Albert Collu on Marathon Mortgage

Adrian:

I'm joined today by Albert Collu, who is the CEO and president of Marathon Mortgage, which is a national mortgage lender, specifically in the residential space. Welcome to the show. And Albert, can you tell me a little bit about yourself and Marathon Mortgage?

Albert:

Yeah, it'd be my pleasure. First of all, thank you for having me. So, very condensed version. I started my career as a lender and then migrated to build my own company, which merged into a larger company in the broker channel. Subsequently, I became the presidency of some of the larger brokerages in Canada. And then eventually my last [inaudible 00:00:55], I had four or five of the major brands reporting into me. So, today, I find myself taking on Marathon Mortgage Corp, which in its most simplest form is really just... We're not a bank, but we're solely focused on mortgage lending.

Adrian:

Now, why should consumers consider a mortgage lender such as Marathon versus using their own trusted a bank or credit union?

Albert:

Yeah. It's a wonderful question. I think there's a lot of confusion out there and I think the best place to start is that sometimes consumers in the marketplace, they associate as a particular sticker on any particular entity to suggest that one is better than the other, but the reality is behind the scenes, believe it or not. Most of us in the mortgage business are selling mortgages off behind the scenes. So, even though we may have different labels, we have very little in terms of massive differences in mortgages. We might compete a little bit more on rate or the like, but by and large, it's not a matter of whether I'm comfortable with one over the other in terms of just brand recognition. It's really more about understanding how the mortgages operate behind the scenes in Canada, so borrowers can have a little bit more peace of mind.

Adrian:

Now, is there a particular value proposition that Marathon offers from a consumer's point of view?

Albert:

Absolutely. Yeah. So, for us, there's no secret about it. We need to be a high volume producer to be profitable. We are a specialized lender because we don't have all those things that one would receive from a bank. We don't have checking accounts, we don't have deposits, we don't have credit cards. So, we have to be pretty good at what we do. So, in terms of why there's an advantage to a borrower is because we're a little bit leaner and meaner, for lack of a better phrase, where we try and win, first and foremost, is catch the attention of the borrower with the rate. So, generally, Marathon's kind of known for being a rate leader in our space, but then we need to do a little bit better than that. It's one thing to insight trial from a borrower based on rate, but then we want the experience to be really solid, and that's really where we spent a lot of our time this past year is to complement the strong rate with an incredible experience for consumers.

Adrian:

Now, from a consumer's perspective, once they have their mortgage in place and they've taken possession of a home, aside from maybe changing their payment frequency or what bank account a mortgage payment comes out of, is there any other reason why someone would need to communicate or be serviced by their mortgage lender?

Albert:

Yeah, most certainly. Here's something that a lot of people overlook actually, is that most Canadians will pick a five-year term, but what doesn't get talked about enough, Adrian, is about 70% of those Canadians will actually break their mortgage around the three-year mark in that five-year term. So, when you ask, is there a reason for a consumer or a borrower to call the company that they're dealing with? Absolutely. Because sometimes there are decisions made at the borrower level without maybe some expertise or different perspective offered before they make the decision. So, by picking up the phone and calling even us and saying, "Listen. Here's where I am. I'm thinking about expanding the bag. We're putting a pool," or "we're having a kid," whatever the case is. Before anyone makes any hasty decisions, they should just call. Because with a lot of borrowers, I don't think are educated enough. I don't mean that condescendingly. I think we need to do better as an industry educating borrowers on the ramifications of just arbitrarily deciding to leave a mortgage, cancel a mortgage because there's tens of thousands of dollars exposure if it's done wrong. And by the way, when I say done wrong, it's usually done at the beginning of the mortgage. People get so fixated over getting maybe five basis points off, but they're not really understanding what that might mean three years from that date.

Adrian:

Sometimes we hear horror stories about bank penalties as it pertains to people needing to break their mortgage before the term is up because life happens. Is there an easy to understand way to explain the difference between perhaps the way that a chartered bank would charge its early break penalty versus a mono-line or mortgage lender such as Marathon? Is there a key difference?

Albert:

Yeah, that is a great question. So, there are some differences in how the... What we call the interest rate differentials calculator, just some nice acronym for basically saying, you're getting charged a penalty Mr. and Mrs. Consumer. The subtleties are sometimes... Just pick a bank without naming one. They will use your current rate versus your posted rate when they're making that calculation whereas someone like us, we will use something called the reinvestment rate, which is a little less punitive, but the reality is, it's all a smoke screen in a lot of ways because there are tens of thousands of dollars at risk when it comes to a board designed to break their mortgage midstream.

Albert:

And, I guess, to explain it very, very simplistically, is I think a lot of borrowers would be well to understand this very basic premise. Most mortgages really, regardless of where you're getting your mortgage from, are sold off. So, what I mean by that is mortgages behind the scenes have actually become incredible vehicles for investments. So, sometimes you get these big institutions, these big mutual fund companies or the like who buy into mortgages like any security. If you're saying to someone, "Look, you're going to buy this bucket of five-year mortgages." Well, the strings are very easy. The strings are generally that the investor is going to be guaranteed the interest in payments and they're going to be guaranteed a return. And that return, in the easiest form, is the interest accrued over that five-year term. And that's what we turn into fancy language of IRDs and penalties. it's just the way of saying, "Hey, you want to get out? No problem." But behind the scenes, these investors, these people who bought these mortgages, we need to make sure they get their return. That's the truth. Yeah.

Adrian:

And perhaps a great reason to use a mortgage professional when arranging mortgage financing that they can explain those things to you. Now, some consumers think that using a non-bank mortgage lender is riskier than using their own bank. How would you respond to that?

