Lender Business Opportunity

Lenders with “status” programs give preferential treatment to mortgage agents who commit to certain volume minimums or efficiency ratios. 

Status programs are increasingly becoming hurdles that mortgage agents have to jump in order to:

a)  Get the best rates; and/or,

b)  Get the best compensation; or,

c)  Do business with that lender at all.

People with considerable experience in our industry have told us that this trend will undoubtedly incentivize agents to do business with fewer lenders.  There is only so much volume to go around and agents who spread their volume among too many lenders may find themselves without status at any lender.

This raises several possible implications.  For one, brokers could someday become only marginally better than bank reps at shopping the market.  In other words, a preponderance of status programs may drive agents to push products from just a handful of lenders.

Another possible result is that agents may be forced to route their volume through “superagents.” 

Superagents aggregate volume from multiple sub-agents and maintain status with one or more key lenders.  They are often employed by an agent’s brokerage house. 

More brokerages may start encouraging their sub-agents to submit deals through superagents to gain status pricing.  That will possibly come at a cost to the sub-agent (a percentage of the agent’s commission for example).  This has been going on for a while at certain brokerages.

In any event, it’s not inconceivable that lenders may someday be left with very few status brokers apart from superagents and high-volume broker “teams.” Status programs are simply not conducive to generating future business from small or newer agents. Most younger agents, for example, don’t want to allocate volume to lenders unless they can get the most competitive rates and terms from the outset.

That leads to the next by-product of status programs: opportunity. An opportunity may someday exist for a lender to increase efficiency, cut frills, and deliver exceptional pricing to independent agents who have little status elsewhere. 

A lender who catered to underserved independents like this would probably cultivate loyalty and build a large agent-base (which would likely include some of our industry’s future volume leaders).

Of course, this lender would need to operate in a very lean and unique manner in order to be profitable.  Among other things, it might choose to:

• Brand itself as the lender for independent-minded agents
• Operate with an Internet-only business model
• Simplify products and underwriting guidelines
• Feature scaled commission tiers or cost-effective buydowns so brokers could offer rates competitive with status brokers, in lieu of full commission.
• Charge fees to offset:
• Costly cancellations
• Declines due to obvious non-qualification
• Pre-approvals
• Replace Development Managers with broker call centres and/or improved online information portals
• Implement automated document management systems like Exchange 2.0 or MCAP’s Professor Upload.
• Offer agents tools to drive new business like mortgage planning software and online sales training
• Claw back commissions for termination or defaults in the first year.
• Make brokers become “certified” in the lender’s products (perhaps through testing) to reduce support demands from agents.

Thus far, lenders’ status programs have operated under the 80/20 philosophy. (In other words, that 80% of the business is done by 20% of the agents).  As time goes on, opportunity may exist in catering to agents in the 80% category.

An analogy in the stock trading business would be E*Trade.  In 1996, while leading brokers were demanding monthly volume or account minimums for the best commissions, E*Trade automated the business and went after all traders with rock-bottom commissions.  They became the #1 Internet broker in the world as a result. 

A similar opportunity could be waiting in the mortgage industry.