A $500 Million RBC Group Becomes Brokers

A $500 Million RBC Group Becomes Brokers

A group of five high-performing RBC mortgage specialists have decided that the grass is greener in the broker world. The group formed a company called Denova Group and has joinedMortgage Alliance, a national mortgage brokerage.

Mortgage Alliance President & CEO Michael Beckette pegs the team’s trailing 12-month volume at half a billion dollars.

We spoke with David Goncalves, one of the group’s founding partners, to find out why he left the “golden lion” to be an independent.

Goncalves, a 10-year RBC vet, has been a top-10 RBC mortgage specialist (in total sales) for five years running, says Mortgage Alliance. RBC has somewhere around 1,500 mortgage specialists.

The Why

“It came down to more entrepreneurial activities,” said Goncalves, who wanted to expand his private and commercial lending.

Rates were another key issue. “The rates are similar,” he said. “The difference is that banks are cyclical and they go through stages when they’re competitive and not competitive. In the broker word it’s a lot more consistent.”

“The ability to advertise (good rates) gives brokers a bit of an advantage,” he added. Banks don’t allow mortgage specialists to mass-advertise the lowest rates.

“One of the things that restricted us [at the bank] was that when we’d send up an advertisement, it had to have a marked up rate." That’s no longer necessary as a broker, he says. “Now we can send out mass marketing with best pricing. It’s exciting.”

Rates Aside

“The biggest advantage of brokers is not so much rate, but selection of products,” Goncalves notes. RBC, for example, offers one lump-sum prepayment option (10% lump-sum prepayments makeable once a year). By contrast , brokers can access lenders with up to 30% lump-sum prepayments, makeable anytime.

“As a broker, you might start off with 10 lenders that fit the client’s bucket," he said. "Then you can start narrowing it down to one or two lenders that meet the client’s needs very well.”

Goncalves also cites compensation pressure as a factor in his group's decision. With banks forced to match brokers, specialists often have to give up compensation to “buy down” their rates. That's sometimes hard to swallow because they make less per deal to begin with.

And then there’s the matter of creditor life insurance. Banks often use quotas to pressure mortgage specialists to sell creditor life insurance. Sometimes they’re expected to sell insurance to one out of every three applicants. But many clients don’t need it. Moreover, bank-issued creditor life is typically inferior to regular life insurance, or even broker-offered creditor life (which is portable, unlike most bank policies).

Joel Sida Mortgage Broker extracted from Mortgage trends

The Week in Economic and Real Estate News

The Canadian Real Estate Association published sales data for March last week. Activity remains below levels seen last year but prices are holding well in most markets.

 BMO Capital Markets officially declared Canadian home prices to be "boring" while TD Economics predicted that the slow start to the year and current trending will "mean a lacklustre 2013 for the record books".

 The Bank of Canada is about to change Governors but it did not change its key overnight rate last week and any increase now looks to have been put off until at least the second half of 2014. The Bank, in its press release and Monetary Policy Report, is forecasting a strengthening Canadian economy in the second half of 2013 and continued strength through 2014 and 2015.

Canadian housing market begins to thaw out in March

• National sales activity rose in March by 2.4%, month-over-month. When compared to March 2012, sales were down by 15.3%.
• Prices increased by 2.5% versus a year ago. The average home price in Canada now rings in at roughly $378,500 on a non-seasonally adjusted basis.
• The aggregate MLS® home price index also tracks change in prices, but the index is less distorted by the composition of sales.  By this measure, prices were up 2.2%, year-over-year – the slowest pace of acceleration in two years. 
• The sales-to-listings ratio came in at 49.9% in March, roughly the same as February’s reading. The ratio is just one measure used to infer overall housing conditions and with this month’s reading, the Canadian housing market is in balanced territory. It would take 6.5 months to deplete the number of unsold homes.  This count has not materially changed since mid-2010.
• Toronto and Vancouver are exerting a downward influence on the national price statistic. These two markets saw the largest price gains in 2010 and 2011, and their markets are now unwinding and returning to more fundamentals. By contrast, Calgary and Edmonton did not see these same price gains and as a result, have fewer excesses to evaporate.

HIGHLIGHTS OF THE WEEK

United States

• With little news on the data front throughout the first half of the week, markets focused much of their attention on the release of the March FOMC minutes and President Obama’s 2014 budget proposal.

 • The Fed minutes revealed a growing consensus among participants that a tapering of the $85 billion/month in asset purchases should happen sometime this year. However, what still remains largely unclear is at what point this year the tapering should begin and to what extent it will occur.

 • On the fiscal front, the key elements of the Obama administrations 2014 budget proposal include $580B of additional revenues, $610B in spending cuts, and $620B in entitlement reform over the course of the next ten years.

  Canada

 • Canadian housing starts edged up to 184,000 units in March from an upwardly revised 183,000 units in February. Despite the slight uptick in overall starts, this week’s reading puts new housing construction at almost 30% below the level recorded in April 2012.

 • The ongoing moderation in new home construction has been widely expected given the strong pace of building that took place last year.

