Really Knowing the Housing Market: House Price Indices and You!

In the first part of our 2 part series, “Really Knowing the Housing Market” we discussed what an Automated Valuation Model (AVM) is, types of AVMs, how lenders use these types of AVMs and how to drill down to the micro aspects of real estate values at the level of a property or neighbourhood. In this blog, we will dive deeper into house price indices and how you can know what is happening in the housing market at the macro level.

You likely often see in the news reports about what’s happening in the Canadian real estate market. These report gains and losses in the housing market, expressed as a percentage. This number is usually obtained from known-credible providers of house price indices.

House price indices are indexes that measure the price changes of residential real estate. The numbers produced in the house price indices will vary slightly depending on the data source. This is because different producers of house price indices get their data from different places.

Here are some of the more commonly known house price indices including where there data comes from:

• Teranet National Bank House Price Index – Data comes from property records of public land registries. Where sale price is available, Ontario data is updated regularly and directly from the Province of Ontario's Land Registry Information System (POLARIS) which contains some of the most current and accurate land information available. This product is marketed to and widely used by lenders.

•  MLS Home Price Index – Data comes from the MLS and this index produces home price data on particular homes and neighbourhoods. This is currently marketed as a product for the consumer to use to assess if their property has increased in value.

• Brookfield RPS House Price Index – Brookfield is best known as an appraisal management company, and you can leverage their access to appraisal data to support the development of their house price index

The type of house price index you turn to will depend on your personal needs and how you feel about where the data is coming from and how it is calculated – in terms of the accuracy of the result.

House price indices can help you be more competitive because they can help you to see shifts in the market based on trends and plan accordingly. Using house price indices and AVMs together helps to position you as better informed about everything you need to know about the Canadian housing market.

For more about house price indices and their value please contact Teranet today by calling 1.855.787.8439.

Mortgage Industry Update: OFSI’s B21 Mortgage Regulation and What it Means to You

If you are financing high ratio insured mortgages you are no doubt, on some level, aware of B21. B21 is a set of regulations being proposed by the OSFI (Office of the Superintendent of Financial Institutions) with respect to high ratio mortgage default insurance in Canada.

The purpose of the bill is to see more disclosure and consistency between lenders and mortgage insurers like CMHC.

B21 follows B20, which was introduced last year. You may recall when CMHC announced reducing amortizations to 25 years, adjustments to GDS and TDS ratios and restrictions to maximum LTVs on refinance and secondary financing products. Well, these changes were in direct reaction to B20 which was deployed to combat risky/over-aggressive lending practices.

In fact, the goal of both guidelines was to ensure stability in the market, and to prevent a housing bubble or future recession. It is commonly known that Canadians are carrying record levels of unsecured debt and this ensures that homeowners are forced to finance their homes responsibility and within their means.

According to an article in Rate Supermarket, the new borrower requirements under B21 include:

•  Down payment: more scrutiny will be placed on where down payments come from
•  Eligibility: more scrutiny with respect to eligibility of foreign investors, high risk borrowers and non-residents
• Credit: insurers must directly verify a borrower’s credit history and employment
• Self-employed buyers: an individual process must be set-up for self–employed borrowers
• While these guidelines relate to insurers, the changes will have a trickle-down effect for you, your brokers and their clients. At the end of the day these additional measures will see insurers helping, and not hindering, by forcing them to take extra due diligence measures to reject out mortgages that shouldn’t really be insured in the first place.

More than changes to rules, these changes seem to encourage more due diligence on the part of the insured, which protects our economy and in the end is good for all.

For more information about B21 and its impacts please contact Teranet today by calling 1.855.787.8439.

TDCT Show the Competition They are Ready to Compete for the Broker Channel Market

Broker dependent lenders listen up, because if your business largely relies on business from the Broker Channel Market, paying attention to developments like the ones reported this past month in the Mortgage Brokers News will help you see ways that you can compete.

