There will long be a demand for the valuable personal guidance of professional mortgage planners.
It’s our strong belief, however, that competition, disintermediation (direct-to-consumer models) and online mortgage information portals (which make consumers believe they don’t need one-on-one advice) will shrink broker ranks significantly over time.
For many brokerage owners, their brokerage valuations may never be higher than they are today.
The brokerage model is under threat from declining agent compensation, falling broker share, tighter agent splits and potential bank departures from the channel. One national brokerage head, who wanted to remain nameless, told us that he estimates 90% of larger brokerages are losing money.
He says, were it not for side deals with lenders on white label mortgages, and extra volume bonuses paid by lenders to brokerages, many national brokerages would be significantly underwater. (Incidentally, neither of those revenue sources are typically disclosed to agents, not that there’s anything wrong with that.)
Given this reality, two camps are forming in the brokerage space: Buyers and sellers.
The buyers are those brokerages with retained capital, meaningful volume growth, and highly efficient brokerage operations.
The sellers are those with marginal or negative cash flow, insignificant volume growth, weak brands and few sustainable competitive advantages.
“With the constant changes in our industry and the current fragmentation of the broker channel, I believe 2012 will bring substantial consolidation,” Dominion Lending Centres President, Gary Mauris, told us last week.
“We have had conversations directly with two large national brokerages about the possibilities of acquiring their organizations. DLC is interested in the acquisition of any mortgage firm, either regionally or nationally, that demonstrates value, profitability and sound management,” he said.
Mortgage Alliance president/CEO, Michael Beckette, said his firm is also open to strategic combinations. “We’d be interested in any acquisition that makes sense,” said Beckette. “We had a very successful acquisition of the Meridian network a couple of years ago and would be very interested in talking with people who have similar visions.”
Pacific Mortgage Group (parent of Mortgage Architects and Radius Financial) has also been entertaining brokerage firm acquisitions. Pacific is one of few industry players with the financial resources to pull off sizable brokerage and lender mergers (It was one of a handful of finalists to buy Resmor’s mortgage operations.)
There’s been much recent talk about who is for sale.
Verico comes up repeatedly, enough so that it sent an email to members Feb 17 denying reports that it had been sold, and calling the rumours a “negative sales tactic” by competitors. John Kelly, COO, told us yesterday: “Pigs still don’t fly…and (Verico) is not in the market to sell.”
Mortgage Centre (MCC) has also been a reported target. We’ve heard from sources we believe reliable that CIBC is open to discussing a sale of Mortgage Centre should a potential buyer have interest. A sale is by no means certain, however. CIBC has reportedly assured MCC owners, via a recent conference call, that MCC is a key part of its distribution strategy for CIBC products.
Various smaller brokerage firms have had formal or informal talks with large firms, according to multiple brokerage heads we’ve spoken with. Smaller firms are especially vulnerable because they don’t have wide agent bases to spread administration, technology and support costs.
One thing seems apparent in all this: There is power in numbers (more specifically, in volume).
Marginal competitors who can’t amass volume will not have necessary pricing and compensation leverage with lenders. That makes their agents less able to meet growing competition from banks and credit unions.
For those brokerages that are sellers, now is the time to be making deals.