Subconsciously, we’re programmed to think more is often better.
One example of where more is not necessarily better is with the number of lenders a broker advertises.
Brokers often quote relationships with numerous lenders. Just for the sake of illustration, we Googled “…Mortgage Broker” and examined the top five results. Here are snippets from each broker’s website:
“I will do the shopping for you with over 40 different mortgage lenders.”
“We have access to over 100 highly competitive public and private lenders…”
“…access to more than 50 lenders…”
“We deal with over 30 different mortgage lenders…”
20-100 is a pretty wide range. Why not deal with the guy who has 100?
Or better yet, why not find someone who has 200?
We’ve got 183 active Canadian lenders in our lender database. So, technically, we could say we “compare” that many lenders … but we really don’t.
If you narrow down a client’s requirements by city, term, and product type, you can quickly weed out all but a half dozen relevant lenders, or less.
Having access to 183, or 50, or 20 lenders means diddly, in and of itself. “Access” could simply mean you have the ability to pick up your phone and dial the lender’s phone number.
To a consumer hunting for a good mortgage planner, there are far better ways to screen brokers than by the number of lenders quoted on their web site.
If you’re well-qualified and comparing different brokers, you’ll be better served by knowing:
How many lenders the broker has top-tier status with (“Status” is basically special treatment that lenders bestow on their top brokers. Top-tier status at multiple key lenders gives a broker better rates and service, most of the time.)
How many lenders the broker actually knows (“Knows” means “understanding the lender’s lending guidelines, benefits and downsides”)
How many lenders the broker has actually closed a deal with (If a broker has closed just one deal with a lender in two years, there’s a higher chance he/she doesn’t know that lender’s guidelines and limitations.)
What percentage of the broker’s deals go to his/her top three lenders (If a broker sends two out of three clients to his/her top 2-3 lenders, and offers you just a so-so interest rate and so-so advice, be very suspicious.)
Does the broker quote market rates for lenders with tiered pricing (Tiered pricing is where the lender pays more for selling an above-market rate. Reputable brokers never quote above-market rates in exchange for higher pay.)
How long has the broker been in the business (Exceptions aside, there’s a strong correlation between broker tenure and knowledge. Lack of experience by a mortgage advisor can sometimes be costly for a borrower.)
What is the broker’s approval ratio (Is the broker efficient? Or does a third or more of his/her applications get declined?)
What is the broker’s typical turnaround time (If you’re time-pressed, will it take you one day or one week to get approved?)
Some of these answers may be hard to come by when interviewing different brokers, but don’t be afraid to ask anyway. Entrusting someone with your biggest debt is a major decision, so good brokers expect due diligence on the part of borrowers.
Further to the point about quoting a large number of lenders, Joe Pinheiro, Chair of CAAMP (our industry group) recently told us the following:
“We have to send a different message to consumers. Not that we have access to 30 or 40 lenders – because realistically we only work with four or five.”
It was a gutsy statement because brokers have always been largely about choice (when compared against their bank competition anyway).
But Joe underlines an important takeaway from all of this, namely: It’s not all about quantity of lenders. It’s about quality…quality of advice, mortgage features, application preparation, service throughout the mortgage process, disclosure and, of course, quality of pricing.
The fact is, very few people can really know 40+ lenders well. So, the next time you’re on a broker’s web site and read “we have access to over 100 lenders,” don’t be that impressed. A broker’s skill and value usually aren’t measured that way.