In 2017 success will be determined for many Mortgage Brokers by one single ability:
The ability to communicate clearly and effectively.
This was always the cornerstone of any significant success, but this year it will be the cornerstone of even modest success. When a client calls and asks that inevitable question, ‘what’s your best rate?’, the question is now quite complicated to answer, to say the least. Over the past several years, rate quotes were something I reserved, as much as possible, for applicants who had submitted complete documents up front, for whom I had a complete credit report, and ideally an accepted offer or completed appraisal as well. After all, why plant a rate number in a client’s mind if they are shopping for pre-sale product that will not complete for 12 months? Why plant a rate in a client’s mind without their complete application in hand so that you know for sure these are AAA clients?
A critical time saver, and ultimately a file saver, is not only knowing what information to communicate but when to communicate it. The three phases of client communication in our office are:
1. 40,000-foot view – Early on we communicate to the client (with a completed application) a fundamental math shortcut. ‘Payments are $400.00 per month per $100,000 borrowed with 20% down, $450.00 per month per 100,000 with 19.99% or less down’. This eliminates multiple emails, phone calls, with a vast number of requests to solve payment scenarios all within a very narrow bandwidth. ‘If you want to spend an extra $10,000 you know your payment will go up by $40.00 (or $45.00) per month. Nice and easy to figure out payments on the spot’.
2. 5,000-foot view – The clients are actively shopping; they are out weekends with a Realtor and it is only a matter of time. Now is the time to have the deeper conversation about a HELOC if applicable, different lender types, and most importantly, the fixed vs. variable rate conversation. It is important to set aside your own bias here and explain that for a variable-rate mortgage it is the Bank of Canada that dictates the Prime lending rate (mostly) and that there are eight set dates each year where the rate may change, and that it is unlikely to move by more than 0.25% at any one meeting, and that there are lenders with fixed-payment variable-rate mortgages to insulate the client from payment shock… and to apply some math, such as a 0.25% rate hike on a $300.000 mortgage results in a $36.00 per month payment change. Again, having all of this data compressed into a dozen or so clearly worded sentences is key. There is much to be said for the success of the variable rate and the two-year fixed products over the past ten years. Arguably over the past forty years. Make sure you know how to say it, otherwise you will sound no different from the branch rep peddling the flavor of the week – which is usually five-year fixed, a product wrong for 60% of our clients.
3. Ground level – We have a completion date in sight, within 120 days or less, and now we get into the nitty gritty of managing the clients through the final steps. We stay in regular contact to keep them on track and remind them why they have chosen the mortgage product and lender that they have and which steps will be happening in which order. We stay in contact with the lawyer’s office, ensuring all lender documents and conditions are met well in advance of the client’s signing, and we let the client know that we are on top of this all the way through.
These are the bite-sized pieces that we break our communication into. Talking about fixed vs variable on the very first call may be the right thing to do, but rarely. Start with the big stuff: how much are payments; how available are you through the process; can you connect the client with the right Realtor, appraiser, law firm, moving company, etc. Cover the high points of the process. And let the clients know that as we move closer to requesting an approval, and funding the file, there will be more detailed conversations.
Having the language to explain that a client with a larger down payment now poses a greater risk to the mortgage investors is going to be important.
Having language to explain to BC clients whether or not they should implement the BCHPP will be very important. It is not a winning move in every instance.
It is in these last two points that many a file will be won or lost this spring. And it is these two points that will be the subject of upcoming posts.
Dustan Woodhouse, Mortgage Broker, AMP
Dominion Lending Centre
Author of ‘Be The Better Broker’
If you enjoyed this post you will love his Blog – dustanwoodhouse.ca/blog
Over the last two years, the Canadian real estate market set records. But what is the prognosis for 2017? Will housing prices continue to grow? Or will the housing market bubble finally burst? With new regulations being passed, and an ongoing shift in nationwide demographics, 2017 is shaping up to be an interesting year for both sellers and buyers in the real estate market.
