How Low Can Interest Rates Go? Credit Unions Gear Up to Compete with the Big Banks

Rate wars have been something that the banks are constantly engaged in. The mortgage market is a fierce and competitive environment and one lender promoting even a slightly lower rate than the others can lead to them snatching up market share until they cannot sustain the promotion any more, or until another lender comes up with something more comparable and competitive.

As you know, in January the BOC began again cutting already historically low interest rates. While many banks followed suit, announcing reductions in their interest rates, one credit union has stepped up to the plate, and is now poised to capture some market share.

According to a recent article in the Mortgage Brokers News “Credit Union Enters the Rate War,” Ontario’s largest credit union, Meridian Credit Union announced that they would be lowering their year fixed mortgage rate. Not only did they lower it, but they lowered it down to 2.99%, which is a rate comparable to that being offered by the big 5 Canadian banks.

Meridian really did see an opportunity and seized the moment because, as the Mortgage Brokers News article points out, in the past, when the BOC would announce a .25% rate drop, the banks would follow suit and drop their prime lending rate by .25%.

In this instance, on Jan 21, 2015, the BOC dropped the national interest rate by .25%, however many of the banks only reduced their prime lending rate by .15%. What this did was create space for a B lender to step in and compete on price – which Meridian has been smart enough to do.

It will be interesting to see in next month’s Teranet National Bank House Price Index if the cut to interest rate has had any effect on the Canadian housing market. Some, including the IMF, have indicated that the Canadian housing market is headed for a cool down. Meanwhile other major publications have written on the subject of Canadians carrying record levels of personal debt which could lead to economic problems in the future. Does the BOC further dropping interest rates help to resolve some of these challenges?

Whatever the BOC’s underlying reason for the rate drop, it is nice to see that the indirect side effect was a leveling of the playing field to give some B lenders a chance to compete for some of that tasty A customer pie.

For more about how Purview For Lenders can help you garner a bigger piece of that customer pie, or for more on recent Canadian market numbers, please contact us today by calling 1.855.787.8439. 

Really Knowing the Ontario Housing Market: Automated Valuation Models

Whether you are an executive within a financial institution or a frontline underwriter, it pays to have a good grip on what’s happening in the housing market. Checking Canadian housing market numbers nationally is simple enough leveraging tools like the Teranet-National Bank House Price Index. Really knowing the housing market means understanding what’s happening at both the macro and micro levels.

Drilling down at the community and even individual property level can be achieved most simply through leveraging automated valuation models (AVMs).

AVMs help lenders really understand the housing market and are most commonly used to:

·      Underwriting – to validate property value

·      Collateral adjudication – to check for fraud and assess collateral risk

·      Post funding – continually evaluate overall lending portfolio

·      Servicing – identify upsell and other opportunities with the client

Automated valuation models are automated mathematical calculations that produce an estimated value of a property. The same calculations can be used to assess an area. There are different types of AVMs.

The three most common types of AVM include:

·      Price Indices: Multiple repeat sales are used to create and establish house price indices for a specific geographic area. This index is then applied to a past transaction price or valuation of the subject property to provide a current valuation.

·      Hedonic: Largely based on statistical models using some form of linear regression. Property attributes such as location, property size, and nature of improvements are data requirements of this model type. Essentially, the attributes of a subject property are compared with other comparable properties using a radius search pattern or other logical search parameters, over a pre-determined time period.

·      Tax Assessed Value Model: The current market value is estimated by updating the valuation assessed for tax purposes at a past date. The statistical relationship between past assessed values and subsequent price data is measured to create a ratio which is then applied to update the assessed values.

Each type of AVM mentioned above uses a different model and obtains their data from different places. MPAC for example obtains much of their data from tax assessment records. The Purview AVM product offered by Teranet obtains their data (in Ontario) from The Province of Ontario's Land Registry Information System (POLARIS) which contains both current and accurate land information

The use of AVMs has spread, and now it is being used inside larger financial institutions and smaller private lenders alike.

Using automated valuation models will ensure that, if you need information about a property or area, the information is available to you at the click of a mouse, making you more efficient. Getting the information you need, quickly, helps to ensure better time management and a stronger bottom line.

For more about the value of automated valuation models or their various uses, please contact Teranet today by calling 1.855.787.8439. 

Private Lenders: How to Immediately Reduce Mortgage Losses

If you want to immediately reduce your mortgage losses you need to make immediate changes to how you underwrite your deals. As a private lender you face unique challenges because often you are competing with bigger players in the mortgage industry such as B financial institutions with less resources.

