Dominion Lending Centres Owners University – April 25^th, 2012 to April 27, 2012

I joined about 75 other franchise owners and managers at a three-day “University” with Dominion Lending Centres Gary Mauris and team in Coquitlam B.C.  These universities are designed to give the franchise owner with updates and new information about goings on at DLC, as well as new trends in the industry.  What the three days really did, is inspire anew the enthusiasm and energy that I felt when we first joined the company.

Credit Scores (Photo credit: Casey Serin)

1. Not everything shows up on your credit report
2. Some things you wish would show up don’t, and other things that seem pretty minor can really screw up your report
3. Credit reports are not designed to be “fair”
4. Credit reports are not necessarily used by all lenders in the same ways
5. A credit report is not, by itself, sufficient to be relied upon as providing full disclosure, and just because a debt doesn’t show up on the credit report does not mean that you don’t need to disclose it in an application for a mortgage
6. You can repair your credit report but it takes time and you actually have to change your credit behaviour.

Not everything shows up on your credit report

One of the misconceptions about credit reports is that they are comprehensive in their reporting of your behaviour as a borrower or as a consumer.  Many types of debt do not generally report to the credit unless the debt relationship ends up in “collections” or in court.

Factors contributing to someone's credit score, for Credit score (United States). (Photo credit: Wikipedia)

• Governments, utility companies, and private debts from non members of the credit bureau agencies generally aren’t reported.
• So if you are behind on your property taxes it probably won’t affect your credit report.
• Similarly, an overdue power bill or light bill will not likely show up, nor will a phone bill…. unless it really gets out of hand and the creditor has to pursue you through a collections agency or by filing a writ in a court.
• Even many loans such as finance loans for time shares, or other shared property purchase agreements will only show up if there is a dispute.

Some things you wish would show up don’t, and other things that seem pretty minor can really screw up your report

Many consumers complain that they are really reliable in making their mortgage payments, which is the largest bill they pay, and yet, most of the time, a mortgage payment doesn’t show up on their credit report.  They think that because it doesn’t show on their report that it has no effect on their credit score. Not necessarily.

Logo of the Credit Institute of Canada (Photo credit: Wikipedia)

• Mortgage don’t report to the credit bureau unless they do. In recent years more and more lenders are choosing to report mortgages, even though they are NOT considered traditional consumer credit.  The gradual extension of mortgage security for Lines of Credit and other revolving loans means that there has been a gradual shift by reporting agencies.  Sometimes mortgages will report and sometimes they won’t.  It is mostly lender dependant, with credit union lenders more likely to report and monoline and bank lenders less likely to report mortgages.  But don’t count on it, as this is quite fluid at the moment and is changing.
• Minor credit problems can radically change your credit score.  Many consumers complain that disputes over tiny amounts of money can radically lower their credit score and adversely affect their ability to get loans, whether small or large.
• Unfortunately, a negative report or a collection, even for a tiny amount of money, will negatively affect your credit score, and undermine years of excellent credit management by an individual.
• What this basically means is that if you are disputing a billed amount by a credit grantor, the only way to dispute the amount owed or even whether or a debt really exists is to (a) pay the disputed amount and then (b) pursue a refund or (c) sue them for your money back.
• Even if a consumer is absolutely right and can prove that they don’t owe a creditor any amount of money, if the creditor files a collection action or reports a delinquency to an agency it will negatively affect your credit report and score. Paying it after it is reported will mitigate the amount of damage to the score but not end it.  If you can prove it is false, the agency will remove it, but the process is time-consuming and the burden of proof is on the consumer not on the reporting credit grantor.

Credit reports are not designed to be “fair”

•  Credit reporting agencies are not set up to serve the interests of consumers.  They are set up to give credit grantors access to objective information about the behaviour of credit consumers.
• Enforcement of accuracy is up to consumers, even if the agencies are required to exercise due diligence in reporting, or can be found to be liable to the consumer in the event of false reports.
• It is very difficult and expensive to fix wrong information on your credit report after the fact.
• Many people have had their lives ruined by “identity theft” where a fraudster has used their identification or information to fraudulently get credit. Credit reporting agencies will work with consumers if there is a case of identity theft, but it takes months of concerted effort by the consumer to resolve these issues.  So be vigilant, and periodically check your credit report.

