Canada’s mortgage industry is evolving much faster than many imagined it would. One person who’s had a bird’s-eye view of this evolution is Gord Dahlen. Gord is a seasoned industry executive and EVP of Invis, Canada’s biggest mortgage broker by volume.
We had an interesting chat with Gord recently and he offered some rather candid insights into the mortgage brokerage business. Gord was kind enough to share those perspectives here.
Topic #1: Private Label Mortgages…
Most of Canada’s big brokerages have rolled out, or are considering rolling out, their own line of mortgages. We began by asking Gord about Invis’s new products.
Invis rolled out its private label products a few months ago. Gord said the impetus was internal demand from Invis brokers and the branding benefits of having one’s own product line. He was forthright in saying that it was largely about “having to come to the party,” meaning: offering something that goes head-to-head with competitor’s private-label offerings. Gord says a big benefit to private label mortgages is the fact that they diminish the argument over who has the right to the customer over the life of the mortgage.
The products themselves are underwritten by Paradigm Quest Inc. (which works with capital market partners, including Merix Financial, to arrange product funding), and are backed by Invis’s own in-house product specialists. Invis selected Paradigm after extensive discussions with three different suppliers.
The new products are sold under two brand names: The “Vantage Mortgage” (Invis’s version); and the “Intelligent Mortgage” (the version for Invis’s subsidiary, Mortgage Intelligence [MI]).
Both products are virtually identical feature-wise and serviced by the same back office. Product options include a 1- to 10-year fixed mortgage, a variable-rate mortgage, a “combo” mortgage (50% fixed and 50% variable), and a “no frills” 5-year fixed mortgage.
It’s interesting to note that MI has been in the private label game before. It was the first brokerage to offer white label products on a national basis when its “i-mortgage” line of products was introduced in 2001. “In its prime, that was a formidable line-up,” Gord says. i-Mortgages were key to MI’s growth until the credit crunch forced its parent, GMAC, to shelve them.
Invis also launched its own line of products, called Market Direct mortgages, five years ago. The main obstacle to these products were “pricing and limited lending areas,” says Gord. These were limits imposed by Invis’s supplier at the time.
Gord was quite frank and readily conceded that “we are in a commoditized industry.” For that reason, Invis’s new product line is “broadly comparable to other offerings in the marketplace,” he said. Although the pricing, he added, is among the best anywhere. (As of this writing, Invis’s 3-year variable rate is prime + 0.15% and the 5-year no-frills fixed mortgage is at 4.09%.).
Topic #2: Commoditization…
Further to the topic of commoditization, Gord says that very few lenders are currently able to come out with new and innovative mortgages.
“This has been a side effect of the difficulties of securitizing mortgages in a post-credit-crisis environment,” he said. As a result, Invis has been focusing more on service as a key differentiator, than unique products. “But we’re always keeping our eyes open for new opportunities as the market recovers from the credit crunch,” he adds.
Topic #3: Broker Differentiation…
We asked Gord what brokers should do to differentiate themselves from the 10,000+ other brokers out there. The first thing he stressed was the importance of client relationship management (CRM).
Mining one’s client database, following up with referral sources, and keeping in regular touch with customers are some of the key benefits of a good CRM system.
Gord also believes that specialization is essential. “You need to be very good with financial planners, or Realtors, or accountants, or whatever your sandbox may be,” he said. “A lot of the 10,000 brokers just hunt and don’t farm. We’re about to push a lot of our brands into farming.” (“Farming,” essentially means cultivating referral sources.)
Another competitive edge is using our mortgage expertise to provide value-added advice. “People can compare rates very easily” on their own, he says, but they cannot structure difficult applications on their own. Nor can most consumers perform the complex mathematical analysis necessary to assist with term selection, prepayment analysis, amortization comparisons, etc. In coming months, Invis will be focusing specifically on technology in these areas.
Topic #4: Rate competition…
“The best brokers generally don’t have the lowest rates,” Gord notes. “They don’t go right to the floor.”