Albert:

Actually, no. I would say it's probably quite contrary. First of all, whether it's us or a bank, chances are those loans have been sold off in the way I just described. I sort of liken that question to sort of your own personal investments. Where you want to sort of spread your love, spread your diversity of your risk and your appetite, but sometimes when you need plumbing, you go to a plumber, you don't go to an electrician. And I'm not saying that banks are incapable of doing mortgages. I mean, they're brilliant at it too, but this is all we do. And this is where our center focuses. So, sometimes it's actually not a bad thing for a borrower to have a major piece of liability with one company like Marathon. And maybe their other core needs; checkings, credit cards, lines of credit, those kinds of things elsewhere.

Adrian:

Right. Why would you risk a single financial institution to have a complete stronghold on your entire financial wellbeing? Now, online mortgage brokers continue to evolve and grow primarily based on the marketing of their low rates. In your opinion, why is using a local mortgage broker still of great advantage?

Albert:

Well, I think right now it's an easy answer for me with a lot of bias, of course. Is that since November 1st, 2016, when the first wave of implementations came, it made things very, very confusing at the consumer. [inaudible 00:08:43], actually. Not even the consumer level. I would say just overall confusing for anyone to understand what's going on. So, when you have so many intricacies in a mortgage transaction... And, first of all, just understanding a rate table these days requires a skillset. Brokers are mechanics. This is their specialty. So, when you're sitting across the table from a mortgage broker, they can explain to you that yeah, you know what? You may be allured by an online broker that has a 209 rate versus maybe someone who's got a 219, but that broker can tell you over the course of that conversation, really what's at risk.

Albert:

What's it look like if you do have... As you said earlier, Adrian, life happens. What happens with... Three years from then, you have to break the mortgage. And I think I would say this to any borrower that's listening. Here's a general rule that one should think about. Get your eye off the rate. I'll give a clear example. If someone is looking at a rate and happens to be 299, and maybe the next option is 309 or even 304, most borrowers are saying, "Well, geez, you know 299 is really, really good." But on average, we're talking about $14 a month. We're talking about less than a coffee a day. So, when you get in front of a broker, he or she is going to be able to tell you really what you're getting here.

Adrian:

It's the total cost of borrowing conversation, I think, that's more critical than ever before, especially with what I would call rate teases at times because ultimately, every financial institution and funder of a mortgage does have to make a reasonable amount of profit. And they're going to make it up in one way or another.

Albert:

Well, I think without naming the bank, there has been one that has been very pronounced in the news in the last three, four months. You're seeing borrowers come to the table saying, "I had no idea it was going to cost me $27,000," which is a real number by the way, "to break my mortgage." And it comes right to the point is that if they got fixated on rate, they didn't get the proper counsel, they weren't aware of what that mortgage was actually going to mean if they broke it before their five-year term. And that's just the way it is. And then I've just... Again, in simple terms, it's not exclusively about the rate. And if most borrowers just take a step back, they'll realize that the difference from one rate to the next on an average mortgage is dollars. We're not talking about thousands. We're talking about dollars.

Adrian:

A lot of our listeners are real estate professionals. And we obviously just heard that CMHC is reverting back to its prior underwriting guidelines of 39, 44 debt service ratios, which is a welcome announcement, at least, from a consumer's point of view. Of course, Canada Guaranty and Sagen had stuck to those guidelines, but how do you think that CMHC reverting back to its prior underwriting guidelines would or could affect the current mortgage lending landscape from a lender's perspective?

Albert:

I don't think it actually changes much from our perspective, to be honest, Adrian, because Genworth... Excuse me. Sagen now and Canada Guaranty were right where they started. They never actually made massive implementations based on what happened with COVID. CMHC was the only one who did. I think what... The signal we should be getting by CMHC saying, "Look, we're going back to that 39, 44 ratios," probably declares a little bit more of a economic signal more than a policy signal for lenders. It's saying that we feel we're coming out of it. We've got things like mortgage deferrals under control, and the arrears are just fine. So, it's more of a confidence statement since we already had insurers who were sticking to their guns even prior and during COVID.

Adrian:

Usually at the end of a interview, I ask what you love about Winnipeg Real Estate, but in this case, since you're a national lender, I'm going to make it easy for you. From a lender's perspective, what do you love about, perhaps, Western Canadian real estate?

Albert:

Well, that's tougher than...

Adrian:

[crosstalk 00:12:43].

Albert:

Yeah. What do I love about it? By the way, you're talking to someone who's in the Greater Toronto Area. so, I still think that there's some beautiful homes in Western provinces in other markets that are gorgeous that are not nearly as susceptible and vulnerable to valuations like here in Toronto.

Adrian:

Yes.

Albert:

I mean, here you can't even get a sniff at a home that's even worth talking about unless you're talking about a million, million and a half. And I'm talking, that's just a static kind of nothing fancy kind of home, but when you start to go into the brand in Manitobas and you hit the Winnipegs or the greater Winnipeg, there's some gorgeous homes out there for what I still feel are realistic valuations. I just wish more of Canada was a little more normalized like that.

Adrian:

So, you must then like lending in our area.

Albert:

I most certainly do. In fact, you were asking me earlier about value propositions, one of the simplest things I can say to anyone listening is our policy is flexible. Meaning this. If an insurer, so Canada Guaranty, CMHC, or Sagen are willing to go there, so are we. And a lot of lenders for those who are listening, that's actually something that perplexes them. They're like, "Well, if CMHC's saying they're going to give us an approval, why won't a lender go?" Everyone's got their own little policies. We're just interested in getting people into homes.

Adrian:

Well, and I can attest to that. I just completed a file with your organization for a home in Flin Flon, Manitoba. And I think there's very few lenders that will go to Flin Flon, which is a loss on their part and definitely a win on Marathon's part because they're wonderful borrowers. Albert, I thank you so much for your time today.

Albert:

Thank you very much.