Credit reports are not necessarily used by all lenders in the same ways

My Mortgage Docs to be Reviewed by an Expert (Photo credit: Casey Serin)

While most mortgage lenders use credit reports in their review of an application it is only one of the measurements used.  Credit reports speak to the “credibility” of a borrower in terms of their “reliability” in meeting their obligations on time. Different lenders use credit reports in different ways – some rely on them, almost completely, and a bad credit report eliminates the possibility of obtaining a mortgage loan.

• This is almost universally true of all high ratio mortgages in Canada granted by institutional lenders and guaranteed by mortgage insurers such as CMHC, GENWORTH and Canada Guarantee.  Because all insurance guaranteeing repayment of the principle of a mortgage loan is backed by federal government guarantees, the Government of Canada has spelled out the lowest credit scores required.
  

  CMHC logo (Photo credit: Wikipedia)

• It is not necessarily true of non-insured lenders such as private mortgage lenders, Mortgage Investment Corporations, and finance companies.  Most they will look at credit reports but not limit their evaluation to a credit score.  Some don’t look at the credit report at all, and rely heavily on the value of the security for the loan for their loan security.  Typically these types of lenders will loan a lower amount against the value of a property – usually less than 65% of the value of the asset.

A credit report is not enough as “full” disclosure

A credit report is not, by itself, enough to be relied upon as providing full disclosure, and just because a debt doesn’t show up on the credit report does not mean that you don’t need to show it in an application for a mortgage.

• As stated earlier in this article, many types of debt do not show up or report to a credit agency, such as mortgage loans, leases of some types, personal guarantees or covenants under business loans, it is critical to realize that full disclosure for the purpose of obtaining credit requires the disclosure of all liabilities, whether they show up on the credit report or not.
• The legal obligation to report all relevant debt, whether it reports or not, is often violated by borrowers who mistakenly believe that they are not obliged to report anything that cannot be “discovered” by a lender.  While it is true that a lender may not “discover” the hidden liability during the course of underwriting a mortgage, if a mortgage is obtained without full disclosure it is considered to be a form of mortgage fraud, and is a criminal offense with severe potential consequences including a criminal record if discovered later.  This discovery most often happens in the event of a default on the mortgage by the consumer adding a major unexpected result of a foreclosure action by the lender.

Credit repair myths

You can repair your credit report but it takes time and you actually have to change your credit behaviour.

• There are many companies that make a business out of helping to “fix” your credit report.
• Some other businesses specialize in helping consumers recover from a major credit breakdown or serious financial collapse.
• None of them can “correct” the credit reports if they are actually true.
• In addition, every form of credit repair, counselling, or consumer repayment program has consequences in terms of its effect on your credit report, and will not restore your “good name” quickly or even certainly.

The only certain way to improve your credit report and score is to become someone who actually pays bills on time, limits use of borrowed funds to that which can be given in a responsible way, and reviews and protects your credit reputation by ALWAYS thinking through the consequences of various credit related actions.

If you are in deep financial trouble seek professional assistance, but realize that while they may protect you from the collection of debts you really can’t afford, this will come with a price that makes it very difficult to borrow for a long time, sometimes more than seven years from the time of the problem.

stressed and worried (Photo credit: Wikipedia)

In summary, when it comes to your reputation as a borrower, be very very very careful and make sure that you know the consequences of your agreements with credit grantors.  They certainly are, and so should you be.

Donald Wilson, President of DominionGrand Financial Corporation.

There is a lot of information available about your credit score and how it is calculated. If you want to find out look up credit score or credit report on Google, Bing or other search engine.

