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Mortgages: ‘Big Box’ Brokers vs. ‘Boutique’ Experts

By Dustan Woodhouse, Special to CMT

Law concept: Expert Advice on keyDespite industry hype surrounding rate discounter websites, the reality is that most mortgage clients still embrace a higher level of service, if it’s priced fairly.

The majority reject less service at a lower rate because, even for a skilled broker, the task of sorting through a myriad of mortgage products, policies and guidelines is daunting. The overabundance of online mortgage information only heightens demand for professional guidance. Case in point was Investors Group’s just-announced 1.99% offering. Confusion about its binding restrictions necessitated clear explanation, quantification and suitability analysis.

Given the boom of self-directed trading accounts, some cite the ‘DIY investment’ model as an inevitable trend in mortgages. Personally, I don’t think it’s a reasonable comparison. Buying stocks doesn’t require a stack of documentation with each and every purchase and sale. Nor is stock ownership a binding commitment measured in years. Nor is the amount of capital at risk comparable.

In some ways, the stock market is like a big casino and very different than real estate. If you don’t believe that, take in some of Michael Lewis’ writing. I myself used to have a self-directed RRSP because, surely, I could do it ‘better’ on my own. Let’s not discuss how that turned out. Given the room for error, it’s highly unlikely that people will choose to self-direct their largest debt.

Of course, “price-is-everything” models exist in virtually every industry. Yet, as one discounter exits that hypercompetitive space, another inevitably enters. Such is the reality of the free-market economy. In mortgages, discount brokers become entranced by the gross revenue and aggregate volume, often failing to realize what’s involved in delivering a quality product. Once these discounters find themselves living in the razor-thin ‘net dollar’world they created, the writing on the wall may differ from their expectations.

A close analogy would be 1% realty firms, or better yet, for-sale-by-owner (FSBO) services. They exist, yes, but not in a market-dominating fashion. Instead, full-service real estate companies continue to thrive, as do full-service Realtors themselves. Service, as it turns out, is always in fashion.

Distilled down, the case for individual mortgage experts is stronger than ever:

  1. Information overload is everywhere, often leading to “analysis paralysis.”
  2. A mortgage is typically a client’s largest debt, and thus his/her largest fiscal concern — ‘concern’ being the operative word.
  3. Said debt is attached to his or her largest asset, with significant equity on the line.

These reasons, among others, drive the demand for expert guidance from licensed, educated, accredited professionals. Interestingly, the majority of top-producing, full-service mortgage brokers do not heavily advertise. They’re not usually at the top of Google and they don’t focus on the interest rate. Instead, their businesses are built through word-of-mouth (warm referrals) as opposed to rate-focused Google searches.

Mortgage financing becomes more complicated with every changing federal and provincial guideline (a recent example). More than ever, clients are aware that important questions exist beyond “What’s the best rate?” IRD calculations are a prime example. Understanding and clearly articulating things like differing penalty methodologies is how good brokers shine. A reasonable and balanced explanation of collateral charge mortgages is another example.

These are two of many topics that lenders themselves provide no clear guidance on. And, while rate sites post pages of links and text on these topics, most of us prefer the assistance of a live person explaining the nuances in clear language.

Clients don’t want their lives to be ‘no-frills.‘ Most of us willingly pay a modest premium for flexibility, options, quality and, most of all, expert advice. My prediction is that consumers will continue to embrace the expert mortgage broker more firmly with each passing year. It is this professional who possesses the clearest understanding of mortgage policies, lender guidelines, market forces, risks and opportunities, which in the long run all trump the interest rate alone.

Dustan-WoodhouseDustan Woodhouse, AMP is a mortgage broker with Dominion Lending Centres Canadian Mortgage Experts in Coquitlam, B.C.