Instead, he says, the best brokers focus on being competitive rate-wise, while putting their real energies into improving advice and service.
“If you’re a broker and you want to compare your rates on the Internet, it’s a slippery slope. New entrants will push low rates because they have nothing else to offer.”
Experience and long-range advice offset small rate differences, Gord feels. As an example, he asks: “If “Lender A” has the lowest rate, do you understand the implications of that?” In other words, if you put someone in a product and don’t know its limitations, you’re not doing the client a service, regardless of the rate.
“Customers come back and refer you to their friends and family because they felt you helped them through a stressful process, not because you got the lowest rate,” he believes.
Topic #5: Where lenders are focusing…
Gord says, “Lender partners are going to talk a lot more about churning and early repayment. As brokers, we need to understand how lenders price mortgages, and why. Investors will want to know the money is ‘in the pool’ for a longer period of time.”
As time goes on, Gord says “Investors will offer lower rates and lock you in for longer in return.”
Interestingly, Gord doesn’t see pre-approvals going the way of the dinosaur as some have speculated.
“My best guess is that it will cycle back. I don’t see pre-approval concerns being an ongoing dynamic,” he told us.
Topic #6: Lender relationships with brokerage firms…
Lenders’ growing fixation on closing ratios and other broker metrics may be here to stay. “It is going to impact brokers,” Gord says. Brokerage firms will need to operate in more of a “partnership.” Industry participants who “don’t care to understand lender needs” will have a tough time, he feels.
Gord also expects two other changes down the road. “Alliances are coming and profitability sharing is coming,” he predicts. “Natural alliances will form and there could be fewer small players.”
Various brokers have “unofficially been using super agents to submit deals” on behalf of individual agents. That will likely continue and possibly evolve into lenders working with designated submission agents at each firm.
“Lenders cannot efficiently deal with 15,000 brokers,” says Gord. Th
is is an area where he believes Invis can add value for its agents. “To make sure our folks are not cut off, we can vet the deal before submission.”
“If you’re a little broker on your own, you could be facing difficulties based on the way lenders are headed today,” he said. “You can only serve so many masters.” Lenders are establishing a variety of metrics to track the quality of broker relationships, as well as the quantity. This is where choosing to work at an aggregator can be a disadvantage for agents, Gord feels. (An aggregator is a brokerage that charges very little split to agents, offers few services, and tries mainly to ‘aggregate’ volume.)
“Aggregators don’t have much structure” and don’t have the revenue to support value-added programs, he says. “Aggregators were born 4-5 years ago to generate volume bonuses based on firm-wide volume.” But now, he says, “VB is disappearing.”
Topic #7: Lender status programs and conflicts of interest…
Lender status programs are a hot topic in the industry. The debate centers over whether the urge to meet lender volume requirements compels some brokers to favour certain lenders and overlook lenders with better offerings.
When asked whether lender status programs create conflicts for brokers, Gord’s reply was point blank: “Absolutely.”
“We have to be very careful that we act as mortgage brokers who offer our customers a wide range of choices,” he says.
“Once we are certain we have given the customer the right array of product choices, only then should our compensation (including status, points and basis points) be a factor in lender choice.”
“Lenders and brokers need to cooperate in this area for the benefit of the entire channel,” he says. “For their part, lenders can work to ensure that as many brokers as possible can access their product line-ups. Brokers should ensure that they are earning the right to access programs by submitting high-quality applications and being ever mindful of their closing ratios.”
Topic #8: The need to study non-broker lenders…
Gord feels it’s important to follow what competitors are doing outside of the broker channel. If you don’t, “You can’t properly advise clients,” he says.
In turn, he says, agents “have to be better” at comparing products outside of the broker channel. “It is important. A good broker will know the rates and policies of outside lenders…the top practitioners all do.”
Invis and its Mortgage Intelligence subsidiary comprise Canada’s #1 broker group by volume. The firms’ mortgage brands are among Canada’s most recognized, and together they have over 1,600 agents across the country.
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