To this guy, the best part of CAAMP’s Montreal Conference was the mortgage broker panel. Watching industry pioneers debate pivotal trends, best practices and the industry’s future reinforced what all brokers must consider when plotting their own business strategies.
This year’s group showcased a dichotomy of business models. The panel featured:
Ron Butler from Butler Mortgage and Dan Eisner from True North Mortgage
(the “discount” brokers, if you will); and,
Peter Majthenyi from Mortgage Architects, and Mathieu Lebrun from Multi-Prets Hypothèques
(the “full service” brokers).
These were the insights from each of them:
On the profit margins of prime mortgages:
Butler: “80% of this marketplace is ‘A’ lending.”
Majthenyi: “The least profit is in ‘A’ lending…A lot of lenders are looking at the ‘B’ market because they can’t survive on just ‘A’ spreads…The only way ‘A’ lenders can…create shareholder value is if they do a ton of volume…”
Majthenyi: “Mortgages are almost becoming a commodity…In my operation, we don’t sell on rate.”
Eisner: “When I first entered this industry 10 years ago…the people with origination had the power…we got more marbles than we deserved.”
Eisner: “I don’t like the terminology ‘buydown’….It sets up the wrong mentality…that we have a God-given right to make 100 basis points….When I look at our rates (at True North), we don’t have a buydown structure. We have a lower markup structure…We don’t look at Costco and say they buy down their prices…We say they have low markups. Holt Renfrew has high markups.”
Butler: “The reality is that it is a margin business…This dovetails with what the future will bring…Here’s what I know…If an 18-year-old today is going to be 28 in 10 years, when he signs those purchase agreement documents and has a firm deal, the next move he’s going to make is to say, ‘Siri, what’s the best mortgage rate in Canada?’ Siri is going to talk back and say, ‘Fixed or variable?’…We have to understand that…information about rates, products, conditions, prepayments and penalties (is going to be) extremely available to the consumer in the coming years. And if that’s true, and we base our whole value proposition on being the Sherpa that guides up the mortgage mountain of Everest…we’ve got to realize that the consumer is going to think, ‘Well, wait a minute. I know a lot about that stuff too. [Siri] told me about it.'”
Majthenyi: “I give the consumer more respect than that…I think the consumer of the future…as they become more financially literate…will see beyond the lowest rate…”
Butler: “I disagree with Peter…I don’t think the consumer is going to say, ‘What’s the best mortgage’ to Siri, and Peter’s picture is going to come up on the screen…We have to admit the truth. We as mortgage brokers don’t represent the way the consumer thinks. As Dan says all the time, the most important person is not in this room…The most important person is the consumer…When they think about mortgages, they think about rate and they think about contract provisions…We have to accept that fact.”
Lebrun: “My question is…how low can we go (when cutting prices) to sustain smart businesses?”
Eisner: “(I was asked), ‘Can you survive off of 35 basis points (of compensation)?’…What will the world look like at 35 basis points?…I can tell you one thing, there will be half as many of us in this room. But at least the other half will be doing twice as much business…So the question is…can your systems accommodate twice as much (business) at 35 basis points?”
On the Internet’s effect on the industry:
Eisner: “This Internet phenomenon is like a dam breaking in an old US town where everything floods and the only thing above the water line is the church steeple and the water tower. And everybody swims for those high buildings for safety…The Internet is the water, and if your business is not like the church steeple, you’re going to be out of business. But if you survive [the flood], you’ll have more clients than you know what to do with.”
Lebrun: “I agree that the Internet is the way of the future but…I’ve always had a vision where [brokers] are like a doctor…That’s where I’d like to keep it as long as possible, as a doctor rather than just popping on the Internet to get a rate.”
Butler: “When you go see a doctor…you go home and you Google your ailment…So if you don’t think the web is going to intersect…with what we do, you’re wrong.”
Butler: “There’s a different sort of person growing up in Canada…We cannot assume that everything will be the…same in the next 10 years as in the last 10 years.”
On advice “freeloaders”:
Eisner: “What do you do when you [give advice to a client] and they take your services and then [go get a lower rate elsewhere]?”
Majthenyi: “I’ve had that happen…I said (to one client)…’You know what? If you don’t see any value in all this time we’ve spent together and these reports I’m sending you…I respect that…I can give you this rate…but don’t start asking me about (prepayment) privileges and the fact that you can’t pay off the mortgage unless you sell…I’ll give it to my assistant Nadia and she’s going to process it for you and that’s it. We’re not going to have any conversations about the…merit of this product and what’s good for you. He said, ‘OK I agree.’…I didn’t disrespect him…I said you obviously don’t see value in that…I don’t know [the statistics] but…a very small [but growing] portion of mortgage borrowers don’t see value (in professional mortgage advice).”
On cancellation fees:
Eisner: “We have clients sign a commitment letter. Prior to, we tell them, ‘This is the rate we can get for you. If you want to shop around, be my guest, but once we hit submit we expect that you will close with us, unless you can find a better rate…because our value proposition is largely dependent on having the best rates…So we do have them sign a commitment letter with the only escape clause being if they find a better rate.”
Butler: “If we can’t deliver enough relationship over the phone or by email, [the client] is going to [go elsewhere]…We have to have a value proposition that is not exclusively rate…We have to have speed and efficiency…We have to develop some sort of rapport with the client…And at a certain point we need to have a service agreement to…give us a chance to match the rate if [the client finds] a different rate. We have to do it.”
Majthenyi: “I only do referrals. We don’t take calls from the Internet…To their (Ron and Dan’s) defense, they definitely have to have [a cancellation policy] because of the nature of the beast. My leads are from friends, family, and colleagues…So if they don’t end up going with me it’s pretty much an embarrassment [to them, because of the person who referred them]…(If they were referred by Joe then) every conversation I say…, ‘Make sure you say hi to Joe.’ So I’m programming them to remember that, ‘Joe’s expecting you to follow through with this. If you don’t, you better have a good enough reason because Joe is going to hear about it’.”
Lebrun: “When my client has come into my office he’s been wowed 3, 4 or 5 times. I create a relationship with him, I shake his hand and look him in the eye. How is that client going to [ditch] me [for 10 basis points] after that?”
Like news like this?
Join our CMT Updates list and get the latest news as it happens. Unsubscribe anytime.
Thank you for subscribing. One more step: Please confirm your subscription via the email sent to you.