Understanding Your Credit Report and Credit Score

The government of Canada offers a free publication called Understanding Your Credit Report and Credit Score. This publication provides sample credit report and credit score documents with explanations of the notations and codes that are used. It also contains general information on how to build or improve credit history, and how to check for signs that identity theft has occurred. The publication is available online through http://www.fcac.gc.ca, the site of the Financial Consumer Agency of Canada. Paper copies can also be ordered at no charge for residents of Canada.

From Wikipedia, the free encyclopedia

My Mortgage Docs to be Reviewed by an Expert (Photo credit: Casey Serin)

Why Use a Mortgage Broker?

The mortgage broker industry is always trying to tell borrowers that there is a lot more to your mortgage than the interest rate, amortization and term of a mortgage to consider when you refinance or get a new purchase mortgage.  One of the substantial differences between mortgages is the amount that a borrower is allowed to pay ahead of the payment schedule agreed to at the time of signing.

A Scotiabank in Thunder Bay, Ontario (Photo credit: Wikipedia)

When I purchased my new apartment about two years ago, one of the features that appealed to me in my Scotia bank fixed term mortgage was the ability to increase my monthly payment by up to 20% over my payment every month if I so choose.  Once my wife and I moved in, we agreed that we would make the extra amount after living in the property for only a couple of months.  We reduced the outstanding amortized period on our mortgage from 35 years to 21 years in only eighteen months!  We paid an extra roughly $5,000 in payments over the year and a half but saved ourselves 14 years of interest on the outstanding mortgage balance.  Our payments were set at approximately $1600 per month, which we increased about $360.00 per month.  We have saved hundreds of thousands of dollars in payments that we won’t have to make at all.  That was accomplished by making what is actually a small increase in our payments.Crazy, isn’t it.  No.  It’s just the benefit of making more principle payments early in the life of a mortgage, over and above the agreed upon monthly payment.  If we want to we can also make early principle payments of up to 20% of the principle outstanding every year, in addition to increasing our monthly payments by 20%.  Even though our interest rate is only 3.9%, and you might believe that you can do better than that with capital, the truth is that the rate of return on the added payments is so profound that it is difficult to exaggerate its affect on your net worth at the end of the day.

For my wife and I, taking an aggressive attitude to early repayment, as allowed under the terms of my mortgage, means that when we have done all that we can afford to do in terms of repayment, that our home will be paid off altogether in under 15 years.  If we choose, we can then live rent free in our property for the rest of our lives.  There isn’t any RSP that I know can give us the comfort of knowing that we will have our home paid off early, and can live relatively well because we will have no mortgage to pay.

Now here is the point that borrowers should understand.  Not all mortgages have prepayment privileges.  Some “no frills” mortgages won’t allow you to make any prepayments over and above your agreed up payment.  These tend to be the least expensive in terms of interest rates but are generally highly restrictive in some ways, including no early payment and very high penalties if you want or need to get out of the mortgage early. In addition, many mortgages have only a 10% or 15% annual prepayment privilege with no ability to adjust your monthly payment to relatively painless make extra payments.  It is a lot easier to make an extra $5,000.00 at the end of the year. Our mortgage will allow us to pay an extra $70,000.00 in prepayment without penalties over and above our $5,000 in monthly supplemental payments.  The $416 is a lot easier done monthly than trying to come up with a lump sum once a year.

We took a 35 year amortization to make the payments as low as possible in the event that there is a fluctuation in our monthly earning abilities.  Yes, we could have amortized the mortgage over 25 years or less but we would have been locked into much high monthly payments without the desired flexibility.

And this is the real kicker.  Almost nobody really focuses on early prepayment privileges when they are pursuing the cheapest interest rate mortgage.  Your banker won’t bring it up unless you do, although the terms will certainly be in the contract you sign.

But your mortgage should suit you, and fit your own circumstances and goals.  If you work with a mortgage professional and do a full mortgage analysis before making a decision on either the type of mortgage or term of mortgage you need, you will be made aware of the features of the mortgage that will allow it to be tailor-made for your needs.

