In Conversation with Scott McKenzie
As our Senior Vice President, Residential Mortgages, Scott McKenzie is responsible for the origination and underwriting of all of First National’s residential mortgage business across Canada. In this interview, we ask him to share his unique perspectives on mortgage brokers, service, technology, a magazine survey that compared First National to other lenders and recent Department of Finance changes to mortgage qualifying rules.
Let’s start with your background.
I’m proud to say that I was the fifth person that First National hired after its founding, so my entire career has been devoted to mortgage lending and to the mortgage broker channel and most of it to First National. All told, I’ve worked with the channel for over 30 years.
So you’ve seen considerable change at First National.
Absolutely. Back then closing $100 Million per year was an accomplishment. Today, we close more than $12 Billion annually from four offices across the country. We have gone from 4 or 5 employees in the Residential Department to over 400 now and almost 1000 employees in total. This is truly a growth story but the one constant we have always insisted on is service. It's a culture here at First National that we've never compromised in pursuit of growth.
What’s the catalyst for First National’s growth?
Structurally, the development of securitization for mortgages was a driver, but just as significant is the rise of the professional mortgage broker. Mortgage brokers are the catalyst for competition among Canadian lenders and collectively have done a wonderful job of helping millions of people realize the value of home ownership and discover First National in the process.
Mortgage brokers have many lenders to choose from; how does First National differentiate itself?
In simple terms, we try to go beyond service, go beyond what other lenders do to champion each lending opportunity. We try to put in the time to find the right financing solution when a mortgage broker makes a request and we try to be a reliable delivery partner.
What does reliability look like?
Reliability to us is measured not only in turnaround time, but in remaining competitive with interest rates and providing consistent underwriting decisions over time. First National puts a premium on responding to opportunities quickly and we track the performance of each of our offices against our stated objective of responding to 90% of mortgage broker submissions in under four hours. The foundation of reliability is consistency. We have always put mortgage brokers first and this consistency of focus makes it possible to be reliable.
Doesn’t increased regulatory oversight like B-20 and B-21 pose a challenge to that objective?
It is true that B-20 and B-21 necessitated increased oversight from lenders and insurers and led to more documentation, which in turn adds time to transacting business. On the other hand, I think First National has done a good job of assimilating all the rule changes and not letting them interfere with our goal of responsive and collaborative broker service. Don’t forget that along with a new residential underwriting regimen, revisions to securitization rules also increased NHA MBS allocations, so there was a silver lining in that higher allocations enabled mortgage brokers to offer more and better products to borrowers from lenders like First National.
Some lenders have been challenged by B-20 and B-21. What makes First National different?
I think the key for us is the presence of experienced and talented underwriters and sales staff. Our people stay with us and that creates a winning culture. Our own internal surveys tell us that if the rules must change, it really helps when the core service philosophy of the business and the core underwriting team stay the same. We’re tremendously proud of the quality of our underwriters and the consistency and reliability of their approach. Further we have a strong team of Account Managers across the country that provide exceptional support to brokers. We like to think they are the best in the industry.
Beyond your definition of reliability, how else do you support mortgage brokers?
We have a structure in place that helps our account managers complement the efforts of our branch offices in finding practical financing solutions. That structure holds everyone accountable for meeting our shared goal of going beyond service for brokers. We’re also completely upfront and clear about the financial terms of working with First National. We’ve always sought to provide that clarity. Given all the moving parts and complexity involved in brokering a mortgage, we try to make working with First National easy and rewarding.
What about technology as a service enabler?
It’s very important to First National. It was 15 years ago that we introduced Merlin, the industry’s first online mortgage approval and tracking system. All these years later, Merlin continues to serve as a de facto industry standard for applied technology, helping mortgage brokers stay instantly connected to the status of their deals. In technology, longevity is rare and so Merlin’s long-term leadership is pretty special and we’re going to continue to invest to ensure it meets the needs of the broker community in the years ahead. We also recognize that borrowers have certain technology expectations of their lenders. We introduced My Mortgage, which is an online mortgage management tool for borrowers. It can be accessed twenty four hours a day, seven days a week by our customers.
In October, the Department of Finance made changes to mortgage rules in Canada.
These rules include most significantly, an increase in the qualifying rate on fixed rate mortgages with terms of five years or greater and changes in the eligibility rules for newly issued low-ratio mortgages for portfolio insurance. I believe the changes will also create a significant distinction between high ratio insured deals and conventional deals. Insured deals will become a much desired product and may demand much lower rates due to severe competition. We will see tiered pricing based on product type in 2017.
While all mortgage lenders, including First National, will see a decrease in single family market activity levels as a result of these changes and their impact on borrowers, the Company’s business model will mitigate much of the impact.
What do these changes mean for single family borrowers?
The rules create a “stress test” for borrowers of five-year-fixed, high ratio mortgages by requiring them to qualify for a mortgage based on an interest rate standard determined by the Bank of Canada rather than the “contract rate” of the mortgage. The intent is to ensure that these borrowers can continue to make payments even if interest rates increase, which they have since the Department of Finance announcement. There is certainly speculation that rates may rise even further, so this stress test is necessary. For the same type of mortgage, there will be a maximum amortization period of 25 years, and a cap on the property purchase price of $1 million.
What does this set of changes mean to mortgage brokers and First National?
Collectively, it creates the need for us to both understand and apply the rules and find workable solutions for borrowers. We’re working collaboratively with mortgage brokers and single family borrowers to communicate what the changes mean and the deadlines involved so that there are no issues as we transition.
Any final thoughts on what appears to be an evolving regulatory landscape?
Just that First National’s business model and diversified mortgage lending activities and sources of funding provide all the strength and flexibility we need to respond effectively. First National will assimilate these changes and continue to provide the same highly competitive, service-first value proposition that has made us Canada’s largest non-bank mortgage lender. Our very clear message to our partners in the mortgage broker channel and borrowers alike is that we are open for business and are looking forward to working together to make the dream of ownership a reality.