of the Canadian Life and Health
Insurance Ombudservice (CLHIO) says the situation may
not be quite be as serious as CBC’s Marketplace would have
you believe. He says the CLHIO routinely assists consumers
who may have a concern or a complaint and that this type of
complaint has not been dominant.
The CLHIO’s advice to any consumer would be to read the
application carefully prior to completing it and to answer
the questions honestly and completely, remembering that it
is better to err on the side of caution by providing too much
information rather than too little.
“If in doubt about how to answer a medical question requiring
a ‘yes or no’ response, answer with a ‘yes’ and provide an explanation,” says Boles. “Moreover, consumers can always consult
with their family physicians to determine if a particular question applies to them.”
Consumers should also make sure that they are provided with
a copy of the completed application. In the rush to complete
loan and/or mortgage paperwork, it is possible to overlook or
misinterpret what is being asked in the health questionnaire.
“We recommend that the consumer carefully go over the application the next day and immediately advise the lender/group
policyholder if there is a mistake or omission in the application.
Before considering the purchase of a group creditor insurance
product, the consumer may wish to consult with a life and
health insurance professional,” stresses Boles.
Of course, the mortgage brokers who offer this advice to
their clients are not just fulfilling their fiduciary responsibility, they’re providing good customer service. Which never
hurts business. BB
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REFERRAL LOCATIONS:
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London
[email protected]
519.434.1333
Issue 1 Vol 2 • 35
Industry Q&A
Reaching
for
the sky
By Derek Brown
Maple Trust’s John Webster shares
his secrets on building a successful
business and overcoming obstacles
J
ohn P. Webster, president and CEO of Maple Trust,
was the inaugural speaker at IMBA’s “Lunch
with the Legends” series. Maple Trust currently
administers around $13 billion in mortgage
assets, with a base of more than 60,000 customers and
200 employees. Combined with Scotia Express, it ranks
second among Canada’s top lenders in the mortgage
broker segment. Webster’s remarks were so well received,
BrokerBiz followed up with a few questions of its own.
BrokerBiz: What do you think are the main secrets of
business success?
Webster: Vision, timing, planning and access to capital
are key to developing a successful business. Be a risk taker
but not a gambler and understand the difference. Always deal
with integrity.
BB: How important is it to develop a business plan?
Webster: Most people fail because they do not have a plan
that they can clearly articulate. I believe a flawed plan is better
than no plan at all. You have to have a game plan and then you
have to be able to execute it.
The key is knowing that the skill sets for conceiving a plan and
executing it properly do not often reside in the same people.
You have to identify who can help you develop a business plan
and who can execute it. Access to capital includes human capital
as a key component; the strength of the business is dependent
upon the quality of its employees.
36 • brokerbiz
BB: What are the skills needed to build a successful business?
Webster: Leadership. You have to be determined to succeed
and be able to shut out the background noise. In the early
stages, particularly when you have setbacks, you have to keep
your head and not let people around you lose heart or their
heads in the ultimate success of the enterprise.
If you have made a mistake or a miscalculation, correct it,
adjust, and then move on.
A start-up business needs a leader to personify the aspirations
of that business. The test of leadership is: when you lead, is
anybody following? This applies to employees, customers,
counterparties and other stakeholders, be they lenders or shareholders.
BB: What unique things did you do to build your company
to the level at which it is now?
Webster: We developed a model that said we want to
service the 20 per cent of brokers that produce 80 per cent
of the business and have the relationship management and
adjudication reside in the same individual located where his
customers were, as opposed to a centralized operation that dealt
with all comers.
We stuck to that even in the face of the industry increasingly
organizing itself in the opposite direction.
We believed in an increasingly commoditized mortgage business that we had to continue to automate to win. We were also
a pioneer in accessing alternate sources of liquidity and understanding the advantages and perils of securitization.
BB: What are some of the obstacles that you have faced in the
past 25 years?
Webster: Naysayers: they are always right until they are wrong.
BB: Comment on your observations in the mortgage market
and your vision for the future. Webster: The real impact of the sub-prime meltdown in the
U.S. has been on liquidity in Canada.
Today you can either lend on balance sheet or in the Canada
Mortgage Bond (CMB). You can still originate, aggregate and
sell but you are selling to someone with room on their balance
sheet or in their CMB allocation; after that, nothing else
currently makes economic sense. As a result you are competing for allocation of capital within
a financial institution. Liquidity has become a scarce resource
and will not be sold cheaply. Mortgage spreads have declined in
the recent past as lenders have competed aggressively for share.