IRD Sudan Panel (Photo credit: crespoevents)

Having huge penalties for paying off mortgages early shocks many clients. While this is true for fixed term mortgages, it is not normally true for variable rate mortgages, where the penalty is generally three months interest.

Interest Rate Differential (IRD)  from Canadian Mortgage Trends

The IRD is a compensation charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges.

The IRD is based on:

• The amount you are pre-paying; and,
• An interest rate that equals the difference between your original mortgage interest rate and the interest rate that the lender can charge today when re-lending the funds for the remaining term of the mortgage.

Most closed fixed-rate mortgages have a prepayment penalty that is the higher of 3-months interest or the IRD. Most variable-rate mortgages do not have IRD penalties.

New language is now required by lenders when charging an Interest Rate Differential under recent changes in Federal regulations

If the lender used the IRD to calculate the prepayment charge, the lender will inform the borrower of :

• the outstanding amount on the mortgage
• the annual interest rate on the mortgage
• the comparison rate that was used for the calculation
• the term remaining on the mortgage that was used for the calculation

This also means that the lenders will now have to use “plain language” in the mortgage documents when a borrower is signing at the beginning of the mortgage contract.

In the future, the size of the penalties should surprise consumers less when repaying a mortgage early.  Forewarned is forearmed.

A few tips about your Interest Rate Differential

Lenders use different formulas to calculate the amount a borrower will have to pay, so you have to check with your lender to find out exactly how that is.

• Some lenders lock-in the mortgage so that there is no early prepayment permitted at all, except when the property is sold, so before you go shopping for a new mortgage make sure that your mortgage can be paid out early.
• If what you need is more money from refinancing your property, it may be cheaper to obtain a second mortgage loan, even from the lender on your first mortgage.  Most will set up your second mortgage so that its term ends on the same date as the term on your first mortgage so that when you do refinance you won’t end up with penalties on the second mortgage.

Many mortgage consumer groups and broker organizations have expressed disappointment that the federal government didn’t impost a standard formula on bank lenders, so that a more fair comparison between lenders at the time of the mortgage could be done.  Regardless of how obvious it may seem, the government chose not to make this change in regulations. This desirable change won’t likely happen.

Info from the English WP http://en.wikipedia.org/wiki/Image:1896_phone.jpg: 1896 Swedish Telephone Edited version of http://runeberg.org/teleapp/0004.html (Photo credit: Wikipedia)

One point bears repeating – find out the cost of your interest differential before committing to any new course of action.

CMHC logo (Photo credit: Wikipedia)

Portability is one of the most misunderstood features of Canadian mortgages.

Most Canadian borrowers believe that if you want to take your mortgage with you when you move, you can if your mortgage has a clause that allows you to do that.  This is only true if your basic financial situation hasn’t changed for the worse before you make your move,  you have never been in default on the mortgage, AND the Loan to Value of the mortgage on your new property is better (i.e.: the same or lower).

Portability – from a mortgage commitment letter to a client

Fixed rate mortgages can be ported to another property, with increase and blend/extend options, subject to certain requirements being met. For variable or flexible rate mortgages, you may be able to port the mortgage balance and remaining mortgage term to another property, subject to certain requirements being met. Full details on portability can be obtained from your servicing branch following acceptance of this financing offer.

This option allows you to transfer your lower rate if the going rates are higher, as well as avoid any penalties if you were to break that mortgage. If you need a larger mortgage for the new property, your existing mortgage amount can be increased. As for the associated costs, since a new mortgage document must be registered on title, legal fees and normal appraisal fees would be applicable.

