TD Outsources Broker Underwriting to First National

TD-First-NationalTD Canada Trust, Canada’s fifth largest broker channel lender, needed a better underwriting and fulfillment system. But it didn’t want to build one itself. So it announced today that it’s contracting out that task to First National, the second-largest broker lender.

First National is renowned for its mortgage-processing capability. It has one of the fastest approval turnaround times in the business.

TD is just the opposite. In last year’s CMP Broker on Lenders survey TD ranked last overall. (Mind you, CMP’s rankings need a grain of salt. They also ranked TD behind several monoline lenders in “Product Range,” which is a farce).

A big factor in TD’s less-than-stellar reputation with brokers is its approval and document processing delays. They can be molasses-slow if you’re not one of TD’s biggest brokers.

But all of that is set to change, starting in January. First National is building a customized version of its phenomenal “Merlin” application-processing system to handle TD’s broker deal flow. In First National’s press release today, it added that “TD will fund all the mortgages underwritten under the agreement and retain full responsibility for underwriting guidelines, mortgage servicing and the client relationship.”

TD could have built a new system itself, but clearly decided that First National’s solution was more economical. Moreover, banks are notoriously slow in rolling out enterprise IT projects (think years), and TD truly does need process improvement now. This arrangement demonstrates TD’s “commitment to the broker channel,” as it said in an email to brokers today.

All in all, it’s a good news story. TD is an important lender for brokers. It has a wide array of mortgage products, including niche offerings available from few other lenders. Moreover, it is often competitive on rates, especially with fixed terms less than five years (albeit its buydown policy is among the worst in the business).

TD’s Achilles Heel has long been its processing times. It loses a ton of business as a result. Many brokers won’t send a deal to TD unless they have to. But outsourcing to First National should remedy that problem and, by later next year, this could lift TD’s broker market share from its current 8.1% level (that’s a first-quarter stat from D+H).

stephen-smithStephen Smith, Chairman and Chief Executive Officer of First National, said, “For First National, it provides a new source of income that we hope will grow over time…It’s a clear endorsement of our industry-leading technology…”

First National has long had a strong relationship with TD.

This news may pave the way for mortgage-processing outsourcers (like First National, Paradigm Quest and MCAP) to do similar deals with other large or mid-size financial institutions. In fact, it may even encourage a few more lenders into the broker channel if they become aware that turnkey solutions exist for processing brokered mortgages.

Rob McLister, CMT (email)

  1. This is a great move on TD’s part to allow themselves to partner with such a great service provider as First National. Most of the TD reps seemed over stressed and over worked and it was very difficult to get deals done with them. I am sure this will make TD a viable option for several mortgage brokers now that previously wrote them off and I don’t think that having another strong bank option is ever a bad thing in this industry. I applaud the relationship and look forward to seeing what it brings to the table.

  2. TD’s buy-down policy IS the worst in the business. What other lender makes you write a cheque to the client to pay for the buy-down? And 10 bps buy-down limits with no buy-downs on variable? Ridiculous.

  3. Will FN providing the same flexibility like TD is doing in underwriting deals? I am to happy to see quicker response but TD can provide exceptions that FN never do.

  4. I’m a bit confused by this. I get that TD retains its underwriting standards, decisioning, funding and broker commissions, all of that sort of thing, but this made it sound like it’s a fully-outsourced deal with First National (from your story’s headline). As I read through, it sounds more like an I.T. system deal whereby First National builds a customized version of its own system and licenses it to TD’s broker channel (seemingly called TD Broker Services), either installed on TD’s systems or cloud-based), that TD underwriters and processors login and use. Is that’s what happening or is First National staff actually handling some of the processing duties on TD’s behalf (i.e., manually scanning documents that are rejected by the automated document scanners, deal prep and commission payments to brokers)? Some clarity would be nice. :)

    Still, a good deal – and keeps TDCT in the broker space. I think they realize its value. I could, potentially, see BMO re-enter the broker space but I tend to think RBC and CIBC will stay out for quite some time. HSBC most definitely will *not* be back into the broker space – they’re likely still wounded from having to sell Invis for less than they paid and for axing their own mobile mortgage sales force in 2010. :(


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