Brokers must become more sensitive to real and not notional
pricing, but spreads will move in and out.
I believe brokers must pay more attention to their look to book
rates, i.e. their closing ratios, their delinquencies and referral
sources that raise reputational risk issues. Volume bonus, with
the aggregation of independent business just to receive it, is an
arbitrage on lenders.
In my view, volume bonus today provides lenders with little
value; compensation needs to be tied to the broker scorecard.
My best customers deserve the best service and the best breaks.
BB: How can mortgage brokers adjust, differentiate and
compete to gain market share?
Webster: Brokers’ gains have been relatively dramatic; they
will maintain their share and they provide informed choice to
the consumer at typically no charge to the consumer. They are
convenient and they are efficient.
BB: Is 50 per cent market share for brokers in the future
realistic?
Webster: Probably not. Major banks are highly successful
brands providing high levels of service to the customer. A broker
in the current, increasingly fragmented world can inexpensively
do some regional or niche branding but not on a national scale.
So access for brokers to the retail customer is limited and referral
sources are increasingly demanding a share of their pie.
BB: Are the major banks getting out of the broker business
and focusing on their internal sales force? Webster: If brokers do not support banks in cross-selling to
their customers, and if they are not diligent about the quality of
their books of business, brokers risk banks exiting the space. BB
Issue 1 Vol 2 • 37
Word of Advice
Investor
disclosure:
common
mistakes By Matthew Bradford
When it comes
to drawing up
error-free investor
disclosures, there
are some basic
points that need
to be considered
38 • brokerbiz
I
f there’s one thing you can
bank on in this business,
it’s paperwork. From forms
to statements, contracts to
agreements, brokers live and die by
what they get in writing.
An exaggeration? Maybe, but it never
hurts to brush up on the basics when it
comes to filling out some of the more
important mortgage documents, especially when a simple error or omission
can wreak havoc on even the most ironclad deals.
Case in point: the investor disclosure
agreement. In a single-lender scenario,
this can be fairly straightforward. Add
another investor to the mix, and that’s
when brokers would do well to look out
for common mistakes.
Says Jeff Atlin, IMBA’s government relations chair, “Having two or more investors makes the process more complicated
for both the broker and the borrower.
It’s just a matter of multiple disclosures
and having the right information.”
It sounds simple, but it bears repeating:
everyone must know everything.
Explains Atlin, “One of the main differences between having one and two investors is that the same disclosures must be
made to each and every investor. You
can’t tell something to one and not the
other. They key is you need to disclose
any pertinent information that’s available
to you, the broker.”
Among these essential pieces of information are the borrower’s credit, job
situation, condition of the property or
“anything that can impact a property and
lender’s decision whether to lend or how
much to lend.”
Building on this, Lorne Collis, president
of KIT Services, stresses the importance
of establishing individual roles right from
the beginning. “Investors should understand that there’s comfort in numbers,
but you don’t control your destiny. After
you’ve accumulated who your investors
are, you have to have an agreement as to
who does what and where.”
Key to forging this initial understanding
is first identifying who exactly will be
acting as investor. Speaking to this at a
recent IMBA seminar on the common
errors made while handling multiple
investors, an FSCO representative
explained that, “It should be that if you
have an individual and an MICC, an
RRSP and an MICC or an RRSP and an
individual investing in a mortgage, that
each one is treated as a separate entity
and each one must be given the investor
disclosure mortgage participation agreement, and agreement to fund.” So who signs for what? In the case where
one is dealing with an RSP for example,
Pauline Cygelsarb, an investment
manager with Foremost Financial, says:
“Normally what we do is list the RSP
trustee, but it’s the owner and investor
that signs the documents. In our case, you
just list the RSP trustee as the investor.” Similar treatment
Though varied, each entity must be
treated the same as any other investor.
Notes Ted Batcher, a lawyer with Batcher
Wasserman: “Generally speaking, it
doesn’t matter who it is. There could
be all different kinds of entities, but
the same process applies to any entity
involved in the investor disclosure.”
Achieving an iron-clad understanding
between all identified investors relies
on the syndication agreement. Before
all else, brokers must make sure that
this, the participation agreement and
all related forms, are filled out fully and
correctly in order to head off any
future misunderstandings.
Issue 1 Vol 2 • 39
Word of Advice
Explains David Mandel with First Equity,
“Two at-arms-length people in a mortgage represent a syndication agreement
and requires a participation agreement.
