FirstLine to Shut Down

firstlineThe former No. 1 lender in the mortgage broker market is closing its doors to new business as of July 31, 2012.

This signals the end of what has been months of uncertainty about FirstLine’s fate.

In some ways, today’s news also marks a moment of truth for the broker market.

FirstLine, a division of CIBC, was put up for sale earlier this year. (See: CIBC to Sell FirstLine)

Unfortunately, despite garnering some interest from prospective buyers, a deal could not be closed. CIBC concluded that, “it is preferable to cease originations in FirstLine.”

A source familiar with the discussions told CMT:  “The buyer struggled to come to a deal that made sense” so CIBC chose to let FirstLine “die a natural death on its own.”

We hear that senior CIBC management reportedly decided not to proceed with the deal over the weekend. They apparently had a lack of confidence in FirstLine’s future earning potential (which CIBC reportedly would have got a cut of). In addition, FirstLine had relatively low wind-down and severance costs, limiting the impact of this decision.

“This is obviously a huge loss,” said Bob Ord, one of FirstLine’s founders. “FirstLine has been the staunchest broker supporter for almost 25 years.”

Ord cited questionable profitability as FirstLine’s undoing, saying debates on broker vs. retail profitability have been ongoing for years.

For its part, CIBC sent CMT some official statements clarifying its position. They said:

Today’s announcement is aligned to CIBC’s strategy to emphasize those channels where we have a greater opportunity to meet more of our clients’ needs, and refocus our mortgage activities on our CIBC branded channels moving forward.

“…It is important to note that we were selling only the origination capabilities of FirstLine – the book of business was to remain with CIBC.

CIBC/FirstLine then thanked brokers for their “strong support over the years.”

That support was indeed strong, with as many as one in three broker mortgages going to FirstLine at its peak in Q3 2008 (according to sources). Just 12 months ago, FirstLine was the top broker lender by market share.

CIBC-BankBut then, CIBC had a radical change in distribution philosophy. It began last year when management decided that it wanted “deeper relationships” with its mortgage customers. CIBC believes that will generate more cross-sales, higher net interest margins and “higher levels of client satisfaction.”

“Our FirstLine brand does not support this strategy…” CIBC told the Financial Post today.

“…The broker channel resulted in primarily single product client relationships, thin margins and lower levels of client satisfaction given the transactional nature of the relationship.”

According to two top-level industry executives we spoke with, both the finality of this all and CIBC’s decision might now make other lenders re-evaluate the economics of the broker channel. They feel that it’s too easy for brokers to qualify for volume bonus nowadays. That, plus higher funding costs (both in the financial market and internally in banks’ treasury departments), fierce pricing competition, costly broker incentives, and other factors have squeezed profitability on broker-originated deals.

Fortunately, the majority of lenders in the broker channel are profitable and aren’t going anywhere. In the last year or two we’ve also seen brand new lenders enter the space–each of which add important options for consumers who deal with brokers.

“Now more than ever, mortgage brokers provide choice and a valuable service to Canadian borrowers,” says CAAMP President Jim Murphy, and that value hasn’t changed.


Today’s news will have other outcomes as well…

For FirstLine employees:

Many (but not all) production, adjudication and product group employees have shifted (or will shift) to other roles at CIBC. Most of FirstLine’s sales staff will be let go and may receive packages as early as Tuesday, according to folks we spoke with at FirstLine.

As a side note, FirstLine BDMs were some of the finest in the business. The ones we know were highly experienced, responsive and loyal. They will likely make attractive acquisitions for competing lenders.

For FirstLine brokers:

Many will be wondering about the fate of their basisPOINTS and POINTS. These are incentives that some brokers have built up over more than a decade. We’re hearing that FirstLine will make an announcement on this by next week or sooner. The speculation is that brokers will be paid out for these points.

For existing FirstLine clients:

It will be business as usual until renewal nears. At some point before maturity, customers will be contacted by CIBC’s retention team, which CIBC has reportedly been building up. CIBC will then try to persuade FirstLine customers to renew with CIBC, likely using below-market rates as a carrot in many cases.

So far, CIBC says its retention efforts have been “getting good traction and results are tracking above internal expectations.” (i.e., greater than its 50% client retention target.)

Rob McLister, CMT

  1. While it is CIBC’s decision to shut down the brokerage side of business, it can certainly be argued that the broker business was successful, with as much as $50B, reportedly under administration.
    The true test will be to see how successful they are with client retention, with a view to more profitable business with clients generated through broker relationships.
    I am up for the challenge with competing with their staff.

