Every time new mortgage rules take effect, changes also happen in the mortgage origination world. For example, at the beginning of May this year, the Office of the Superintendent of Financial Institutions or OSFI in Canada declared that they would increase the qualifying rate for homebuyers with a down payment of 20% or more. This new rule, which states that an uninsured mortgage’s qualifying rate is mortgage rate plus 2% or the greater of 5.25%, took effect on June 1 after all its cleared guidelines were released on May 24.
These new guidelines will have a great impact on the mortgage market. It will reduce the buying power of people putting down 20% or more for a new home. If the number of Home Equity Line of Credit or HELOC holders increased to 1.72 million last year compared to the 1.45 million in 2019, this might not be the case for 2021. Although chief economist Will Dunning of Mortgage Professionals Canada or MPC anticipated for the percentage of new homebuyers to increase to 5.5% to 6% this year compared to the usual 4.5% to 5%, this may not happen due to the possible change of borrower behavior to be brought on by the new rule.
The same change can also be said for mortgage originations among non-bank mortgage lenders, which posted record-high increases in the third quarter of 2020 as stated on Canada Mortgage and Housing Corporation or CMHC’s Residential Mortgage Industry Report. Since the start of the year, it was noted that new residential mortgages worth $54 billion were added to the portfolio of credit unions. This denoted an increase of 44% compared to the figures gathered over the same time in 2019, which was a direct result of property purchases. Even mortgage investment entities, which disclosed an 18% increase in new mortgage activity, may also feel the burn from OSFI’s move to revisit the country’s qualifying rate annually to serve the needs of the Canadian people better.
On the other hand, this might turnaround around the quality of new mortgage borrowing, which the Bank of Canada noticed to have deteriorated during the pandemic. In the bank’s 2021 Financial System Review, it was stated that newly issued mortgages with a loan-to-income or LTI ratio of above 450% hiked up by the second half of last year. Part of this increase happened in households with a high loan-to-value or LTV ratio. Based on historical analysis of mortgage loan originations, borrowers with high LTI and LTV ratios are linked to a higher risk of delays on debt payments. With the new OSFI mortgage rules, this probability might be altered as well.
Now, even with all this news and figures, you might still be asking what mortgage origination is about. While you might already have a simple grasp of what it is, you want to learn more because you want to apply for a home loan yourself or want to know how to get a mortgage loan originator license. So, below is a brief look at what it is and what you need to do to get your license.
What is Mortgage Origination for a Borrower?
This is the process you must go through to get yourself a home loan or a mortgage. With its multiple steps, the process is usually lengthy, is overseen by the Canadian Deposit Insurance Corporation or CDIC, and will usually cost you about 1% of the loan.
During the origination process, you, as a borrower, will have to submit additional documentation and financial information to your mortgage lender. These include credit card information, payment history, bank balances, and tax returns. These will be used to establish the kind of loan and the interest rate you are eligible for. Other information like a borrower’s credit report will also be looked into for loan eligibility.
So, origination includes pre-qualification and underwriting. Getting a pre-approval is the first step of this multi-step process. This is when you will meet with a loan officer, and you will provide all the information related to your income and the property for which you applied for the loan. This is when the lender will establish the kind of loan you qualify for, such as an adjustable-rate mortgage or a fixed-rate loan. The former has a fluctuating interest rate dependent on bond prices or an index, while the latter’s interest rate remains the same for the entire loan period. Hybrid loans offer interest rates for both adjustable and fixed loans, often starting with a fixed rate before eventually being converted to an adjustable-rate mortgage.
It is usually during this time when, as a borrower, you will need to complete the extensive documentation usually required for your loan application. These include W-2 forms, contracts for the sale and purchase, bank statements, or profit and loss statements if you run your own business or are self-employed. You will also need to fill out the loan application form and submit everything together. Your loan officer will then complete all the required paperwork so your loan can be processed.
What is Mortgage Origination for Someone Who Wants to Become a Mortgage Loan Originator?
If you want to become a mortgage originator yourself, you have to know that mortgage brokers and mortgage bankers are two of the most common job classifications. Although they both sound the same, there are important dissimilarities between the two. A mortgage banker is employed by either a credit union or a retail bank that provides loans during the closing of a loan application.
Meanwhile, a mortgage broker works as a middleman between different mortgage banking institutions and the borrower. The broker handles the loan application, checks income and credit information, and does much processing and underwriting. Finally, however, they hand over a loan to a lending institution to be funded at closing.
Should you want to become either of the two, you should know how to get a mortgage loan originator license. In Canada, you need to complete your province’s entry-level educational requirements before you can get your license. In addition, each of the regions in the country uses its terms in referring to mortgage brokering professionals, including salesperson, associate, agent, or sub-mortgage broker. Therefore, it would help if you also referred to your province for the proper licensing or registration information requirements.
Once you have completed your entry-level educational requirements, then you should get yourself hired. The brokerage firm or institution that hired you will help you start with the licensing or registration process. There are application forms to complete as well before you can get yourself registered or licensed as a mortgage professional.
If you are serious about your career as a mortgage loan originator, you should only start working or building your business once you have already gotten your license. Although securing a loan is a serious move that involves commitment and money, you can be sure that borrowers will trust you more if they know that you actually have a license to do your job.
So, whether you are learning about mortgage origination to become a mortgage broker yourself or get a home loan, know that the information mentioned above will help set you up for this year and beyond. The best thing to do in both cases is to do exhaustive research, so you can be more prepared to handle your next move.
For More Information, Contact:
John (Adam) Watson, CEO, CanCap Mortgage Group Inc.
Email: email@example.com Tel: 416-452-5281