“There are lenders that are taking the brokering out of brokering” — IMBA President Albert Collu, via CMP
That line is symbolic of what’s happening in our business.
The face of mortgage brokering is changing. Lender policies meant to drive efficiencies are impairing brokers from doing their jobs.
This is no more evident than with volume minimums. More and more, lenders are electing to cut off brokers who don’t send them a minimum volume of business (such as one deal a quarter, $2.5-$5.0 million per year, etc.).
Lenders do this because they don’t want to expend limited resources on non-producing brokers. On the face of it, it makes sense. But it’s having undesirable effects.
Let’s forget about small-volume brokers for a moment, despite them being disproportionately affected by volume minimums. Let’s focus, instead, on medium-volume brokers. This is a respectable lot that does perhaps $20-$35 million a year per broker (not a small number).
As a result of volume minimums, these professionals are becoming:
Restricted from shopping as many lenders
Forced to funnel business to fewer lenders (in order to stay on their “lists”); and/or,
Forced to join superteams to aggregate volume and gain access to more lenders.
The concept of a standalone, independent mortgage broker is dying.
We can’t tell you how many brokers we know who ignore good lenders because they’re compelled to meet the status targets of their core 2-4 lenders. (Mind you, we know just as many who put their clients’ needs first when selecting a lender.)
The funny thing is, as brokers, we routinely extol the virtues of shopping 30-40+ lenders on a client’s behalf. We do this because it’s a genuine benefit that distances us from bank mortgage specialists.
This strategy will have to change for many in the industry. The fact is, lender policies (like volume minimums and status requirements) are making it harder to access and obtain competitive rates from 30-40+ lenders.
Brokers aren’t the only ones at risk from volume minimums. Lenders themselves will feel the ill effects in due time. As these short-sighted policies force brokers to join megateams, lenders will face the realities of those teams.
Superteams do huge volume but often:
Cost lenders more in volume bonus, rate discretion and perks
Demand special treatment and exceptions, which again have a cost
Employ individual agents who tax lender resources just as much as they would as standalone brokers. (The difference is, now their inefficiency is partly concealed by the overall volume of their team.)
In time, truly independent brokers will be rare birds. Lender minimums and status requirements are taking independence away.
But it doesn’t have to be like this. Opening the doors to all full-time brokers can be a sensible model.* Several lenders do it.
Certainly, lenders have to protect their margins, but there are ways to design more efficient processes so smaller brokers don’t overtax the system. Those might include:
More comprehensive and accessible guidelines – How about putting all lending guidelines online—not just some? Add keyword search capabilities so brokers can easily research policies by typing in things like “TDS” or “Beacon.” (Why more lender portals don’t have text searching is a mystery to us.) Throw in online guideline quizzes while you’re at it. Long story short: A well-designed broker website alleviates support loads and diminishes haphazard app submissions that are costly to process.
Slashing outside sales – Business development managers (BDMs) don’t need to visit small and medium brokers in 2011. It’s usually a waste of money. We did almost $30 million at one lender this year and we’ve seen the BDM twice in four years (on business trips to his city). It doesn’t make us one bit more or less likely to send that lender business. Our BDM may be 2,100 miles away in another province but he’s always accessible by phone or email. In a similar way, centralized sales desks with live online chat can service brokers from coast to coast, leaving BDMs to focus solely on key accounts.
Positive & Negative Reinforcement – If a broker has a spectacular closing ratio, reward him/her with an efficiency bonus. If a broker cancels an inordinate amount of deals, add a penalty to offset some costs. Speaking personally, we’d rather pay a lender $250 when we don’t close 3 out of 4 approved deals, than be cut off its list entirely.
Volume minimums are in fact becoming a key threat to broker market share. Too many lenders disregard that consumers rule this business, not lenders. And consumers could give a rat’s ass about lender efficiency initiatives. They’ll happily march into a branch for their mortgage if they sense brokers are not the impartial fiduciaries they claim to be. (Fortunately, most brokers still are, but they’re increasingly winding up on large teams.)
Who knows what the ultimate answer is. What we do know is that brokering will not be brokering (as we know it) 5-10 years from now.
* We intentionally used the word “full-time” when referring to brokers that lenders should deal with. That’s because this isn’t a part-time profession. Part-time brokers can’t keep up with products, rates, strategies, and policies, so they serve neither the client nor the lender well.