Rising complexity in Canada's refinance market is putting more pressure on the closing process
Canada’s refinance boom has been front and centre for mortgage brokers in recent times amid a subdued purchase market – and it’s also presenting plenty of challenges for the industry in getting refis over the line.
Higher interest rates, affordability challenges and other trends are making files more complex even as client expectations of a quick closing rise, often putting more pressure on brokers to get the deal done.
The industry has been “blessed” by a strong refinance outlook amid slowing sales – but the simplicity that once marked the refinance outlook has vanished, according to Brian Bell, vice president corporate development – international at Stewart Title Canada.
And that can make it difficult for high throughput environments, whether centralized closing centres or law firms operating at scale, to recorrect when an application goes “off the rails,” he said.
The conditions driving the complexity are well known to most industry members. A glut of mortgages has come up for renewal at much higher rates than when they were first originated, meaning plenty of borrowers are now navigating a materially different financial picture.
Last-minute complications around qualification, title, debt consolidation, or changes in borrower circumstances that were not present when the file was first submitted have become commonplace.
What’s more, the stress test, underwriting standards, and ongoing economic uncertainty driven in part by Canada-US trade tensions can also add further variables. A file that looks clean at submission might appear quite different by the time it reaches closing in the current market, and that trend doesn’t look like shifting soon.
Bell argued that the key question on the client's side is whether a borrower is receiving independent legal advice, or simply having documents processed on their behalf by a centralised closing provider.
“It comes down to: How complex is that deal?” he said. “The key difference is that in one, you have client representation that explains the legal documents and the other is you’re waiving your legal representation.”
What brokers need to keep in mind
There are several factors, according to Bell, that brokers should weigh upfront on every file: time constraints, the number and nature of parties on title, encumbrances, and whether a power of attorney is involved.
Refinances involving a title transfer require a lawyer regardless – and brokers who route those files directly to legal counsel from the outset can save significant time and effort, Bell said.
A centralized model may be entirely appropriate for brokers when a file is straightforward, with a single borrower, clean title, and no time pressure. But Bell said the question the industry appears to be working through is where exactly that line sits, and whether brokers are drawing it in the right place.
“Sometimes you actually can’t even plan for complexity. It just happens,” Bell said.
Unexpected complexity a growing trend
Whether or not a broader shift toward lawyer-led refi closings is underway, a growing argument is developing that the closing experience deserves more attention from brokers than it has traditionally received.
“The legal closing is the actual last touchpoint that you have with the customer,” Bell said. “If the legal closing blows up or is a really bad experience, that impacts your Google reviews. It impacts the referrals. It impacts a lot.”
While it goes without saying that not every file demands a lawyer-led closing across a broker’s book of business, Bell said the fact that unexpected complexity can surface at any point in a deal and is easier to manage with legal representation already in place means some brokers are drawing their own conclusions.
Whether that approach becomes the norm across the broker channel or remains the preserve of a particular tier of the market remains to be seen.
Bell, though, sees the direction of travel becoming clearer. “The evolution of the broker is really becoming that trusted advisor,” he said. “That’s the key differentiator in the marketplace.”
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