Canada’s Mortgage Brokers maintain Choice and Flexibility
Interesting information comparing mortgage markets abroad with the mortgage market of Canada was presented last week by CAAMP’s international mortgage panel.
According to the Australian mortgage market report, provided by CEO Phil Naylor of the Mortgage and Finance Association of Australia, only three per cent of mortgages attained in Australia are transacted outside of a bank.
One of the reasons posed as to why the four major Australian banks hold a whopping 90 per cent of the mortgage market share is that Australia has no entity such as the CMHC. Canadian regulation stipulates that all high-ratio mortgages, or mortgages where less than 20 per cent of the property value is applied toward down payment, must be insured. The CMHC is that top insurer. The CMHC, and other mortgage insurance providers in Canada, cover Canadian mortgage lenders in the event that a mortgagor should default on their mortgage payments. As Australia has no such central mortgage regulator and insurer, many non-bank lenders have faced detrimental liquidity quandaries.
Another chief reason for this shrink in non-bank lenders is that securitization has all but evaporated from Australia’s market. As Australian banks have the monopoly on mortgage financing, they can reduce the compensation they offer to mortgage brokers for securing contracts on their mortgage products. As a result, mortgage brokers have begun charging for their consultation services and advice but, according to Naylor, customers don’t mind so long as they are compensated with value service.
Even with broker fees, 40 per cent of Australian homebuyers still choose to attain their mortgage through the services of a mortgage broker, and that number is expected to grow.
In Canada, the total number of homebuyers who secure their mortgages through a mortgage broker has risen to 39 per cent, as released in the Canada Mortgage and Housing Corporation’s (CMHC) 2010 Mortgage Consumer Survey. In British Columbia, more than half of homebuyers use a mortgage broker to arrange their home financing.
Among Canadian first-time home buyers, the percentage whom employ a mortgage broker has risen from 30 per cent in 2006 to 45 per cent in 2010, and is climbing.
In the United States, new regulation and a depreciating housing market have seen the amount of operating mortgage brokerages drastically reduce from 54,000, in 2007, to 8,000 today, according to information provided by CEO John Courson of the Mortgage Bankers Association.
In the next year, 300 new laws affecting mortgage lenders and mortgage lending policy will take effect, which could see even more of the remaining U.S. mortgage brokerages fold and the U.S. mortgage market competition margin narrow even further.
Prospect for improvement seems dismal when Courson states that the U.S. market has “no liquidity”.
The vast majority of Canadians surveyed by the CMHC still feel that home ownership is a good long-term investment, and 81 per cent say that they are comfortable their current mortgage debt. While country after country faces housing bubble, Canadians need learn from the activities of other markets and practice pragmatic, strategized home economics.