First National Volumes Hurt by Comp Cuts

Falling-VolumeThere are dozens of lenders fighting for mortgage brokers’ business. That gives brokers a slew of options when deciding where to send their clients.

So when a lender cuts broker compensation, that lender has to expect a drop-off in volume. Case in point is First National, the country’s biggest non-bank residential lender.

At $2.75 billion, First National’s Q4 2012 origination volume was down 6% y/y and as much as $750 million below some analysts’ expectations. That is despite market share gains resulting from FirstLine’s exit from the broker channel.

Much of that decline was due to last summer’s mortgage rule tightening, which shrunk volumes industry-wide. But in August, First National also cut broker commissions.

That finder’s fee change “may have had a bigger negative impact on Q4/12 originations than First National originally anticipated,” says RBC Dominion Securities analyst Geoffrey Kwan in a report released Tuesday.

It appears that some brokers voted on First National’s comp cuts with their <Submit> buttons (i.e., submitted deals elsewhere). The resulting volume loss likely factored into First National’s decision last month to reverse its compensation reductions. (See: MCAP & First National Sweeten Their Pots)

lending-marginsCompeting lenders, eager to improve their own margins, have closely watched the effects of broker compensation changes. The lesson, if you’re a lender, may be to slowly and quietly raise your rates a few basis points, rather than cut broker comp. Many brokers will then either: (a) not realize what happened; (b) deal with it and try to sell the higher rate, or (c) buy down those rates from their commissions to compete.

The challenge for lenders and brokers is that consumers aren’t stupid. They’ll vote by taking their business elsewhere if pricing isn’t razor sharp. In battles like these, the customer ultimately forces one party (or both) to live with thinner margins.

Rob McLister, CMT


  1. I always have and always will be a huge First National supporter… Their service is second to none. I know from reading it has become cool to bash First National on a regular basis. They are an A lender which so many brokers forget and get upset when they cannot push marginal deals through.
    There was a HUGE stink made when they cut commissions but a minor footnote when they increased their commissions back. It is pretty bad when I see emails from other lenders or here other lenders say “send us your First National declines”. Taking pot shots at another lender is not how you earn my business, nor will it ever be.

  2. I sympathize with First National from a business perspective. Margins are narrow and its caught between a rock and a hard place. When other lenders don’t follow your lead on finder’s fees, you lose millions in revenue. It made the choices it had to make.

  3. Does 5 bps make such a difference? FN is my primary lender as I find their total offer (service for me, mortgage characteristics for the client) unmatched in the industry. Also, it’s a non-bank lender, so they don’t compete with me as banks do with special deals exclusive to their branches MS. Over the long run, if we don’t support non-bank lenders, I believe we’ll be extinct, period.

  4. We actually changed to First National as our primary back in August due to our previous “favorites” inability to instruct/or close deals on time. For months it constantly made us look like amateurs to the lawyers, clients realtors, vendors. FN’s products are competitive and their service and ease of doing business (deals close on time) allowed me and my staff to process more business. Rather than worrying about 5bps, we now have the time/energy that many other lenders would suck out of our day, to find and close more deals. I already have less grey hair than I did a year ago!

  5. All the brokers singing the praises of FN after they tried to steal the turkey off the family dinner table, need their head’s examined.
    One thing that I have learned in my years in Banking is a overwhelming majority of the time, F.I.’s follow the herd and with good reason. When senior executives attend board, committee, financial management or planning meetings, the F.I. is constantly being compared to the lead competition and if you’re not busy following their lead, you need a damn good reason acceptable to your board and shareholders as to why not?
    If FN had not experienced any market share fallout, you would all be dealing with further broker commission cuts from FN and every other lender available to you, guaranteed.

  6. I don’t always agree with banker in an ivory tower, but this time all I can say is “AMEN!!”
    Brokers, we need to protect our interests. FN should have been down 50%, not 6%!! If FN got away with it……EVERYBODY ELSE WOULD FOLLOW!!

  7. Raise the rates to pay the brokers. How is this different from any other lender or bank?
    I’m disappointed after all the articles about how brokers fight for lower rates and don’t have a vested interest in any lender which is why they are better than banks. Does this article reveal the reality?

  8. Hi jmann,
    Lender strategy shouldn’t be confused with the strategy of all brokers.
    Lenders seek to maximize profits. This article discusses (with full transparency) one of many possible ways to do that, raise rates slightly vs. cut broker compensation.
    That doesn’t mean that all brokers would pass along those higher rates to consumers. Some who are loyal to the lender would. Some who use that lender for a particular niche product or service level would. But many wouldn’t.
    Some brokers would simply reduce their commission to offer their clients a better rate. Others would shift their business to a different lender with better offers.
    The mortgage advisory business is like any other. There are good fiduciaries and bad ones (predominantly good ones). Your experience as a borrower heavily relies on which you choose to do business with.

  9. It isn’t just their comp cuts, it is the fact that since FLM shut down and they got a lot of that volume they started getting a real different attitude. Our rep use to pop around and go over products and rates etc and we would support them a bit but once we switched to them our rep was GONE, we have seen our rep maybe 3 times in the last 14 months and next to nadda on anything else. Use to love em but We are going to try somewhere else soon. I am not talking about hand holding and fluffing, I would even be more specific but am not trying to get anyone in trouble but just not feeling the love that we once had.
    I hope they come back but if not….next!

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