“The future for the mortgage broker channel in Canada remains positive,” says Deloitte, an international consulting firm.
That’s one of dozens of conclusions in this report released Wednesday.
Deloitte’s paper included a slew of data. Here are some key takeaways (our comments in [italics]):
38%: Broker market share in 2009. [CAAMP says it’s now 25%. Among other factors, the decline is a direct result of two things: 1) banks putting more reps on the street; and, 2) banks finally realizing that low rates and market share are correlated.]
50%: Approximate share of broker business sent to Scotiabank, FirstLine, and TD [Big balance sheets let banks offer products, incentives and rates that brokers sometimes don’t get elsewhere. That, however, does not mean non-bank lenders are inferior. Quite the opposite. Non-banks provide valuable alternatives to brokers fighting bank retention strategies (TD’s for example). The competitiveness of non-banks will grow further as cheaper sources of capital become available to monolines.]
2/3: Share of brokers working for the top five brokerage firms. [Consolidation of brokerage firms seems inevitable with shrinking volumes, shrinking finder’s fees, lender volume minimums, volume-based pricing, demand by brokers for higher payouts, and intense competition for top brokers. Deloitte says “Boutique brokerages are being pushed into larger broker houses” for competitive reasons. Scale economics will take on heightened importance and strengthen this trend. Money talks, and volume is money.]
2800: Number of bank mobile mortgage reps. [Everyone knows this number will rise, putting more pressure on brokers. Brokers retain some advantages, however. The most important are objectivity and choice (because brokers know and sell multiple lender’s products). Hopefully lenders don’t get carried away with “preferred broker” lists and destroy this edge. Lenders who use top 100 lists and the like, are so excited by the “efficiencies” they create that they’re completely blinded to the effects these policies could have on the industry long-term. Unless things change, volume pooling and submission desks could become essential for brokers to compete with bank reps for “A” business.]
88%: Percentage of customers that stay with their lender at renewal. [This number is roughly 74% for broker-originated business suggests Deloitte. Where that number goes from here is a tough call. Lenders will invest more in client retention strategies because renewal business is a low-cost revenue stream (Deloitte’s graph below illustrates this nicely). Over time however, customers will increasingly scout out better deals online, which could make it tougher to retain them.]
$4.7 billion: The “funding gap” in non-prime lending “over the next five years” caused by diminished liquidity and less competition. [This gap will close with the return of non-prime securitization (which disappeared after 2007) and as more subprime lenders achieve bank status.]
55-65%: The required funding ratio for lenders to be efficient, according to Deloitte. [The Internet lends itself to rate shopping. Lenders need to understand this because cancellation ratios could rise as mortgage shoppers become more net-savvy. Clients are loyal only to a point. When an obviously better rate/product comes along elsewhere, and the originator can’t match it, they risk losing the deal. And no lender efficiency policy is going to thwart that.]
We’ll follow up with Part II of this story shortly…
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