Each is afforded full disclosure inclusive
of a Form 1 and supporting documents
with little change from what one is used
to presently, save and except those parties
that might be exempt from disclosure.” Building on this concept, the FSCO
reminds brokers that “in addition to
providing the investor disclosure statement, the broker must get the investors to sign a mortgage participation
agreement and then they can prepare
an agreement to fund on behalf of the
investors. It should be noted that the
participation agreement should stress the
default policy and who bears the costs in
case of default.”
Indeed, issuing the proper statements with the disclosure agreement
is important in a syndication arrangement. According to Batcher, so too
40 • brokerbiz
Achieving an iron-clad understanding
between all identified investors relies
on the syndication agreement. Brokers
must make sure that this, the participation
agreement and all related forms, are filled out
fully and correctly
is using these extra forms to account
for anything else one might want to
make official from the start. “If you
think there’s something that should be
in disclosure form, put it into one of
those agreements. When you have two
or more people, there may be things
that you think you want in a disclosure,
but you can’t change the form. Adding
something simple to it is okay, and you
won’t typically receive any flack from the
government. It’s when you change the
document that you can cause trouble.”
Can’t find the proper paperwork? Atlin
urges brokers to make sure they have that
Word of Advice
in writing as well. “If there are not all the
necessary documents or if some documents aren’t available, you should make
sure that both investors acknowledge
that they didn’t need them or didn’t get
them. You should have some kind of
record on file to that effect.” When it
comes to the money, the number must
also match up and everyone must be
in the loop. More importantly, brokers
must handle the fees accordingly and
with full disclosure.
As to how the fees should be handled,
FSCO advises that, “Regardless whether
there is one or more than one investor,
FSCO’s position is that the brokerage fee
that is being collected by the mortgage
broker funding the deal must be deposited into his or her trust account and then
disbursed to the originating broker for his
share. To make life easier, it is probably
wise to get a letter of direction signed by
the borrowers naming both brokerages
and have the lawyer cut two cheques with
one going to each brokerage.”
Further, Cygelsarb reminds brokers to
double check their numbers, adding that
“the ministry requires that the fees and
costs payable by borrower should coincide
with the statement of mortgage. Some
brokers don’t indicate all the fees and it’s
really important that they be the same.”
Avoiding human error
Financials aside, some of the most
common errors can be chalked up to
simple human error. And in a document
that is five sections long, there’s a lot of
room for mistakes.
Cygelsarb notes that among the worst
offenders is bad dating. “A lot of brokers
don’t date these forms properly which
is a huge issue,” she says. “Normally
everyone dates them the same day,
despite the actual signing between
multiple parties taking place within a
couple days.”
Cygelsarb also urges brokers to ensure
each section, from the Broker’s Decla-
ration straight on through to the final
pages, is signed by all parties involved.
Further, Collis reminds brokers not only
to fill in all sections fully, but also to
include any necessary clarifications. “If
you have reason to suspect the validity of
any investment, the legality of the transaction or even the person’s ability, you
have to notify all investors at the earliest
possible time,” he explains.
In short, adds Cygelsarb, “The main
thing is properly completing the investment disclosure document by the broker
and having it signed.”
If this all seems like common sense,
that’s because it is. Still, both rookies
and seasoned pros alike are prone to
common errors. And with the new
Mortgage Brokers Act set to redefine a
broker’s roles and responsibilities, what
better time to brush up on the basics
than the present? BB
Property Appraisals
Mortgage Broker’s Sales, Service and Compliance Centre
Ellens & Associates provides a wide
variety of valuations for purposes
which include the following:
• Is your office compliant?
Yes o
No o
n Acquisition/Sale
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Yes o
No o
n Litigation Support
• Are your agents’ clients really happy
with your company service?
Yes o
No o
• Are your files in a safe and secure location?
Yes o
No o
n Assessment
Appeals
n Capital Gains
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Valuations
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Financing
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n Estate Planning
n Power of Sale
n Expropriations
n Rental Surveys
n GST Valuation
n Subdivision
of Land
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Hamilton, Ontario L8P 1H1
Tel: (905) 577-0403
Fax: (905) 577-0481
E-mail: [email protected]
If you answered NO to any of the above, give us a call
Paul F. Bath, CPMB
69 DAVIS DRIVE, SUITE 103
NEWMARKET, ONTARIO L3Y 2M9
PHONE: (905) 830-9997
FAX: (905) 830-0288
www.ellens.on.ca
Issue 1 Vol 2 • 41
Case Study
Past
meets
present
By Kiran Kaushal
Financing a deal
for an old order
Mennonite put this
broker to the test.
But with some hard
work and innovative
problem-solving
skills, the deal was
closed successfully
M
any financing deals
come with their share
of challenges. However,
dealing with a client
without a computer, email or fax
machine is usually not one of them.