My Mortgage Docs to be Reviewed by an Expert (Photo credit: Casey Serin)

What all of this means is that you probably will be able to transfer the mortgage from your existing property to a new purchased property, but the limits to the transfer are quite stringent, and at least as stringent as the qualifications for a new mortgage by the same lenderon the new property.Watch out for the following surprises:

• Debt servicing ratios are important – If your outstanding credit balances have increased on your credit cards, lines of credit or other debt you may discover that you no longer qualify for the mortgage you already have, let alone getting an increase to buy a new property
• Changes in employment – if since you qualified for the mortgage you have changed employment you may discover that the lender won’t accept your new job and income for qualifying purposes for a port of your mortgage.  So while they can’t cancel the contract if you stay in the same property, they can refuse to port the mortgage to a new property, which means that you may face significant penalties to get out of your old mortgage, with no guarantee that you will be able to qualify for a new mortgage with another lender.
• Missed payments.  If you have missed payments, even without having gone more than thirty days in arrears, (ie: NSF check replaced immediately) the bank is under no obligation to port your mortgage to a new property
• Negative changes on your credit report.  If you have had negative reports on your credit report as a result of late payments, over credit limit reports, or other such reports, your credit  rating may have declined, making you ineligible for the mortgage, either by the lender or by their insurance provider.

So if it sounds like you have to qualify all over again for your mortgage, in order to transfer it to a new home, you are hearing me correctly.  The principle benefit  of portability of a mortgage is that IF you qualify for the mortgage they will port it to a new property without penalties.  You will still have to pay the legal and administrative costs to the lender, however.

It is not guaranteed by any means, so make sure that you have the commitment of your existing lender before you remove subjects on any proposed purchase.  Be sure to check your existing mortgage with your mortgage broker.  You could save yourself a lot of grief and money.

Canadian Finance Minister Jim Flaherty (Photo credit: Wikipedia)

In the midst of an all out effort by the non-broker banks to recapture mortgage market share previously lost to the mortgage broker industry,  by offering extremely low interest rates with ultra slim operating margins, they have been putting the federal government under pressure to further restrict access to mortgage loans in the marketplace.

Mounting opinions about the current housing market include fears of a housing price collapse, by a number of economists, who have called on the government to further restrict access to mortgages by (a) essentially eliminating Non Income Qualifying mortgages (b) forcing the banks to do appraisals on renewals at the end of terms (c) increasing the minimum downpayment from 5% to 7% down, (d) further reducing amortizations from 30 to 25 year maximums, and (e) making new loan applicants for uninsured mortgages qualify for variable rate or short term fixed loans at the Bank of Canada five year posted rate… currently 5.24% rather than the sub 3% rate currently offered by the major banks and a few well healed competitors.

Last week, TD Bank’s chief economist Craig Alexander called on the government to move to head off Canada’s overheated housing market.

Alexander suggested three options the government could adopt, including reducing the maximum amortization on mortgages to 25 years from 30 or hiking the minimum down payment to seven per cent from five.

As a third option, he suggested a stress test for those seeking loans by ensuring they can afford to make payments as if mortgage interest charges rise to 5.5 per cent, about twice as high as many current rates.

As well, the Bank of Canada has repeatedly raised its concerns about household debt.

The government has already intervened three times to tighten the rules on mortgage lending and Flaherty said Thursday, given signs of overvaluation in Canada’s property market, the government is prepared to tighten mortgage insurance rules again, if necessary. (CBC)

Flaherty’s statement Thursday tells us the this government might actually be listening to someone other than the banks and the Bank of Canada, and finding a more balanced approach to fears of a market run-up than that proposed by the self serving bank economists.

The mortgage brokers national association, The Canadian Association of Mortgage Professionals recently published Housing and Mortgage Impacts which basically reminded the government (1) the Canadian mortgage marketplace is fundamentally healthy, (2) there is little or no evidence of borrower fatigue or undue stress, and (3) that a healthy housing market is critical to Canada’s overall economy, in particular contributing as much as 25% of economic activity in any given year.  Cracking down on the ability to borrower money would have a serious negative effect on employment, and could actually create a major melt down in housing values.

A couple of weeks ago I said that government led policy and budgets appeared to be leading Canada down the road towards a “Perfect Storm” where a combination of contractions in federal and provincial government spending and increasingly restrictive CMHC rules and banking regulations could result in the collapse of the housing market altogether, from coast to coast, but especially in British Columbia.

