BMO’s decision to work with First National as its underwriting partner for its return to the broker channel served as an endorsement of both FN’s services and the channel as a whole.
Those were the comments First National President and CEO Jason Ellis delivered as part of the lender’s second-quarter earnings call.
As part of BMO’s announced re-entry to the broker channel starting in early 2024, the bank confirmed it would be partnering with First National to provide its underwriting and funding services.
In comments made to CMT at the time, Justin Scully, Head, BMO BrokerEdge, said they chose First National based on its “discipline” and 30-year track record of broker underwriting and servicing.
Ellis was asked about the partnership during First National’s latest earnings call.
“To the extent that BMO made the decision to outsource the activity of adjudication and fulfillment of the mortgage applications, I can’t speak to definitively,” he said. “But I imagine having been absent from the channel for a period of time and perhaps viewing the success of TD by outsourcing that activity, may have turned their mind to the idea.”
He added that First National is “thrilled” to have earned the mandate, which he called a “great endorsement for the channel, and we think it’s a great endorsement for the service we provide here at First National.”
And while Ellis said the underwriting and servicing deal will be a “2024 event,” he noted that “very, very heavy lifting has now been done.” He also confirmed that the underwriting partnership with BMO will be “very similar” to the work it provides to its two other counter-parties, TD and Manulife.
Asked if he thinks it’s just a matter of time before the other big banks make their own moves into the broker channel, Ellis said there’s no indication of that right now.
“I guess there’s always a risk of having one share diluted as more and more participants enter the market, but I right now don’t have any clear indication that the other [big banks] are on the verge of making any significant changes with respect to their view of how they access the market,” he said.
For now, he said First National’s opportunity to work alongside the big banks as a service provider is “a great diversification opportunity for revenue streams in a way to leverage our core competencies of underwriting and both servicing, which we continue to provide as a third-party service as well.”
In his prepared comments on First National’s lending portfolio, Ellis confirmed that there are currently no heightened challenges being posed by the lender’s variable-rate clients.
“The arrears rate on the adjustable rate portfolio continues to track that of the broader portfolio, with no signs of stress from higher payments presenting itself yet,” he said.
Part of the reason is because First National offers a true variable-rate mortgage, also known as an adjustable-rate, where payments automatically adjust based on changes to the prime rate, which keeps clients on their contracted amortization schedule.
He added that clients are now overwhelmingly choosing fixed-rate products, a trend being seen industry wide among new originations. First National reported that just 8% of its borrowers chose an adjustable-rate mortgage in the second quarter, down from 62% a year earlier.
“Also through the quarter, there was an unusually large number of borrowers selecting 3-year terms,” Ellis added. “I think some borrowers, perhaps advised by their brokers or on their own terms, viewed a shorter term, albeit at a higher rate, as the better strategy as they looked ahead to an earlier renewal and an opportunity to access what they viewed perhaps lower rates in the near future.”
Source: Q2 2023 earnings release
First National President and CEO Jason Ellis commented on the following topics during the company’s earnings call:
