2022 is here meaning it is time to check in with Scott McKenzie, Senior Vice President, Residential Mortgages at First National for a New Year’s report on the state of the industry and the company’s plans and priorities. This interview was recorded in mid-January.
Scott how you characterize the current health and wellbeing of the mortgage industry?
Our industry is in high-growth mode. Mortgage brokers continue to grow their market share and, here at First National, we continue to add resources to our team to ensure we can serve our partners as a growing, service-dedicated business.
Why are the services of mortgage brokers in such high demand?
Professionalism, responsiveness and competitive choice are three reasons. Mortgage brokers always do a masterful job of presenting the best mortgage options from across the competitive landscape, which makes their advice so valuable to Canadians. But the pandemic has also very clearly demonstrated another advantage. Brokers are not reliant on bricks and mortar branches or a 10 am to 3 pm culture to serve Canadians. Their responsiveness to the needs of borrowers is always meaningful but especially in this environment. We are finding a lot more volume is coming through brokers for these reasons.
Perhaps you can talk about your 2022 plans for service to address broker needs.
Service is about people, culture and technology and we’re attentive to all three. Even though we’ve grown our workforce very substantially since the pandemic began, our 2022 plan is to continue to recruit great people for our Residential team. Once on board, our priorities are to continuously develop the skills of our team, perpetuate our special culture of service excellence, and create new opportunities for personal growth. Automation is also important and this year we plan to automate some key processes including pre-approvals and appraisals to make it easier and faster for us to underwrite. Since the pandemic began, it’s been a challenge to achieve response time objectives in certain high-volume areas of the country despite additional resource deployments. We’re largely back to best-practice levels because of record investments but there is more to do. Our partners expect quick turnaround and it’s our job to make that happen, which we will.
What about new products for 2022?
The focus is to enhance our prime mortgage offerings since our priority in 2021 was to expand our Excalibur program. This year, we have a couple of business development projects on the go for our prime business that I think will please the broker community. It’s too early to announce the nature of these developments so stay tuned.
What about Excalibur?
After launching an Excalibur Home Equity Secured Mastercard, a Declared Income product, an Excalibur Wizard Rewards program and establishing an underwriting unit for Western Canada last year, Excalibur has really come into its own as a full-fledged growth platform for First National. We’re excited to see recent progress in Western and Eastern Canada and look to build on it in the months ahead. There is certainly a significant market for Excalibur as there is for our prime products in a housing market that continues to expand.
Are you surprised that the housing market has been so buoyant through the pandemic?
If you had asked me that question in the summer of 2020 when the economy had throttled back, I would have said yes. Today, not so much. There are a variety of drivers at play. Low interest rates are a main catalyst and it has stimulated significant demand for First National’s adjustable rate mortgages. Adding to that, we’ve had a jobs recovery, the resumption of immigration, the so-called financialization of housing – otherwise known as the purchase of properties for investment – as well as inter-generational transfer of wealth as parents contribute to down payments for children. Putting all of that together with a lack of new and resale supply and we end up where we are today with a frenzied quality to bidding, high home prices and tremendous demand for mortgages.
Are these permanent drivers?
I think you could say that some catalysts have a long tail. Canada is one of the world’s top places to settle and government policy is immigration friendly. It’s reasonable to expect wealth transfers will continue as the baby boom ages. Lack of housing supply is also not going to be solved in the near term although policymakers are on the case. The big question marks are interest rates, employment, government policy changes and the underlying purpose of housing.
What do you mean by the underlying purpose of housing?
For many Canadians, homes are no longer just places to live. Due to the pandemic, they are places of business, places of work and places to home school children. When a buyer thinks about a home in this context, they favour larger dwellings, properties with backyards and are not so committed to living in cities. We see the outcome of a work-from-home trend in demand in small outlying communities. That said, we have very recently noticed resurgent interest in downtown condos perhaps for investment purposes because they are affordable compared to single family homes. That’s an interesting development to watch. The broader question is will housing fully return to its original purpose of providing shelter or will the idea of working from home catch on permanently? When the current lockdown ends, First National is ready to bring forward a hybrid work from home/work-in-the-office approach for our team on a national basis, and perhaps other companies will as well.
Care to offer any market predictions?
As a rule, I don’t speculate. Is it possible that we will see interest rates rise this year? Yes. Is it possible that we will see the re-emergence of normal housing market seasonality that went missing in 2020? Yes. Is it possible that the federal government will introduce new policy prescriptions? Yes, and in particular there is speculation that the government will increase the mortgage insurance purchase maximum to $1.25 million and index it to inflation since it was a pledge made during the recent federal election. This will help buyers in our largest cities. Is it possible that high home prices are the new normal or is the end of the boom around the corner? No one knows. Our job at First National is to work on things we can control such as service and mortgage products and adjust, as required, to whatever changes come our way, whether they are economic or policy related.
We are about to enter year three of the pandemic. How is this playing out for First National?
Like all Canadians, we are frustrated by lockdowns and travel restrictions especially because we like the opportunity to meet in person. This month, we are holding a national Residential management meeting virtually that we had planned to hold in-person in Vancouver. It’s disappointing to pivot like this but safety comes first. That said, our team has proven that we can maintain high levels of productivity despite not being in the office and we hope and expect this will continue.
Last year, you talked about what First National could do as an encore after delivering record results. What do you say to that question in 2022?
Exactly what I said a year ago. Do our best to earn the confidence of brokers and borrowers every day through good service and good products. Our theme for this year is about owning the moment and owning the outcome, which are powerful statements of accountability to our mortgage broker partners and to ourselves. The outcome we hope to deliver in 2022 is growth: growth that benefits mortgage brokers, Canadian home buyers and our team.
Final thoughts?
On behalf of everyone at First National, I offer heartfelt thanks to mortgage brokers for your patience as we work through the challenges associated with high growth and for allowing us to serve you while always encouraging us to do better. We look forward to another tremendous year together.