In his speach Thursday Flaherty also made a comment about budget reductions, stating that people shouldn’t be expecting major reductions in spending in this budget, and if that is all they are looking at then they are missing the boat.

Maybe the feds are listening to the feedback being sent their way by non-bank business leaders and economists and trying to head off that “Perfect Storm.”

With many thanks to Gary Mauris, President of Dominion Lending, and his presentation called “Build a Killer Business by Referral” Dominion Lending University for brokers I attended a couple of years ago.  It was great then.  It is great now.

1. Update Facebook Status Each Week
   Use the “Facebook Status Examples” Script.  Facebook is “The” social networking application of today’s young adults between 25 and 40 years old. This just happens to be the target demographic for new home purchasers. Who is it that mortgage brokers want to reach?
2. Add to Your Database Every Day
   Your databaseis your basket of opportunity. Without anything in your basket your business cannot grow, and you cannot make a living without potential clients. The fundamental job of sales is prospecting for new business.
3. Send Out Letter to Database
   Use a “Letter to Database” Script.  If you don’t talk to your prospects and suspects on a regular basis, how do you expect them to know to call YOU instead of your competitor when they need our services.
4. Master the Killer Elevator Pitch
   Use a “Develop a Killer Elevator Pitch” Script.  Don’t be shy. Tell everyone you know what you do, how you do it, and why it should matter to them.
5. Make 4 Calls Every Day
   Use a “Good News” Script.  Personally I think 4 calls is much too few. However, better 4 than none. Most sales people who fail, fail because they never actually get to work at all.
6. Send Out 20 Sincerity/Coffee Cards Each Sunday
   Use “Sample Handwritten Scripts”Sincerity/Coffee Cards are a great idea for improving your sum of positive karma in the world. These aren’t actually about getting business. They are about thanking the universe for all of its gifts to you.
7. Ask for Referrals Daily. Be proud of what you do. Ask people to refer others to you so that you may be of service to them. Never be shy about the value of what we do. Remember, we touch people where they live. What we do matters, when we do it right.
8. Reward Referrals, Not Results – Immediately
   Be generous. If someone sends you a referral thank them immediately and generously. Remember, you are not incentivizing them to make you money, but rather to allow you the opportunity to give service to others. Whether you make a dime or not on providing a service doesn’t diminish the value of the referral, and the implicit trust implied by it.
9. Send Out an Article From the Media Twice a Month.  Keep in touch with your database with relevant and useful information from the media. This will reinforce your authority as an expert, and as someone who is determined to offer meaningful value to your contacts even before they have bought anything from you.
10. Meet Clients Face-to-Face. Meeting clients face to face is simply good business, where possible, and it eliminates most of the people who are simply rate shopping.
11. Give Excellent Service.  If you aren’t in the business to provide excellent service, then you’re not really in the business.

Image via Wikipedia

BC over the past ten years has been radically reducing the amount of taxes collected from people and corporations, arriving finally at the point today where the Clark government claims that it simply doesn’t have the money to keep up existing levels of (1) public health care, (2)educational services, (3) disability and other payments to people, (4) welfare rates, (5) direct employment in all branches of the provincial government, and (6) capital and operational budgets for critical infrastructure.  Negotiations with employees of the government are based on reducing the actual amount paid to workers in education, health care, and direct employment.  By refusing to pay even an amount equal to inflation the government is effectively reducing payrolls and incomes by between 5% and 7% over the next two years.

In addition the BC government has increased the burden of government-owned subsidiaries on consumers by increasing the claw back of revenues in BC Hydro, ICBC and BC Ferries.  The difference between fees and royalties collected out of services, as compared to income tax cuts over the last ten years, is that the income taxes cuts have resulting in a transfer of the tax burden from upper middle class and upper income British Columbians to middle and low-income BC residents.  Middle to lower British Columbian are experiencing radically reduced services by the government at the same time as they are paying ever more to provincially owned crown corporations for car insurance, BC Hydro rates on home heating and electricity, increased tax royalties on gasoline, natural gas and other energy costs.