 • The Bank of Canada’s Business Outlook reaffirmed the theme of only modest growth this year, but optimism can be taken from the outlook portion of the survey which pointed to a pick up in sales – albeit at a moderate pace – based on improving U.S. demand which is consistent with out forecast.

 • Looking ahead to next week, the Bank of Canada will release its Monetary Policy Report on Wednesday, April 17. The Bank is expected to hold its overnight rate unchanged at 1.00%. Data from TD

Smith Manoeuvre

The Smith Manoeuvre is a technique that converts regular debt into tax-deductible debt. In the process, it affords the opportunity to pay off one's mortgage significantly faster.

The Smith Manoeuvre works basically as follows: 

1. First find a readvanceable mortgage 
2. Then sell your non-registered assets (like stocks held outside of an RRSP) 
3. Use the proceeds as a down payment on your mortgage 
4. Make your mortgage payments like normal 
5. As you pay off principal, re-borrow that principal into a line of credit (LOC) 
6. Invest this re-borrowed money at a higher rate of return than the interest you pay on the line of credit 
7. Deduct your investment loan (LOC) interest and use the tax savings (refund) to pre-pay your mortgage
8.  Repeat steps 3-7 until your mortgage is fully paid off. 

Fraser Smith, for whom the Smith Manoeuvre is named, stated that the strategy can cut your mortgage payoff time in 1/2, while helping you invest more, sooner. The Smith Manoeuvre is indeed a powerful strategy, but it's not for everyone. There are both investment risks and serious tax risks. Your returns could be insufficient, CRA could invalidate your application of the strategy, or you could wind up in a negative amortization scenario if your house value falls. Therefore, always consult a licensed financial and tax advisor before considering it. Find an advisor that will work closely with your mortgage planner, offers free consultations, and charges no out-of-pocket ongoing fees.

 Implementing the Smith Manoeuvre takes more than just refinancing your mortgage and picking some mutual funds. Moreover, there is no off-the-shelf financial or income tax software that efficiently manages the process. The best advice is to get proper advice...from the start.
 Taken form Canadian mortgage trends.

New Buyers Raise Their Antecesors

When some people think of first-time home buyers, they picture young people shoehorning themselves into a property with the minimum possible down payment.

That’s not the norm, according to two new surveys from BMO and Genworth.

The BMO study finds that typical first-timers expect to spend $300,000 on a new home. That’s 19% below the current average home price of $368,895 (source: CREA).

More interestingly, prospective newbie buyers plan to put down an average of $48,000 (16%). That’s higher than what previous data has shown.

 In 2012, CAAMP found that only 11% of renters have a $30,000+ down payment.
The average renter’s down payment was $21,000.

•  Do first-time buyers living at home accumulate a bigger down payment than renters? 
• Do they get more support from mom and dad? (BMO says 27% of first timers expect down payment help from their family.)

 41% of all home buyers put down less than 10%, according to 2010-2012 data from Will Dunning.

• That number includes all home buyers. 

One presumes the number would be higher if only first timers were polled. It appears young buyers are somehow saving bigger down payments all of a sudden. According to a Genworth/CACCS survey, 56% of recent first-time buyers put down more than 20% on their homes. Last year, just 36% claimed to do the same.

 What’s more, the proportion of borrowers saving more than five years for a down payment rose by over 50%, says Genworth. But that may be due largely to higher prices and tighter approval guidelines.

 BMO finds that 59% of first timers held off buying their first home due to elevated housing prices. Moreover, 19% of first-time purchases have been deferred due to stricter qualification rules (including last July’s amortization reduction to 25 years on high-ratio mortgages).

 Other findings from BMO:

•  The typical age of a first-timer buyer is 29. 
• Rookie buyers expect to be mortgage-free in 20 years (at age 49 on average), which is eight years less than what this recent CIBC poll suggests. Age 49 seems somewhat optimistic given debt trends and conflicting surveys. 
• First-time buyers are twice as likely to take a fixed rate than a variable rate (46% vs. 20% who choose variable rates). 
• Young buyers are risk averse. 39% of those who expect flat to declining rates still prefer fixed rates over variable rates. Only 23% of those who forecast flat/declining rates favour variables. First time buyers in Alberta expect to pay the most for a new home: $406,000. B.C. is next at $384,000. The Ontario average is $326,000 

 taken from http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/04/new-buyers-raise-their-ante.html

Sales activity with a new sense of stability

Sales activity from the two largest real estate boards was reported last week and they reflected signs of a new underlying sense of stability in these markets. In Vancouver, sales remain lower than historical averages but listings and sales have moved toward a better balance. Toronto continues to see modest price increases despite lower sales volumes. The Calgary market's very tight inventory levels pushed prices higher by 9% in March. RBC published research last week which clearly shows that the growth in household debt levels - non-mortgage debt in particular - is moderating considerably. And, CIBC released results from a survey of Canadian homeowners about additional consumer debt and when they think that they will be mortgage free. Royal LePage published its House Price Survey for the first quarter of 2013 and it suggests that the housing market experienced "slightly positive price trends" over the period. Joel Sida taken from Mcap newsletter