Mortgage Broker

CMB MAGAZINE cmba-achc.ca winter 2019 | 9 editorialsummary and Addison are contemplating purchasing a larger home in the next couple of years to accommodate their growing family. To inform their decision about whether to purchase a new home, the couple first want to gain a better understanding of their current spending patterns to determine whether they need to cut spending in order to save for the necessary down payment and larger mortgage. ey choose to look at the past two years' worth of transactions. In the absence of open banking, the process to gain these insights can be time-consuming. Dominique and Addison have a number of financial accounts across different providers and need to review their monthly financial transaction statements (e.g., their respective bank statements, credit card statements and investment statements), categorize their transactions, calculate their spending on these various categories of goods and services, determine how much they need to save to attain their financial goals and then determine which expenses to cut, if any, to reach those goals. With open banking, Addison and Dominique could authorize the sharing of their financial transaction data held by their financial institutions with a fintech that offers money management services. e fintech would review and consolidate their transaction history, categorize and provide insights into their spending, including the ability to set savings goals. Addison and Dominique could opt-in to the service when they choose and opt-out at any point, knowing that access to the accounts and their information are governed by clear rules and protections. Open banking offers the tantalizing opportunity to help consumers be more aware and better educated about their personal finances, but until now, practical tools have been rare, and gaining access to consumer financial data has been problematic for developers. Under the framework of open banking, however, that access might become much easier. You may have heard the term API before. An Application Programming Interface is soware that allows databases from two different systems to talk to each other, exchange meaningful information and export that data for different applications. e ability to transfer vast swaths of data between firms and analyzing it for new insights is possible today with existing technology. ere are myriad questions which should be resolved before open banking can be embraced. For example, concerns over the legal framework and the privacy concerns of consumers need to be resolved. When the bank is collecting financial data about its clients, who owns that data? Can the data be commoditized and sold by banks to third parties for big bucks? How would the process of opting in and opting out of data sharing work from a consumer privacy point of view? Who is at fault if there is a data breach and records are compromised? Furthermore, if Finance Canada was to proceed with open banking, it needs to review the law around data ownership with a view to resolving its legal ambiguity, and more importantly ensure that consumers have the power to share data with service providers on their own terms. Canadian laws need to be amended so that it is clear that customers and not financial institutions own personal financial data. Currently, there is no legal requirement compelling financial institutions to transfer data to third party API's upon the direction of the consumer. Some say that data is the new gold. High- priced data means that only big business can afford to play the game. A concentration of data in the hands of a few players would undoubtedly result in oligopolies or even monopolies controlling business and possessing the dangerous potential to manipulate consumers. e issues around Facebook's sale of data from 50 million users to Cambridge Analytica are still probably fresh in everyone's minds as we contemplate the merits of open banking. While there would certainly be privacy risks in an open banking environment, advocates for open banking tout its many benefits. Clearly open banking has the potential to empower small business by providing more automation of their banking systems. More specifically, fintech tools can better track cash flow and provide better and more efficient payment systems, affordability calculators, sales tax support services, payroll management, inventory control and myriad other financial services. In the United Kingdom, there is clear evidence that open banking has directly stimulated investment in new programs designed to enhance the individual's capacity to manage personal finances. Services have been found to be more insightful and intuitive than those previously available to consumers. ere is also an expectation of enhanced competition among the financial services firms, leading to more competitive pricing and greater transparency. Dependence on financial institutions is expected to loosen as programs enable consumers to more readily switch service providers. In addition, within the open banking landscape, consumers still require the protection of the regulated financial services sectors, such as licensed mortgage brokers, Realtors and securities advisers. In the new era of fake news and data manipulation, there is clearly an even stronger rationale than at any previous time for customers to be protected through regulation and by trusted, licensed advisers. In the mortgage origination context, the rationale for sharing borrower information has always existed. Mortgage brokers, since their emergence in the 1970s as regulated intermediaries, have provided mortgage lenders with a seemingly endless trail of information and documentation to facilitate the approval process and ensure underwriting rigour. Borrowers used to hand-deliver or fax to their brokers wads of paper representing bank statements, tax documents, contracts and the like. Now, of course, these documents are digitized and sent electronically by email or a third-party electronic conduit. Many mortgage brokers have elected to pursue a financial service business model where they manage their borrower's renewal information and dispense advice on credit repair or debt consolidation savings. Given the services already provided by brokers, open banking may not radically change the current mortgage borrower's consumer experience. ere is already a trend in the mortgage brokering industry towards the adoption of fintech, and the proliferation of fintech tools will surely make the process more efficient and accessible. Fintech is clearly a catalyst for evolution and not revolution. e Finance Department's advisory committee on open banking is expected to provide a report later this year. When it does, we'll be sure to keep you plugged in and up to speed on the latest developments.

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