The talk of last week’s CAAMP/Mortgage Brokers Association of BC conference in Vancouver was CIBC’s potential sale of Mortgage Centre Canada (MCC), its mortgage broker franchisor.

Such a sale, if closed, would mark CIBC’s total exit from the outside broker market. It shuttered its broker lending arm, FirstLine, last year.

Industry insiders have heard for weeks that CIBC is trying to divest of MCC. But few significant details have leaked out to the masses. Here’s what we’ve been able to piece together thus far. (None of this should be considered fact unless confirmed by official sources.)

The two companies rumoured to be in the lead to buy MCC are Radius Financial (Pacific Mortgage Group) and Dominion Lending Centres. Neither company could confirm or deny their interest, which makes sense if they are (or have been) negotiating with CIBC.

The price we’re hearing is somewhere around $4 million or above. The company was reportedly put on the auction block in the spring and bids were then solicited from interested parties. But we’ve also seen information that suggests MCC was being shopped around with CIBC’s FirstLine sale back in 2012.

An MCC sale would be in keeping with CIBC’s plan to generate more profitable mortgage business through its in-house reps. It’s a strategy the bank believes will create “deeper client relationships” with its customers. Lack thereof was a main reason why CIBC abandoned FirstLine.

We’ve heard speculation that CIBC has been working to finalize terms with one bidder. If the FirstLine deal was any indication, those closing negotiations could potentially take a while.

What remains to be seen is whether the buying brokerage will be allowed to keep referring deals to CIBC. MCC franchisees are currently the only external brokers in the country who can. (Agents from Home Loans Canada, CIBC’s internal brokerage subsidiary, can also send deals to CIBC.). If we had to speculate we’d guess the answer is no, given CIBC’s clear intention to exit the broker market.

In reality, only a tiny percentage of broker business ever went to CIBC (not including FirstLine). But having the option to sell CIBC products was nonetheless an attractive edge for MCC brokers.

One thing is for certain. If/when CIBC gets rid of MCC, competing brokerages will put on a full court press to sign up as many MCC brokers as they can. We have no doubt that MCC would lose a material number of agents in that scenario.

That said, most MCC brokers won’t care that much unless the buyer adversely changes the economics of their deals. Presumably, however, the new buyer would be looking for growth by investing in MCC, and want to keep as many brokers happy as possible.

As for a purchaser’s logic in buying MCC, the added bodies would give it greater broker revenue and economies of scale. That implies greater leverage with suppliers. MCC reportedly also has advantageous contracts with industry suppliers that a buyer may be able to leverage. And if Radius were a buyer, that would drive more deals to its in-house lender.

But there will certainly be some MCC brokers looking for new homes if CIBC comes out of the fold. Some MCC brokers reportedly have an “out clause” that lets them leave if MCC ownership changes hands. We hear that one or more big franchises have already exercised such clauses in response to these developments.

As a result, MCC’s buyer may demand a provision that ties the purchase price to the number of brokers who remain.

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Sidebar: Brokerage consolidation is very much a trend and we’ll definitely hear of more sales as time goes on. Here was our take on this topic 15 months ago:
Have Brokerage Valuations Peaked?

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Rob McLister, CMT