  2. What becomes of Mortgage Centre? You’d think CIBC would want to sell it if it’s giving up on broker distribution.

  3. This is disappointing. As a Firstline client and strong supporter of brokered mortgages, I will most definitely not be renewing my mortgage with CIBC.
    Big banks doing what big banks do best… squeezing every last penny out of their clients. To hell with that…

  4. “Most of FirstLine’s sales staff will be let go and may receive packages as early as Tuesday, according to folks we spoke with at FirstLine.”
    No one at Firstline knows of this…did you speak with the higher echelons?? On our end we are supposed to continue migrating to CIBC. And I think they are gona need us until they figure a way to move mtgs with Life Insurance and Matrix to CIBC. Thats the last piece of the puzzle…

  5. incredibly sad news….back in the day firstline gave me a good rate while the banks tried to do a mafia-like squeeze on me…really really sad…doubt that i will shift to cibc… perhaps? and cibc already working over the firstline customers with supposedly great rates, that were immediately matched by another big bank when i did a quick check….r.i.p. firstline….you guys were great

  6. Most Firstline reps are out of work from what I heard about the conference call yesterday. Can anyone else confirm?

  7. The FLM employees getting the packages are mainly the sales team. Cibc needs servicing and production to handle existing client deals and see thru pipeline findings. Underwriters will be absorbed into Cibc and expect servicing will slowly be migrated as well.

  8. My wife and I were fortunate enough to sign a Prime -.86 with Firstline last year, literally days before the first of the moves away from variable discounts.
    Feeling fortunate to have that rate (currently 2.14) for another four years, as overpaying & annual lump sums have it disappearing fast.
    Goodbye Firstline – you will be missed.

  9. It’s a sad day. It may be a true watershed day.
    CIBC’s action of simply throwing away an $8 Billion dollar mortgage originator due to lack of profitablity may incent other lenders to say: “We will stay in the broker market but we need to reduce the compensation to stay profitable”
    I may be wrong but it with new capital requirements and ohter factors this could be the golden moment the lenders have been waitig for.

  10. One of the negatives of the Mortgage Brokers business model is that its a one trick pony. Banks, full service, one stop shopping.
    Its time Brokers partnered with other services so they can offer true service, value and convenience to their customers.

  11. CIBC is looking at short term gain for long term pain. As an employee of the bank I fully predict in less than 10 years from now (likely 5 or 6 tops) a new leadership at CIBC will say “hey, where have all our mortgage customers gone?” And, will dive headfirst back into the broker market in some other form.
    Executives are paid to change things, whether they are stupid moves or not…that is what they do.

  12. Executives are paid to grow the business and there is only one reason you voluntarily give up market share…… ITS NOT MAKING YOU ANY MONEY!

  13. So with the new changes to the mortgage rules, how am I impacted as a Firstline client? My mortgage is up in March 2013. Do I have to requalify to renew my mortgage at that time with CIBC? Is my renewal automatic? When my mortgage was approved, I qualified, but now I might not under the new rules – then what? Sell my house??? I’m really finding all of this very stressful. Why does it seem that all these new regulations hurt the little people and not put any consequences on the banks for their greed???

  14. Hey awedge,
    Your renewal with CIBC will be automatic, no requalification! Your mortgage term will stay the same and you just pick which ever rate suits you best from what they offer… An added benefit will be that you can negotiate for a lower renewal rate if the ones they offer are not attractive.
    The lender negotiation goes like this… “Online I noticed rate are 0.15% lower for most lenders than what you are offering me? How do I get you to offer me those lower rates? I heard from a friend if I apply for a credit card with you you will give me more of a discount?”

  15. Banker let me ask you this. Who makes a better expert? Someone who specializes in one subject or someone who spreads their focus in a dozen areas like a banker? If you needed a triple bypass would you go to your family doctor or specialist (cardiologist)?
    If you want the “trick” done right, go with the pony that practices that one trick over and over again.

  16. hey there awedge… this isn’t really going to impact you at all. You won’t have to requalify your mortgage with CIBC.. although if you wish to increase your mortgage or transfer your mortgage to another lender at renewal you may need to requalify.. don’t worry.. you won’t have to sell your home… please don’t be stressed out. The Firstline team will also be there to service your existing mortgage – even though we won’t be doing any more new mortgage originations…
    I am a current Firstline employee – proud and true, however I am one of those guys looking for work after the dust has settled :( Good Luck to you…
    FLM Regional Business Manager

  17. I switched my business to RBC Royal Bank and was pleasantly surprised with Frank Logreco at RBC and he was able to work with his team of specialists to get my switch in done with a great product, advice and rate.