British Columbians are feeling the pinch, especially middle-income and lower-income people.  Until now BC hasn’t experienced the full weight of these policies because there has been a very robust housing economy with strong growth in the value of their homes, strong employment across the board due to the rise in exports to China and elsewhere combined with steady employment in government sectors.

Canada is Booming... with Debt (Photo credit: Canadian Pacific)

The recent budget introduced by Kevin Falcon and Premier Clark is exactly the wrong medicine and will cut economic growth in the province and contribute much to a decline in employment opportunities in the private sector.  This could combine with layoffs in the public sector to potentially increase unemployment in urban BC to the highest levels in twenty-five years.

BC Hydro Station 2 (Photo credit: Tracy O)

Changes in mortgage rules at CMHC and other insurers of mortgages over the past few years have also taken the steam out of one of the major sources of economic activity in BC, new home building and the resale of existing housing.  Moral suasion by the Federal Finance Department could easily cut demand for new housing by as much as 25% to 50% in what is already an anaemic building market.  Because of economic uncertainty being introduced into the provincial economy by a combination of Federal and Provincial government resale home sales will also be off by as much as 50% when compared to the past couple of years.

So what to do?

• If you are working, don’t plan on changing your job in the next two years.  If you get laid off or quit, it may take you a while to get a new job that pays anywhere near what you are used to earning,
• Reduce your credit card and other debt as much as you can afford to out of your reduced paychecks.
• If you own your home and you need to refinance your mortgage, sit down with your mortgage broker at least six months ahead of when you plan to make your move.  Recent changes in the mortgage business are going to result in a lot of buyer remorse.  Renewals at whatever your bank wants to change may become the ONLY alternative, and that is only if you have been able to keep up your perfect payment record.
• Lock in your best mortgage rate for at least five years.  Although I think the Canadian economy is going to go into a government induced recession, America is coming out of theirs.  Bond rates are going to go up.  So are fixed mortgage rates.  Premiums on variable rate mortgages and lines of credit will make them unattractive as well.  The prime rate will rise by 1% over the next eighteen months so all mortgage rates will rise as well.
• Don’t put your house on the market and don’t even dream of buying a new home.  The federal and provincial governments are committed to undermining the Canadian housing market in what they believe is going to prevent a complete meltdown of housing which they believe will happen if they don’t act to reduce demand for house.

Things are likely to get worse before they get better, and unlike the last recession, where the government stepped in with resources to stimulate growth, the current mindset of the governments, both provincial and federal will likely contribute to the downturn, and extend it.

Unless the US recovery is very strong, strong enough to stimulate serious growth in demand for BC products, particularly forestry we are in for a period of rough weather.  Mind you, my view of this is that for a few of you out there, this will be the perfect opportunity to get into a home at a discounted rate, and while interest rates are still low.  Those few of you will be individuals and couples with strong salaried incomes and a great savings rate.

Your neighbours, struggling under the weight of an ever-increasing load of bad news and economic hardship, will buckle.

EXPERT (Photo credit: Pete Prodoehl)found photo: business leaders (Photo credit: squareintheteeth)

Mortgage experts like to think of ourselves as professionals, that is, providing a value added service to the business of helping our clients get mortgage financing for their homes and businesses. Most spend a lot of time in professional development, learning new skills , keeping up with the changing face of the mortgage loan industry, and keeping an eye on the constantly evolving economic reality faced every day by our borrowers (and our lenders).

But many of the people who work in our industry, if pressed, would agree that the single most challenging aspect of our work is ensuring that we have a sufficient flow of new business opportunities, so that we don’t run out of clients just about the time we become knowledgeable enough to be of real service to them.

Somehow the idea of prospecting for new business seems incongruent with being a professional adviser, a little like getting our hands dirty when we really want to seem to be above the fray, and beyond the need to market ourselves and our services.