Look at TDCT. According to the article, TDCT captured 8.7% of the broker market but is poised to see that number increase with the introduction of the outsourcing of its broker underwriting to First National after recognizing that First National’s systems are able to generate approvals in hours vs. the days it would take TDCT’s old system to turn around and approve.

This move instantly makes TDCT that much more competitive because:

·         It and its brokers will benefit from a new online broker portal which tracks application statuses

·         Clients will no longer be directed to branches to close their deals

·         TDCT will be able to instruct deals far faster in the process because all conditions won’t have to be satisfied in order to instruct

·         Buy-downs will now be able to be deducted from the broker’s commission

What is interesting about this story is not only TDCT and the individual changes themselves, but also about TDCT taking a leap to innovate to improve services. Quite an admirable step which shows that the execs at TDCT are seeing the cost benefit to resolving inefficiencies and providing a better service.

Many financial institutions lose sight of the fact that technology and process issues can drag down production which costs millions, if not more. In this instance, TDCT recognized that they needed to make the customer experience better for its brokers and saw that their technical limitations would prevent that. Inefficient underwriting systems is a great example of an area where a FIs failure to provide can make them less competitive.

If you were to audit your underwriting department, what might you find when looking at the following?:

·         How many different platforms you are using to perform different tasks?

·         What costly issues could be resolved through new technology?

·         What tasks could be streamlined using technology?

·         The speed at which you turn around applications and what steps in the process cause slowdowns?

·         Finding out more about an applicant and property at the application stage leading to smoother closings.

Take the time, like TDCT did, to find out what pain-points exist for your clients, and you will quickly identify measures you can put in place to not just make your customers happy, but to delight them.

For more about creating efficiency when underwriting please contact Teranet today by calling 1.855.787.8439. 

Really Knowing the Ontario Housing Market: Ontario Mortgage Insights (OMI)

Lenders who want to be competitive and keep receivables low must take the time to really know what is happening in the housing markets within which they lend. We have written a series of blogs about really knowing the housing market, but this blog focuses on particular insights that at the moment are only available in Ontario.

Just as automated valuation models and house price indices are excellent tools that can be used in many different areas within a financial institution, Ontario Mortgage Insights is a valuable tool for keeping your finger on the pulse of the Ontario housing market.

Ontario Mortgage Insights reports on housing data and provides lenders with market trend reports by month and geographical location relating to sales, mortgages and home equity.

Access OMI Strategic Monitor Reports for key competitive intelligence:

• Measure your outcomes against those of your competitors through data on mortgages, equity and mortgage switches by institution, area and date.
• Optimize resource allocation and sales effectiveness by tracking your performance in different regions and even neighbourhoods.
• Optimize marketing by identifying strong markets and assessing your market penetration.

It is primarily used by lenders to gain competitive intelligence and optimize resource allocation and marketing accordingly.

Ontario Market Insights has broad use within many different departments within a financial institution.

• Some lenders use OMI in the area of risk management using it to measure activity against that of the competition, analyze lending regions, adjust lending practices according to geographical risk exposure and more…
• Other lenders use OMI to support business development initiatives by accessing key information about competition, understand market shares, and allocate business development resources according to regions that show the most promise.
• Lenders also use OMI to support marketing because they can measure the market penetration of products, identify hot and emerging markets, see where they are gaining and losing market share, allocate marketing resources accordingly and finally track and analyze results.

The above is only possible because of all of the market data included in the OMI.

Market trend data includes: sales of properties and values of transfers, number of home sales, total value of sales, mortgages registered, value of mortgages, home equity in properties, turnover rate in a particular area and more…

Strategic monitoring data includes: estimates of market penetration, registered mortgages, equity on properties, mortgage switches and more…

Ontario Mortgage Insights goes a long way to keep you in the loop of what’s happening in the Ontario housing market and specifically insights that lead to you being more competitive.

Don’t miss any opportunity to become more competitive. Contact Purview For Lenders today to find out more about OMI and other tools to make you more efficient: 1.855.787.8439.

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.