  18. Firstline customer here, with my 5year coming up for renewal in Dec. Also quite worried about what will happen on renewal.
    I had planned to move into a HELOC or a Interest only mortgage, and now with the new rules and changes am very unsure as to what options remain for me.
    I had figured a HELOC at 80% LTV was what I was looking for. But realize that the new rules will come into place before my Dec renewal.
    Without reapplication
    -Is a heloc an available option even at 65%? Or will I have to renew into a conventional mortgage similar to what I’ve got.
    -Can I renew sooner with CIBC while 80% Heloc LTVs are still available?
    -There’s 100k between the 80% and the 65% that I could make use of to pay debt *debt held by CIBC*. The 65% number is just slightly over the current outstanding mortgage. To goto the 80% LTV heloc, will I need to reapply? Since it’s technically more than the current mortgage.
    I’ve been keenly looking forward to the renewal since I’d foolishly signed into a fixed vs a Variable and couldn’t swallow the IRD to get out at an earlier time. Now.. with the new rules and GDS/TDS, 65% LTV, I’m very stressed.

  19. Hi Worried in YOW,
    You have more options available than you may think…
    1) if you have to requalify (to add more money to you current balance) CIBC has a “relaxed” income program for refinances of exisitng CIBC brand mortgages(CIBC, Presidents Choice Financial, FirstLine) which makes qualification easier.
    2) You can still get a Line of credit up to 80% Loan to value… just that the the line of credit can only be 65% so you could renew your mortgage and get a HELOC approved up to 80% and the HELOC portion would be less than 65% so you would be fine. If you wanted the Heloc portion to be the full 65% of your equity? you could get the HELOC approved for the limit subject to mortgage pay down and then fund it on the maturity date and renew only the portion left.
    3) Rather than a HELOC at all have you considered a closed variable mortgage? There are lots of types and they are priced around 2.80% (Some have fixed payments)
    vs a HELOC at 3.50% – 4.0%.
    $550,000 Balance:
    2.80% VRM with a 30yr AM = $2550/m
    HELOC 3.5% Int. only pymnt=$1625/m
    *** If Rates rose 2%…
    The VRM payment would still be $2550/M unless you choose to increase it?
    The HELOC Interest only payment= $2550/m and the balance would still be $550,000

  20. Thank you for your reply. A few questions,
    -The current mortgage is just under 65%. If I wanted to get a 80% HELOC, would I have to reapply? Whereas if I took a 65% HELOC I’d just qualify for it on renewal?
    -with a closed variable, is the penalty 3 months or the IRD for the term.
    -I see what you mean with regards to the cost of choosing a HELOC. But what about a interest only mortgage? I’m guessing lenders will want to qualify you at the higher 5.x% rate now?
    -Does CIBC/PC offer a interest only product? at a rate comparable to a standard mortgage vs a HELOC
    -Does the relaxed income program allow for stated income? Or what differentiates it?
    -Do I have the option to move now into a new mortgage with CIBC without paying a penalty to firstline?
    Many thanks, sorry for all the questions.

  21. What will now happen to Mortgage Centre and to Home Loans Canada? Are they on choping block as well?

  22. I think HLC will be assimilated and Mortgage Centre will be jettisoned. Everything CIBC has said publicly since December suggests it will sell only through its proprietary sales force. I have a feeling Mortgage Centre will be sold by CIBC’s fiscal year end.

  23. Here we go WorriedinYOW,
    1) In all cases other than a straight renewal into a CIBC brand mortgage keeping your remaining amortization the same will require re-qualification. Even a switch from a mortgage to a HELOC at the same LTV.
    2)3 months interest Penalty only applies for a closed variable.
    3)The only type of interest only product is a HELOC. Traditional mortgages have blended repayment of principal and Interest.
    3A) Most lenders are qualifying at 5.24% (BOC Benchmark Rate) for all terms less than 5 years including variable this definately includes HELOCs…
    4)As far as I know if you specifically want interest only your are stuck with a HELOC and the rates are Prime + 0.50%-1.00%.
    5)The relaxed income pregram is exactly that… Stated income with a few conditions mainly in connection to credit and repayment.
    6)Penalties would apply to move early although CIBC just allowed Firstline clients to participate in the banks “QUICKCLOSE” product which includes cash back towards penalty’s… Not for everyone but for some it is an awesome deal.

  24. I agree entirely which is why most F.I.’s have mortgage specialists.
    F.I.’s spend big dollars researching the market. When a bank like CIBC says we have run the numbers and our research indicates that customers want one stop shopping and we find such a model highly profitable, that is simply just where the market is heading.

  25. I am thinking of rolling my debt owing on my home owners line of credit( about $70K) into my mortage and it is not due for renewal untl Nov 2013, can I do that now with first line or do I have to do it with CIBC? What are the steps I need to take for this if is even possible?

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