Far from it! Getting out there in front of people and winning their attention is precisely the mark of a professional. A true professional knows that he/she has something valuable to share with the borrowing public, and that the public will never get the benefit of that value if he/she doesn’t grab their attention.

So it’s not that professionals shouldn’t promote themselves, or market themselves aggressively. But rather how they should do so, rather than if they should.

So here are a few points to improve both effectiveness and the professionalism of your marketing efforts:

1. Share your skills, knowledge and ability freely with potential clients. As mortgage experts we know a lot about mortgages, financial planning and debt. Most of the time the only time we talk to potential clients is when they are looking to buy a house or mortgage a property. In order to be the expert relied up at decision time, you need to be the adviser they trust in regards to these subjects even prior to the need being expressed. Instead of sending out messages asking for business to your potential marketplace, try asking people how you can help them meet their goals through what you know and do.

2. Become a genuine expert on your potential client. It is more important than ever to know your client. Inside and Outside. Front to Back. Lenders will tell you that it is important because then your applications are far more likely to be funded, because you will provide accurate and sufficient information for a lender to make a mortgage loan offer to your client. It will improve your credibility with your lenders as well, as you become a mortgage expert they know that they can rely upon. You will make it worthwhile for them to invest the time and money in underwriting your deals. Even more definitely, however, knowing your client will prove to that client that you actually care enough about them to give them comprehensive and caring advice. They will know that you aren’t just plugging applications into the system and hoping for the best.

3. Don’t hesitate to reach out to new prospects. In fact, dedicate a real part of your day every single day to reaching a specified number of new prospective clients, and then adding them to your database of people who know you as a mortgage professional. When I was a young man just learning the ropes in the life insurance business, more than thirty years ago, my sales manager insisted that I make 25 telephone calls every single day, before noon, and not quit calling new prospects until I had made at least 2 appointments to meet with potential clients.

4. Educate. Educate. Educate. Provide resources and important information to your prospective clients, on subjects they want to know more about. How do you know what they want to know more about? Ask them. And then do your homework to give them information that helps them make their goals. Every time you make yourself useful to someone else, you gain their respect and likely, their future business.

There's no place like home?

Genworth Financial Headquarters (Photo credit: taber andrew) “Hello everyone, FirstLine will no longer accept new applications for stated income programs effective end of today also max loan amount is $1 million,” reads an email penned by one of the lender’s BDMs and sent to brokers Tuesday afternoon. “if you have any deals you need to send please do so by the end of today, FYI Brand-to-Brand is NOT affected.” Many other affected FirstLine products are: New Immigrant programs, non-Immigrant programs, equity programs (flex), Access low-doc programs, CMHC self-employed simplified program, Genworth Alt-A program, Canada Guaranty low-doc programs, Canada Guaranty Lifestyle Advantage and self-employed program.*Employment ExhibitionImage via Wikipedia

A few weeks ago I wrote about BFS and Stated-income mortgages, and a new paradigm arising where such mortgages are becoming more and more difficult to get. Well this week another lender, First Line, has vacated the business effective February 1st, 2012.

It’s beginning to feel like 2009 all over again, when HSBC withdrew from the broker channel, and the government began to redefine the basis on which mortgages would be written in the future by insured lenders. It feels like the 80′s all over again. Back in the day BFS and stated-income borrowers basically knew that they had to come up with substantially larger down payments than salaried employees, keep up better credit scores, and even then, pay higher interest rates. Many mortgages could only be obtained from private lenders willing to lend without insurance, at the higher rates.

Perhaps we are going back to those times again.

I don’t think it will last indefinitely, but the reasons aren’t necessarily obvious. At least, unless people think it through. What percentage of the job market was made up of self-employed business for self types in the 1980′s and how much today. If the banks abandon self-employed people today, they may find themselves out of luck tomorrow, when those people have found alternatives to dealing with them.

* CMP magazine article Vernon Clement Jones, 31/01/12.