Often a mortgage broker or agent will submit a deal to you, you will then leverage the tools that you have to perform due diligence and then rely on an appraisal to ensure that there is sufficient equity in the property being financed to secure your deal. All of this is time and money.

The best way to ensure that you well equipped to close a deal is to empower yourself by knowing as much as possible about the property you are financing and the area that it is located in. Does your application even merit going as far as an appraisal? Is a particular area even of interest to you? This is step one in terms of making the changes necessary to immediately reduce mortgage losses.

Sticking to short term mortgage loans is your next line of defence. As a private mortgage lender, the shorter the mortgage term, the more opportunity you have to get out of a deal where the client may be paying enough to maintain the mortgage out of power of sale, but is too much of a collection issue to be worth keeping on the books.

Next is keeping on top of your portfolio, the areas where your mortgages are financed, and identifying when a property is no longer a good risk for you. This means keeping on top of trends and identifying when a negative shift in the market in a particular area may be in the cards.

Many publications go far to report on overall housing numbers, but you know as well as we do that the housing market can shift from area to area and also as it relates to particular housing types. Condos are a great example; condos are a type of property that, when there is a negative shift in the market in a particular area, are the first to take hit.

Your best line of defence to immediately reduce mortgage losses is to begin to deploy the use of AVMs (Automated Valuation Model) & Property Reports. AVMs enable you to look at a particular property or area to identify if value could be an issue. Looking at an AVM and property report at the application stage and coming up to your client’s annual mortgage renewal will help you see if a property is worth what you think it is. Where existing mortgages are concerned it may reveal an issue that could shift your decision to renew, thus immediately reducing your mortgage losses by mitigating the probability that you have mortgages in your portfolio that have shifted to a higher loan to value than what existed when you initially granted funding.

An AVM may reveal that a particular property or property type in a particular area may not be of interest, before requesting an appraisal and potentially funding something that could represent challenges in the future.

Reducing mortgage losses boils down to knowing more, and in the age of technology knowing more is easy and inexpensive. As the old adage goes, knowledge is power, so now may be a better time than ever to invoke the power of the AVM.

For more about immediately reducing mortgage losses using an AVM and Property Report please contact Purview For Lenders today by calling 1.855.787.8439.

Use Your Automated Valuation Model like Soft Pings to Credit Reports

Do you know what a soft ping is? Many banks and FIs have massive client bases and will leverage soft pings to their clients’ credit reports to identify upsell opportunities. A soft ping is when a lender accesses a client’s credit report in order to see how it is performing after the customer has been granted credit and become a client. Soft pings are used to mitigate risk by identifying clients whose credit standing has changed and also identify upsell opportunities. Soft pings are often behind banks and FIs decisions arbitrarily to reduce a client’s line of credit limit or perhaps offer a credit limit increase.

Soft pings have done a lot to help lenders maintain better control over their receivable and risk management – but more so even to be more competitive and maintain more market share because they are able to quickly offer more credit to qualifying clients.

As important as a credit report, which evaluates a client’s history and habits, is an Automated Valuation Model (AVM) and corresponding Property Report. The AVM is a part of an automated property report but instead of focusing on the borrower, it focuses on the property.

AVMs and Property Reports help lenders to be able to do the same things – manage risk and also identify upsell opportunities. How? Because an AVM can be pulled at any point in time and can give a lender an idea of what a property is worth and what the equity positioning looks like.

This means that if a particular property or area has seen decreases in home values, lenders are primed to be able to react to these shifts. In the case of upsell opportunities, you may be able to identify refinance opportunities or even opportunities to extend secondary credit products.

For private lenders, even more so than a soft ping on a credit report (which many private and smaller lenders do not use), an AVM presents even more value. Many private and smaller lenders base their lending decisions primarily on the equity that they have in their security. A property with significantly more equity even in the case of bruised credit can = opportunity.

Secured lines of credit are a fantastic example of this. Over the years companies like Home Trust have gotten increasingly more competitive by expanding their product lines and offering more secondary products to cater to clients with additional equity and to make the most out of each and every deal. The Home Trust Secured Line of Credit is a prime example of this.

The more agile you are, the better positioned you will be to be more profitable. It doesn’t matter how big or small you are – accessing simple tools like Automated Valuation Models and Property Reports are your lowest hanging fruit as far as competing with the bigger lenders who may have access to even more!

For more about the benefits of an AVM and how to use this tool to identify opportunities for more profit, please contact Purview For Lenders today at 1.855.787.8439.