Less Broker in Your Broker

There are lenders that are taking the brokering out of brokering” — IMBA President Albert Collu, via CMP

Navy Suit & Notebook 3That 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.

Broker-SuperteamsSuperteams 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.

Rob McLister, CMT

  1. Written with clarity & courage … and, may I add, perhaps the volume bonus should be earned and not, as it is now, mandated?

  2. Rob, Best post in a while. I think we all understand where lenders are coming from in establishing these minimums. Unfortunately as you say, these policies are not helping our channel grow.

  3. Another great post. I can not agree more that being a broker is not a part time job. Those who try to do it part time only help destroy the professions and other brokers credibility.

  4. Hey Rob,
    Again, great post. I would suggest though that this is a symptom not the disease. Lets address the ‘why’ and that is the fact that we as a channel overall are not as efficient as we should be. If we put more energy and effort into creating a more professional channel then lenders would have much less need to put the constraints on us. We have talked about the fact that in our industry we are playing the 90/10 rule of sales. This means that lenders SHOULD be reluctant to deal with the 90 that produce the 10. As you know, I believe this is where we need to focus.
    Yes, lets work with the lenders to come up with mutually beneficial solutions but I am hard pressed to push a lender to deal with everyone when statistics tell us that ‘most’ brokers aren’t that good.
    Let’s find a way to make us all better as we address these issues. That will go a long way in my opinion.

  5. Cannot stop myself from saying that this is another great post Rob. One point though, there are lot of lenders other than those who offer vol bonuses. Should keep an eye on the mix too. I feel lthat you are also saying that rate is the prime tool.

  6. Well said… and where is the Broker’s Association who should be saying this on behalf of it’s members and those we serve?

  7. I may be wrong, but I’ve always felt that we’ve never had the klout based on our numbers. Maybe it’s time to step up and brings our community closer together. Let’s face it, there SHOULD be power in numbers :)
    Nicely done Rob :)

  8. Awesome post! I cannot agree more about “More comprehensive and accessible Guidlines”.
    When i started in this business, I would have GLADLY done the research before submitting deals, but there was skeletal info. available. . .so I was forced to flounder through and waste both Lenders and my own time.
    Even now, I would very much appreciate more comprehensive info. as I deal with so many lenders, it’s hard to keep track of each one’s changes/new products.
    HOPEFULLY, there’s “powers that be” reading your post!
    Well done.

  9. You knock it out of the park every time Rob.
    Branch ‘specialists’ (insert chuckle) are growing at a rapid pace, and we are seeing branches undercutting just to get the client committed. Then they up sell 3-4 other products on average.
    I’ve only been in the business for 2 years now and have seen a huge amount of change in this time alone. The community needs to become closer as Mark pointed out.
    And I also like the upfront model of fees, no VB. Just so easy.
    Why aren’t broker portals more efficient? For one, get rid of current rates and finder fees; I get emails every day outlining this.
    I’d much rather have a kick ass browser for deals than a free golf shirt and coffee mug.
    Keep it up Rob!

  10. I like the article i just wish that greed didnt stop the growth of the small entrepreneur
    its tough out there to compete with prefered rates especially from the larger brokers who get lower rates for clients when there should be a level playing field
    hope this wakes up some of the banks
    Riz Jamal

  11. Riz, there should NOT be a level playing field! The best, brightest and biggest brokers should get the better treatment and rates as they have proven themselves!
    If you want better treatment from the lenders, grow your business and think outside the box.
    The bigger brokers will continue to dominate, and thats the way it should be!

  12. I think the issue at hand is when a new broker with no volume and no experience joins a super team and all of a sudden is getting prime rates . The team has earned those rates because of the volume and expertise the team has earned. The magic question is if that team leader is actually looking at the new brokers deals personally before they are sent out. There is a benefit to lenders to deal with experienced brokers who know what they are doing….this saves time on resources from the lender. But if the new broker is just using the teams status for rates and sending deals off on his/her own then that is where this gets non advantageos to the lender. There is no right or wrong to this argument, just my opinion on what is wrong with the current state of pooling !!

  13. Great post! I am a truly independent mortgage broker in the Atlantic region and although lender volumes frustrate me because it interferes with the best decision for the client, the real issue is lenders not accepting applications from brokers based on volume instead of funding ratios. It seems to me that by offering volume bonuses, lenders are creating a false support system, and affecting the broker’s decision in doing what is in the best interest of the client. In my opinion, the client is getting the best service when volume bonuses are not a factor, and if lenders would accept files from all professionals based on merit, not numbers!

  14. The lenders imposing volume minimums are usually the least competitive with rates and-or products. They have little to offer that you can’t get elsewhere so they try to trap brokers by forcing them to commit to specific numbers. Brokers should return the favour and boycott them all.

  15. cj,
    You’re absolutely right that big brokers will continue to dominate. You’re also right that success and large volume deserves special treatment.
    That said, it is nonetheless creating problems industry-wide. That’s because the 80% of brokers without great status and lender access have a higher probability of delivering a subpar customer experience. When customers get better results in retail channels, they talk about it to others. That impacts broker volumes and reflects poorly on all of us. It could also backfire on lenders over the long-run, as touched on above.
    We strongly maintain that it is in the best interests of the industry to develop efficient ways of dealing with low-volume brokers, who are otherwise full-time quality professionals. Cutting them off serves no positive long-term purpose whatsoever.

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