Add to the mix that the client still
travels by horse and buggy and
is averse to home insurance, and
you’ve got a tricky situation on
your hands.
This is exactly what I faced when I
recently came across a deal servicing
a client belonging to an old order
Mennonite society. He was referred to
me by Fazilla Feroze of the law firm
Shelia Monteiro, and it’s fair to say that
he represents one the most unusual
transactions I’ve closed in my 10 years
in the profession.
My client desperately needed to refinance his farm for his business, and he
42 • brokerbiz
had already been turned down by many
institutional banks for a small business
loan, including Farm Debt Bank. Upon
analyzing the deal, I was in a daze to
figure out how I was going to finance it.
Not only was this a farm property owned
by a Mennonite family in a rural area
near Lindsay, Ontario, there was little at
hand to prove that he and his wife could
service the debt.
I approached Graham Tobe, the principle behind Owemanco. That’s when
the fun began. Initially, our biggest
challenge was the geographical distance
between us and our client, combined
with the lack of technology available to
him to communicate with us and work
out the administrative aspects of the deal.
He had no computer, email, fax machine
or car.
So Feroze and I contacted him by telephone to fill out the application and
subsequently faxed it to a site three kilo-
Case Study
metres from his farm. He travelled there
by bike to sign it and to send it back to
us with the supporting documents we
had requested. The documents were then
forwarded to Graham Tobe, the lender,
who drove out to Lindsay to view the
real estate and assure himself that the
loan would be properly secured.
When a Mennonite house burns down,
he said, members of the Society come
together and rebuild. Insurance, as it
turns out, is foreign in their culture.
After one week we got a commitment
from Owemanco, and off we went to
Lindsay to get it signed, together with
some legal documents. Our client’s
wife was pregnant, and they could not
exactly drive their horse and buggy
down to Toronto.
A different world
It was an interesting visit, said Tobe, who
had never had direct contact with old
order Mennonites and their traditional
lifestyle. As he explains, “I had only
heard about how this society lives, but
now I got a first hand look at it. They do
their laundry by hand, they get around
by horse and buggy, their clothing is
19th century style, and the husband’s
wife would not look up at us.”
Now we faced the challenge of obtaining
fire and title insurance. The lender would
not accept the Mennonite Society’s
assurance that they would rebuild should
the house burn down. After lengthy
deliberation, with our client weighing
the pros and cons, he finally decided to
obtain fire insurance.
Tobe and I went on to discuss how this
28-year-old Mennonite had expanded
his furniture-making business, a craft he
still practised by hand using traditional,
time-honoured tools. We also discussed
the question of fire insurance, only to
learn that my client did not believe in it.
We contacted an insurer and before
you knew it fire insurance was in place.
But not before we had someone go to
the property to photograph the wood
burning stove. Our client, of course,
didn’t own a camera.
Helping You
Maintain
Relationships
Lorne Collis
905-846-5687
[email protected]
www.bramguard.com
There is a lesson to be learned from this
experience. Historically, Mennonite societies did not borrow money. But today
this is changing. Undue restrictions are
forcing many Mennonites to slowly
take on some of the things we take for
granted in our modern world, including
home mortgages.
As a mortgage broker, I had to be sensitive to the special needs of my client,
and willing to go the extra step to finish
the deal. Together with Feroze, we never
gave up and were always ready to look
for ways to solve the pitfalls. In the end,
we succeeded.
Kiran Kaushal is a mortgage broker with
Toronto-based Interfinance Mortgage
Merchants Inc. She has been working in
the field for 10 years. BB
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Title insurance was our next obstacle.
Our client did not have photo I.D.
However, Feroze put her creative talents
to use and worked out the pitfalls with
First Canadian Title. The insurance was
finally put in place.
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Issue 1 Vol 2 • 43
LegalCorner
By Paul De Francesca
To charge or
not to charge?
Legal expert Paul De Francesca examines whether a lender can charge a
prepayment penalty on default when faced with a litigious borrower
A
s we all know, once the
notice period expires under
a Notice of Sale, the lender
is entitled to market and sell
the mortgaged property. A litigious
borrower may wish to delay or prevent
the sale in order to allow additional
time to refinance the property.
The most common method for the
borrower to delay or prevent the sale is
to attack the validity of the Notice of
Sale. It is for this reason that all items
enumerated in the Notice of Sale must
be legitimate in accordance with mortgage enforcement practice and applicable
law. It is of utmost importance that the
conflicting case law be explored as to
whether a lender can legitimately charge
a prepayment penalty on default (usually
three months’ interest) when enforcing
repayment of a mortgage loan.
