In Canada, mortgage broker market share began at less than 1% in the 1980s, grew to 14% in the 90s, and peaked at 35% in 2006.
It has now slid to 22%, according to Yousry Bissada.
Yousry, who presented at last week’s Axiom Leadership Summit, is one of the most accomplished executives in the mortgage business. He’s held senior positions at Filogix, FirstLine, Paradigm Quest, Canadiana, and TD Canada Trust. His presentation was a fascinating overview of our industry.
Below, we’ve compiled a few of Yousry’s main points about the competition between mortgage brokers and bank mortgage specialists…
Branches were “dominant” players in the early 80s. Today they’re down to 40-50% of mortgage originations. Branch share shrank because they couldn’t provide the “convenience, service or expertise” of brokers and mortgage specialists, said Yousry.
Mortgage specialists have multiplied spectacularly, having grown from “zero to 35%” market share in just a 15-year period.
Broker share, by contrast, has fallen—for different reasons:
Several broker-centric lenders disappeared after their securitization sources (especially ABCP) dried up during the credit crisis.
Banks started seeing a flood of deposits in 2009 as people wanted a safe place to park cash. Banks chose to lend that cash more aggressively through their internal sales forces, which they heavily invested in. Banks “didn’t need the CMB as much as the little lenders,” said Yousry, and the deposit surge meant they “were able to do a lot more aggressive pricing.”
There’s a market share battle being waged between brokers and banks’ sales forces. At the moment, bank mortgage specialists are winning handily, partly because of the reasons above.
Banks are cultivating their own internal sales forces because the margins are higher than through brokers:
Cross-selling is easier – On average, bank branches cross-sell 3.4 additional products to their mortgage clients (e.g., mortgage life insurance, credit cards, RRSPs, chequing accounts, etc.). By comparison, banks are able to cross-sell broker-originated clients less than two additional products.
Renewal rates are better – The Big 5 renew about 90% of mortgages they originate internally, but only 80% of mortgages that brokers originate.
Compensation – This wasn’t in Yousry’s presentation but it’s a key point we’ll add. Lenders usually (but not necessarily always) pay brokers more per file than a mortgage specialist.
The positive news for brokers is that, despite the challenges, they’ve maintained their ability to recommend lenders independently (i.e. they’re not forced to sell only one brand of mortgage like bank staff).
Moreover, “There’s a lot of people working on [how to bring back] disciplined securitization,” said Yousry. “I think new healthier asset-backed [securities] are going to come in.”
That could motivate the creation and expansion of broker-driven lenders and have a noticeably uplifting effect on broker share.
Credits: Apart from our comments, the above information all came from Yousry Bissada’s presentation, which was sponsored by Street Capital and hosted by Axiom Mortgage. We’d like to thank Mike Cameron, President/CEO of Axiom, for graciously taping and making this presentation available to us.
Rob McLister, CMT
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