In the first six months of 2021, demand for mortgages continued at a record-setting pace. To support mortgage professionals as they serve the needs of home buyers across Canada, First National has invested heavily in new capacity and introduced several new products. In this mid-year interview, First National’s Scott McKenzie, Senior Vice President, Residential Mortgages, shares his thoughts on the state of the industry, and elaborates on key business developments.
Scott, when you look back on the first half of 2021, what accomplishments and business or market events stand out?
The key observation I would make is that we’ve experienced spring-like market conditions since June of 2020. Even in areas of the country that faced additional economic challenges – think of the Prairie region coping with pressure on the oil and gas industry – house prices have held steady or increased. Market strength is what stands out to me along with the ability of mortgage brokers to expertly address extraordinary volume. It’s been an incredible journey.
Has the pandemic had an impact on demand for mortgage broker services?
Yes, a positive one. Canadians have responded to lockdowns by relying more heavily on the channel for service and expertise. I suspect market share has increased as a result. Mortgage professionals are the people I think borrowers should be talking to when seeking to finance a home and brokers have done a terrific job of handling deals in a virtual world. They were good at using service-driven technology before the pandemic, and it positioned them to make a significant difference for borrowers during this period of physical distancing and lockdowns.
It must be a challenge for everyone in the mortgage industry to cope with this level of demand.
That’s a fair comment. The market run up has been surprising. Although no one complains about growth, good stress from growth is still stress. For First National, good stress comes from meeting our obligations to brokers and borrowers. It’s something we take very seriously and it’s why we’ve made unprecedented investments in growing our team over the past year.
Picking up on the state of the market, are houses overpriced?
It’s impossible to say. Personally, I don’t think we are in a bubble. However, some underlying dynamics have changed. Work from home has freed people to move out of large centres like Toronto, which has had a dramatic impact on demand in surrounding cities like Guelph, Cambridge, Shelburne and Hamilton. Home price increases in Peterborough, for example, are almost shocking. Geography is no longer a factor in deciding where work is done because of technology. First National is a case in point. We will introduce a Digital by Design approach to work this fall that will create more flexibility for our team in where they work post pandemic.
Is this heightened state of demand the ‘new normal’?
I don’t think it is but trying to get a read on the market right now is difficult. Until recently, listings did not keep pace with demand, so that fueled price increases. Anecdotally, I hear houses are taking a little longer to sell or, as one of our broker partners described the situation, a few months ago the average home would attract 10 bids, now it’s two. But remember that all of this demand has been unleased absent immigration, which is a traditional driver of the housing market. When the borders reopen and Canada begins to welcome 400,000 new people per year, there will be additional support for demand and price appreciation.
Turning to First National, how would you rate your performance to date?
We have hired more than 400 new employees in the residential underwriting division in the past year across the country including very experienced managers and leaders and we’ve also promoted from within. I think this has created additional strength for us and it is reflected in service-level improvements. That said, we aren’t exactly where we want to be and I do want to thank brokers for their patience and support. I like to think we are all in this together. We are all facing the challenges of slower turnaround times on appraisals and legal services and for the part of the equation that we own, First National is sparing no expense to address the need for additional resources. To answer the question, I think our service this year has been good under the circumstances.
How has the new qualifying rate for insured and uninsured mortgages, introduced at the beginning of June, affected demand?
The market slowed slightly in the first few weeks of June, but I don’t think it had much to do with the qualifying rate change. It has less than a 5% impact on the size of a mortgage a borrower can secure. That said, it is possible that some demand was pulled forward into May just before the announcement was made. It’s also possible that with the higher qualifying rate, some demand going forward will spill into the Alt-A space.
Speaking of Alt-A, how has Excalibur performed?
Very well. We’ve seen tremendous growth. We’re also executing our plan to take Excalibur beyond Ontario. After a soft launch last year, Excalibur is now fully capable and enjoying great early success in British Columbia. A pilot is also underway in the Prairie provinces and sometime in July we are launching in Nova Scotia. Pilot projects give us the ability to test our systems and develop specialized, purpose-built underwriting for the region but mostly to ensure that our product, as designed, finds a home with mortgage brokers. It’s nice to start this way to ensure we have the right service levels and the right offering.
What other advancements has First National made so far this year?
In February, we were very excited to launch the First National Home Equity Secured Mastercard issued by Duo Bank. It improves our competitiveness by giving our mortgage broker partners in Ontario a valuable new product to provide to Excalibur clients. Then in April, we introduced our Declared Income program that is designed to help self-employed borrowers qualify for an Excalibur mortgage. This also enhances our broker offering in Ontario.
What about technology, any developments there?
We are always investing in Merlin with a view to improving its capabilities for brokers and staying on top of the digital transformation taking place within the mortgage industry. I would describe this as a serial, ongoing approach to improvement rather than a one-off. In that sense, one of our focus areas this year is to improve the technology that supports brokers in uploading documents to us. Our technology roadmap for calendar 2022 will be very active.
What’s your forecast for the second half of 2021?
I don’t expect sales to continue at the same pace as the first part of the year, but we are coming out of the pandemic, businesses will reopen and Canada will become, once again, a world leader in immigration. So while we may see a levelling off of demand, I still think the housing market will be very active including areas such as Toronto’s condo scene where we’re starting to see a rebound. As well, Canadians are now redeploying cash saved during the pandemic to renovate their homes with a positive impact on refinancing activity.
What’s on your agenda for the remainder of 2021?
At the top of the agenda is service. We will do our best, through service, to make life easy for brokers and borrowers and to live up to First National’s reputation as a reliable, consistent lender. We’re putting a great deal of emphasis on developing the talents and capabilities of our team and recruiting more people.
Final thoughts?
We’re excited by what lies ahead and grateful to our broker partners for their business. Our door is always open.