Pursuant to Section 8 of the Interest
Act, it is clear that any additional monies
sought by a lender which are character44 • brokerbiz
ized as penalties, bonuses or interest at
a higher rate after default then before
default may not be imposed and will not
be enforced by a court. The Supreme
Court of Canada has upheld the constitutionality of section 8 and said section
has been successfully applied to invalidate
bonus or additional payments charged on
default under a mortgage (Tomell Investments Ltd. v. East Marstock Lands Ltd.,
[1978] 1 S.C.R. 974).
Notwithstanding section 8(1) of the
Interest Act which prohibits penalties
and bonuses on default, it is the application of section 17 of the Mortgages Act
that sheds some light as to whether a
prepayment penalty on default may be
charged by a lender. Section 17 of the
Mortgages Act states:
17(1) Despite any agreement to the
contrary, where default has been made
in the payment of any principal monies
secured by a mortgage of freehold or
leasehold property, the mortgagor or
person entitled to make such payment
may at any time upon payment of three
months’ interest on the principal money
so in arrear, pay the same, or the mortgagor or person entitled to make such
payment may give the mortgagee at least
three months’ notice, in writing, of the
intention to make such payment at a
time named in the notice, and in the
event of making such payment on the
day so named is entitled to make the
same without any further payment of
interest except to the date of payment.
Section 17(1) does specifically deal
with the payment of a bonus or penalty
under a mortgage; however, it protects
the borrower by permitting payment of
arrears without penalty, or by permitting
early redemption at a price. Conversely,
the provision protects the lender by
giving him or her a three-month period
during which to arrange for reinvestment
of his or her principal, or monies to
compensate for lack of that notice.
Two court cases have dealt extensively
with the issue of the prepayment penalty
Legal Corner
on default with different results. The
Ontario Court of Appeal decision in
Mastercraft Properties Ltd. v. EL EF
Investments Inc., (1993), 32 R.P.R. (2d)
312 (“Mastercraft”) held that a lender
may claim the form of compensation set
out in section 17(1) of the Mortgages
Act without violating section 8 of the
Interest Act where the claim was not for
a bonus or penalty but for compensation
by way of three months’ notice of the
day of payment or three months’ interest
in lieu of such notice.
The court made it clear that because it
was the option of the borrower to either
(a) give the three months’ notice and
have the regular interest rate set out in
the mortgage run on principal until the
end of the three-month period, or (b)
shorten that period and pay the three
months’ interest in advance, and not the
option of the lender (as was the case in
this decision), the three-month bonus
payment was struck from the Notice of
Sale. The court also held that a lender
cannot require a section 17(1) payment
once it had taken steps to enforce a mortgage by issuing a Notice of Sale.
Alternative case
In contrast, O’Shanter Development
Company Ltd. v. Gentra Canada Investments Inc., (1995), 25 O.R. (3d) 188
(Div. Ct.) is a Divisional Court decision (a lower court than the Court of
Appeal in Mastercraft) that stands for
the authority that a Notice of Sale may
be issued with a three months’ interest
penalty in addition to all other principal,
interest and costs due under the mortgage. In O’Shanter the court followed
the same analysis of Mastercraft in terms
of the validity of a section 17 payment
but instead allowed said payment to be
imposed by the lender even when steps
have been taken by the lender to enforce
the mortgage.
extremely careful when deciding as to
whether it will instruct his/her/its lawyer
to issue a Notice of Sale that contains a
three months’ prepayment penalty.
The O’Shanter decision (which is a
lower court to the Divisional Court)
and other lower court decisions indicate that there may be the ability for a
lender to impose a prepayment penalty
on default. However, there is also the
Court of Appeal decision in Mastercraft
and other lower court decisions that
indicate that a lender cannot impose a
three months’ prepayment penalty in
its Notice of Sale and the payment may
actually invalidate the Notice of Sale. As
such, the prepayment penalty question
must be carefully considered by a lender
since the risk associated with including
the three-month penalty may outweigh
any benefit to be derived there especially
where it is likely that the Notice of Sale
may be challenged. BB
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Following the Mastercraft and O’Shanter
decisions a number of lower court decisions have either upheld the imposition
of a three-month interest payment or
struck it down creating a myriad of
conflicting Ontario case law. In light of
this conflicting case law and conflicting
application of the prepayment penalty
on default in practice, a lender must be
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Issue 1 Vol 2 • 45
DEFRAN-IMBA Spring 2008 Ad r2.qxd
12/18/07
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Page 1
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