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Monday, August 1st, 2016

Another Entrant Joins the Residential Mortgage Space

Another Entrant Joins the Residential Mortgage SpaceCMHC logo

Even in the midst of a slowdown in Canadian mortgage growth, startups continue being attracted to the residential mortgage space in Canada. Among the newest group of entrants, we find CMLS Financial Ltd.; the company will launch a lending channel for residential mortgages in the early part of 2013.

But CMLS isn’t a new organization; it’s been around for 38 years though previously only operating in the commercial lending space. Recently, it made the decision to enter the field of residential mortgages. Its plans include becoming a key player in the market. It would like to see yearly volumes in the low billions of dollars. Its commercial mortgage originations are on track to reach approximately $2 billion for 2012. If you are a prospective first time buyer, you may want to contact a trusted mortgage broker in Vancouver in order to decide whether dealing with this company is a good choice for you.

The sales and business development department of the company will be run by Dan Putnam. He previously headed MortgageBrokers.com as the president. According to Putnam, mortgages will not be made available to just any mortgage broker. “We’ll take a targeted approach” and “focus on ‘A’ business only”, he said.

It will be interesting to watch the company’s strategy unfold, as it competes with banks who have a massive funding edge, large balance sheets, lots of access to capital, and the ability to more easily offer low mortgage rates.

According to Putnam, CMLS will compete by relying heavily on capital markets.

As a private company which is not OSFI regulated, he says CMHC is able to significantly cut its expenses. He also claims that “from a funding perspective” – the organization has great relationships.

Also note that CMHC has been approved for both seller and issuer status. This makes it an exception among companies not regulated by OSFI. Its unique situation gives it access to the Canada Mortgage Bond Program as well as the NHA mortgage-backed securities market. The results? A substantial cost advantage and the ability to offer low mortgage rates on par with other large lenders.

Unfortunately, a large capital requirement also comes along with status as a direct issuer. A minimum amount of capital must be posted, equal to 2% of all originations. Therefore to fund $2 billion worth of mortgages, the company has to post about $40 million. But while this has remained a challenge for many upstarts, Brossard says that it’s very reasonable for CMLS.

In the beginning, when the company launches its residential mortgage division in 2013, only “bread and butter” products will be available to the brokers it decides to deal with, including any mortgage broker in Vancouver BC who qualifies. A mortgage servicing platform will also be built from scratch so that the company can service all of its own mortgages.

The company would like to offer a mix of the right products, excellent technology, and rates as competitive as any of the other companies operating within this space.

In this day and age, when just about every honest mortgage broker is being pressured by lenders for volume commitments, it’s becoming more difficult for any trusted mortgage broker in Vancouver to allocate deals to new lenders. For CMLS, this means there is no room to fall short of its self-imposed expectations.

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