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Talking With John Webster

Scotia Mortgage Authority (SMA) is the broker division of Scotiabank, and it currently originates more than 50% of Scotiabank’s residential mortgages.

Last week, SMA became the top-volume lender in the broker channel, based on Davis + Henderson’s first-half 2010 origination statistics. It’s the first time SMA has achieved this ranking on a year-to-date basis.

John-Webster-Scotiabank-Scotia-Mortgage-Authority The company is obviously doing something pretty well to attract the business it has. To find out what, we connected with John Webster, President/CEO, Scotia Mortgage Authority. John is an interesting individual to talk with because he truly knows the business inside out. He was kind enough to share his perspectives below…


On the strategy SMA is using to build its volumes:

We have a tiered model based on the amount of business that you do with us. It’s a little counter intuitive to a number of people in the industry because we don’t attempt to deal with everyone. We pick and choose who we deal with. We have a value proposition and a broker scorecard and basically look to establish business with partners that will make us more efficient, so we can make them more efficient…and do more business.

When we started, our top 20% of brokers gave us 80% of our business. Today it’s a little less than 80/20….maybe 75/25. We are constantly reviewing our pool of brokers and trying to move them up the value chain.

On the benefits granted to SMA status brokers:

At the top tier you get a dedicated underwriter who is limited to a certain number of brokers who live in that underwriter’s community. As dollar volumes go up, brokers become eligible for this service. These Broker Relationship Managers (BRMs) average 17-20 years experience and handle the deal from end to end. It provides more efficient turnaround because if you need something on a file, there is only one person to call. High-performance brokers like that.

On the growth potential of SMA’s model:

I don’t know of anyone who has adopted the same kind of model. Some of our competitors use an underwriting “pods” system. Most lenders think the BRM model is not scalable but, the model we have in place now we had back with Maple Trust, and we’ve expanded it considerably.

On how SMA’s strategy differs in other ways:

We are constantly reviewing brokers to measure deals sent, deals fulfilled, and delinquencies. SMA doesn’t pay volume bonus on a firm basis. We pay based on individual broker performance. We only reward those who meet the business’s objectives. We also have a scorecard to incentivize brokerage house as well.

On how SMA can operate side-by-side with Scotia’s own branches:

We’ve tried hard to make sure there’s a level playing field across the institution. There is no advantage to how the pricing is set, whether you’re a broker or part of Scotia’s sales force. Regardless of how the deal is originated, we want to make sure that every customer is treated equally.

On SMA’s competitiveness in the rate market:

I’ve long said that you have to compete on the price but you win on the service. If you’re giving the best possible service you want to know the deal will get done. There’s always someone with a particular rate offering. If you’re interested in that kind of relationship then we’re not interested in you. We want true partners.

On SMA’s commitment to the broker channel:

Scotiabank has been extremely committed to the broker channel. In the past year we’ve invested very heavily in the channel when other banks were questioning it. Our outlay on systems and support has been considerable since Scotiabank first signed its commitment to purchase Maple Trust in 2006.

Going forward, the consumer will dictate how lenders will respond to brokers. Consumers want convenience, a well informed advisor, and lots of choices. It’s the biggest financial transaction most people will make in their life. They want the comfort of speaking to a professional, and brokers provide a great level of knowledge and service.

On whether today is a better or worse time to be a broker than three years ago:

That depends on the broker. Three years ago it looked like the broker market was going to be the best market ever. Even after liquidity crisis, brokers have had a good rebound, despite all the doom.

On the importance of banks to a broker:

I think it’s crucial to have close relationships with banks, and preferably more than one. In fact, most successful brokers don’t limit themselves to one bank.

Ultimately most mortgage funding ends up getting done with a bank involved. In the wholesale market, the participation of major banks is key in providing funding or in providing facilities for other non-banks to participate. The CMB market, for example, can’t function without overwhelming participation of the banks. Simply put, brokers would not be able to operate without banks.

On non-bank lenders’ ability compete in today’s market by relying on Canada Mortgage Bonds as a funding source, versus a balance sheet:

The CMB market provides an important source of funding (for non-banks), but it is not the totality of funding. CMBs won’t be enough for a lender to rely on.

On the future of covered bonds as a key mortgage funding source:

The challenge for covered bonds is not in selling the Canadian credit story. It sells itself. The challenge is that people don’t want them denominated in Canadian dollars.

On the profitability of branch mortgages versus broker mortgages:

It’s not about making money on the mortgage. It’s the ability to cross-sell the customer. Like brokers, proprietary sales forces don’t necessarily require bricks and mortar. Banks should be making about the same on the mortgage itself regardless of how it is originated. The question then, is how successful is the lender in selling the customer after funding?

On retention departments competing with brokers:

Every lender, whether it’s First National, Scotiabank, or ING believes they own the customer and wants them on renewal. The question becomes: How much of a real issue is that? How much of a conflict is that? I don’t believe anyone ‘owns’ the customer. The customer owns the customer. If they have a greater confidence in the broker, they’ll go back to the broker at renewal.

On the effect of the Internet on mortgage origination:

I think it’s had a huge impact with people doing research, but not much impact with people fulfilling the transaction on it. They still want to talk with a professional to get some comfort and fulfill the transaction. This may change as people become more literate and comfortable with online technology.

On broker market share versus the banks in the coming two years:

I think broker share will go up, but I wouldn’t be surprised if it didn’t go up at the same rate as it has in the past.

On lenders reaction to falling home prices:

As a lender, whenever you read in the paper that there’s going to be a 14% drop in home prices, you’re going to be concerned. As prices decline lenders look more closely at comparables. Lenders won’t rely on recent history of sale prices as much. I think we’ll see lenders paying more attentio
n to that in coming months, but the prospects for major urban centers look good. Unless we change immigration policies we’ll still have sufficient demand, so I don’t expect major price declines.

On the level of risk lenders are taking today versus before the credit crisis:

I think the risk taking is fairly close to what it was, but there’s more tension around it now. There’s heightened awareness of risk because of what happened in the US, but I don’t think underwriting has changed a whole lot. Insurers have adjusted policies a bit but consumers and credit quality are similar today as they were in 2007. Consumers are very cognizant of how much debt they can comfortably take on.


Scotia-Mortgage-Authority Background: Scotia Mortgage Authority (SMA) launched in November 2008, as a combination of Scotia Express Service and Maple Trust. Scotiabank acquired Maple Trust on Feb. 14, 2006, which effectively doubled its mortgage originations through the broker channel. In 22 months SMA has become the #1 broker-channel lender by volume.

Photocredit: CAAMP