Restricted Supply, Increasing Demand
“It’s not very complicated: there’s a supply curve, there’s a demand curve. If you restrict the supply curve, then don’t be surprised by high prices.” – David Dodge, BoC Governor
As you likely know, supply and demand is the backbone of all commercial endeavor. Low supply and high demand causes prices to increase, while the reverse means a decline in prices. Over the past couple years, demand for housing in Canada has grown at a remarkable rate. Despite nationwide blanket attempts (through government policy) to stymie demand, factors like increasing immigration and population flow into urban centers has caused demand to remain high. As a result, prices and sales both reached record-setting levels.
While demand increased, however, supply could not keep pace. Despite outcries from banks, brokers, and builders for lawmakers to focus on supply rather than demand, many local politicians remained hesitant to foster housing development. For instance, new housing supply plummeted in Toronto and, in Vancouver, supply remained far below long-term historical levels. In addition, the surging prices and overvaluing of homes led to many home-owners opting not to sell. A lot of these homeowners were afraid not only of losing money on their investment, but also that they would be unable to afford another home. Less people willing to sell = less supply.
Effect on the Market
As demand grew at a rate with which supply, for a variety of reasons, could not keep up, policymakers across the nation had to act in order to prevent market instability. Many experts believe that policies, which have been implemented recently, could finally fulfill politicians’ goal of stifling this increasing demand. Despite trends that continued up until the end of last year, it would appear that these latest measures will finally curb the market after the historic sales of both 2015 and 2016.
While the hottest markets, like those in Toronto and Vancouver, are expected to continue to grow, markets throughout the rest of Canada are expected to slow and flatten out. Even among the markets, which are slated for increasing prices, the rate at which they are projected to grow will be less than years previous. If supply is constricted and demand is increasing, why is that the case?
The biggest factor when predicting the real estate market in 2017 is the legislations, which were introduced in 2016. By tightening the regulations on buyers qualifying for mortgage financing, less people are going to be willing or able to enter the market. Additionally, mortgage rates are expected to increase, which is another obstacle for buyers. Furthermore, pressure has increased on lawmakers to re-assign the burden of defaulted loans to the lenders themselves, rather than the insurance providers behind mortgage loan insurance policies. If this takes effect, lenders will be forced to implement even stricter qualifications, even further reducing the incentive to buy homes.
What This Means for Prospective Buyers
If you or your clients are looking to get into the market in 2017, how does all this talk of legislation and supply-and-demand affect you? First off, in plain language, it means that prices are still high. Not only are prices high, but estimated overvaluation in some areas can be as high as 20%. It also means that finding a home, even should you be willing to pay the inflated price, might be difficult as many Canadians are staying put.
Don’t be discouraged yet! Despite all the hurdles to home-owning that have just been outlined, there is a silver lining, as well. As more people are forced out of buying market, demand will decrease, encouraging sellers to establish more competitive rates. The new liberal legislation, from taxes to mortgage qualifications, will likely begin to drive these prices down as 2017 goes forward. For buyers willing to wait until at least the second quarter of 2017, they will see prices begin to fall into a much more reasonable and less-inflated range.
It is also important to note that, while we have been discussing Canada, in general, market outliers like Toronto and Vancouver can dramatically affect the overall picture of the market. That is to say, inflated prices aren’t happening everywhere, certain large cities can just happen to give that impression when looking at the large picture. For buyers with some flexibility, it can also pay to consider the less-impacted areas like British Columbia, Ontario, Saskatchewan, and Nova Scotia.
Even with the recent changes to mortgage rules, you can be the knowledgeable broker who can walk prospective buyers through the experience of buying a home. It is important to be the broker who knows the business and can provide your clients with all the information needed to make this vital life decision, especially during a time of market transition. Most clients are extremely interested in finding out more about buying a home in the current market. Be the professional mortgage broker that your clients need you to be and provide them with information that they don’t even realize is part of your job description.
What This Means For Home Owners
For those already in the housing marketplace, the biggest concern is probably market value. If the shifting landscape of the market causes prices to drop, what will happen to the value of the home you already own?
According to reports, the rising home values of the past couple years created the highest relationship between net worth and disposable income in Canadian history. This is a good thing. Even better, these same reports indicate that many homeowners would not stand to lose everything in the event of a market crash (which many experts are calling unlikely). The DBRS indicates that, even in the event of a crash, the equity of Canadian homes would drop, at worst, to around 60% of their value. This might be less than ideal, but it is far from the catastrophic market crash, which rocked the United States and other countries in recent years.
The last couple years have been historic in the Canadian real estate market, but all things must come to an end. As a result of new Liberal legislation, most experts believe that 2017 will be the year which ends the rampant growth of the past couple years. Prices and sales are both expected to fall, homes will become less expensive, and, perhaps most importantly, Canada is expected to avoid a major market meltdown. If your clients are looking to buy a home, this might just be the year where homes become affordable again.
Tracy Valko, Mortgage Broker, B.A., AMP
Dominion Lending Centre
If you enjoyed this post you will love her blog – tracyvalko.ca/blog/
Manic – showing wild and apparently deranged excitement and energy
When it comes to mortgage financing, it’s the unknown answer (Will I be approved or declined?) that leaves a lot of mortgagors on-edge the entire time. In my short career, I have seen this behavior primarily in first-time homebuyers. And rightfully so; there is a level of control that is completely out of their hands. They must trust me to get it done. They are full of endless excitement and energy. And how can you blame them? They are likely buying their first home and most expensive purchase to date.
That is where we step in. We need to harness that emotion and re-purpose it.
As professional Mortgage Brokers who have been through the process hundreds and hundreds of times (maybe even thousands – wow, what an awesome accomplishment) we know what it takes to get a file across the finish line. We know all the pitfalls for what can go wrong, lessons learned from past files. We know how to achieve the sweet, sweet words typed by a lender – FILE COMPLETE!
As Mortgage Brokers, and obvious experts, it’s our job to manage the manic mind of the borrower. As veterans, we have to practice the process step-by-step on a daily basis. We need to make it part of our DNA. We are creating muscle memory with every file we touch.
It’s easy for us to desensitize ourselves to the emotions, but we must realize what is being experienced on the other side of the fence. Every correspondence with our clients needs to be tactical and well thought out. Every action has a reaction. This is something I learned very quickly early on. If you lead with negative news, you’d better be damn sure you finish with good news or a solution. If not, consider that file gone and in the hands of another broker or bank rep.
How do I manage The Manic Mind of a Mortgagor you ask?
- Stay calm – something I had to learn, as I have an extreme TYPE A personality.
- Be patient – something I had to learn, as I have an extreme TYPE A personality… do you see a pattern starting to emerge?
- Present a systematic approach to each client – create muscle memory, be methodical, analytical.
- Tell past mortgage stories that refer to their scenario. There is comfort knowing that you have handled similar scenarios. (Mind you, these stories aren’t as thrilling as when you sat down with Uncle Bob recalling his 35-year career with the RCMP, 10 of those with SWAT.)
- Update the client daily. This eliminates uncertainty – something suggested by the esteemed author, Dustan Woodhouse in the series Be the Better Broker.
- Encourage the client to treat the transaction like a business (virtually impossible, however it sounds like a logical suggestion; successful entrepreneurs don’t get attached to the business or idea.)
- Keep them involved.
Next time the Manic Mind of a Mortgagor rears its ugly head, step back for a second and ask yourself, have I given this client all the tools to suppress the stress? Have I given the client enough options? Have I answered all their questions? Have I asked enough questions? Have I provided enough updates along the way? Is there something else I can do?
If the answer is YES, then do it and add it to your systems and processes for the next time.
Michael Hallett, Mortgage Expert
Dominion Lending Centre
If you enjoyed this post you will love his Blog – hallettmortgage.ca/blog