Here’s part II of our coverage of CAAMP’s Broker Panel from last week.
Once again, the panel featured four mortgage pros sounding off on lenders, regulations, broker technology and more. They were…
- Ron Butler from Butler Mortgage
- Dan Eisner from True North Mortgage
- Peter Majthenyi from Mortgage Architects
- Mathieu Lebrun from Multi-Prets Hypothèques
Here’s what they had to say:
On Banks:
- Eisner: “We’ve seen prescriptive underwriting policies come out (from regulators)…and that’s really hamstrung the banks…There’s no more innovation…in product development…Pricing is the only tool for banks to grow their market share.”
- Butler: “There’s no question that banks are our frenemies…They are the source of all mortgage funding in Canada…They are the richest companies in this country…They are tremendous competitors of ours.”
On broker-channel lenders:
- Majthenyi: “Lenders are going to have to broaden their value proposition for the broker…I don’t think there’s any more space for more ‘A’ lenders.”
On selling monoline mortgages:
- Lebrun: “The way I sell monoline lenders is by focusing on the advantages. The biggest advantage is the way they charge their penalties…Banks will focus on posted rate and monoline lenders will focus on the broker rate. So when you’re 3-4 years down the road, the interest rate [differential] is much smaller with the broker rates…Also, I downplay the name on the (mortgage) contract. Even…(banks like ING) can be bought out, so the name on the contract can change…The name is not that important. It’s the contract itself that’s important.”
On lenders leaving the channel:
- Butler: “One of the principal things that mortgage brokers bring to the table is choice…Choice is value…More [lenders] is better.”
- Butler: “We have 12 different (mortgage) awards dinners in this country that lenders have to support…That’s got to be borderline crazy…We don’t need that many awards. We don’t need the past president of everything to get an award…We don’t need lenders paying for frivolous things…Wouldn’t the lender be happy to pay for an appraisal if [it] wasn’t traipsing across the country going to every crazy trade show?…If we want to do more business we have to think about where our lending partners are spending money.”
On the relevance of meeting customers face-to-face:
- Majthenyi: “To date, I haven’t had a problem (with not meeting my clients face-to-face)…The Canadian mortgage market is heavily regulated…”
- Eisner: “It’s about results…[and] what the client wants.”
- Butler: “Lenders have made a decision already about the quality of our business. That’s a fact…Every bank runs a discount investment firm where no one is ever going to see anybody…and they are good with that. So we can deliver on solid compliance.”
- Butler: “You have to ask the question, ‘Does everybody want to go to the bank and line up with their paycheque on Friday like they did 20 years ago?’ I don’t think that’s ever coming back. We can’t ignore trends. It’s foolish…When I talk to bank executives about where they get financial advice…they say, ‘I do my own investing. I do discount stock trades. I don’t go to anybody at the bank for investing advice.’ …Believe me, senior bankers are smart people; when they’re telling you that they believe in DIY…(other) smart people are going to want to investigate their own types of investments. They’re going to want to investigate their own mortgages…just like they do with a lot of other things.”
- Butler: “I’m not saying that do-it-yourself is for everyone because it’s not…There will be full-service mortgage brokers forever.”
On new regulations:
- Lebrun: “The biggest change for me, is…refinancing to 90% loan-to-value. That being taken away and cut down to 80% has sort of handcuffed us and put us in a tricky situation when clients are pushed to refinance. They stop at 80% and then they have to [borrow] on credit cards and lines of credit to finish off what they need to do, which is not good.”
- Majthenyi: “I do have some concerns about the limits to the self-employed programs and I do have some concerns that you can’t refinance a little higher, but generally speaking I embrace [Ottawa’s new mortgage regulations].”
- Butler: “The issue that concerns me the most from a regulatory perspective…is the concept of a level playing field. If we have to generate 50 or 60 pages of down payment (documentation) and trace back every $1,000 of deposit that came from another source, we’re devoting a hell of a lot of time to that — when we should be doing something else…Let’s face it, the branch just says we have it on file and we’re done. That’s it….When we are having to produce so many more documents than others are having to produce, the question becomes, what’s the client going to think about that? The consumer is going to say, my bank says I don’t need to provide any of this, why are you asking for it? And that’s a tough spot to be in. We don’t deserve to be in that spot. I’m all ready to provide the documents, I just want everyone to have to provide the documents.”
- Eisner: “Clients don’t understand down payment verification because you’re kind of like guilty before proven innocent…Clients want simplicity and this adds complexity. It’s really about educating and working with clients to manage expectations. There’s no easy way around that. We can just hope that banks aren’t too easy on them (relative to broker guidelines).”
On process and efficiency:
- Majthenyi: “In our office…every individual has a unique [responsibility] and they’re not allowed to deviate from that…It’s such a predictable process…We’re cataloguing every hour we spend on a file.”
- Majthenyi: “I spend almost 80% of my day marketing.”
Selling non-mortgage products:
- Majthenyi: “10 years from now, a mortgage broker’s office will look completely different from today…(A customer may say), ‘I don’t have money for closing costs,’ (and we’ll say), ‘Let me open you an unsecured line of credit…’ Now you’re no longer (just) a mortgage broker…I think you’ll see more operations [that sell non-mortgage products].”
- Butler: “We have to be very concerned that we’re properly licensed, properly insured and properly motivated to not assume a level of expertise that we simply have no training and education in…”
- Majthenyi: “As Wayne Gretzky said, you have to skate to where the puck is going…Because we don’t want to compete on rate, we’re going to offer more (non-mortgage) products.”
On social media:
- Majthenyi: “If you’re not doing social media and updating it regularly, you’re not in business…”
- Eisner: “Everyone needs to be on social media….That’s just the base level to play the game.”
- Lebrun: “Social media is…branding…(it’s not a) call to action.”
On broker technology:
- Butler: “We have a backbone technology system in our business that (95% of brokers use) that communicates with our lending partners. This system is a decade old and functionally hasn’t changed since it started…It’s (essentially) an electronic fax machine…The reason we can’t do anything about it is because lenders pay. And if the lenders pay, [brokers] don’t have any say in how it operates. We could be brilliant underwriters if we had better background tech. We could do more for our lending partners…We could automate efficiencies…but we’re going to have to think about paying for it.”
On overrides being paid to brokerage networks:
- Butler: “There are overrides being paid to superbrokers and networks that have nothing to do with anything but volume…So, OK, the superbroker needs money to function and the network needs money to function; that’s great…It’s probably not a lot of money. It’s probably just a few [basis points]…But…the most important people in this room are the people who push the (submit) button on a deal…Why can’t we back the money down to those folks?”
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Last modified: April 26, 2017
“There’s no more innovation…in product development…Pricing is the only tool for banks to grow their market share”, says Eisner.
Isn’t pricing one of the primary drivers of his business model?
“It’s probably just a few [basis points]…But…the most important people in this room are the people who push the (submit) button on a deal…Why can’t we back the money down to those folks?” Ron Butler
Brokerages crying about thin margins is never popular, but it’s a fact.
Victor, just a point of clarification, I was not talking about individual brokerages receiving overrides from lenders or tech or mortgage creditor insurers. I am talking about Networks and Super Brokers receiving those overrides. My point was that while these monies are likely very small in term of beeps that they start to add up when Billions in funding are aggregated and the main point being that the more is paid to the pinnacle of this business the less money there is left to pay the key players: the brokers and brokerage owners who push the submit button on deals every day. The people in the trenches dealing directly with the customer are the important people.
I am not in a position to tell lenders and tech and mortgage creditor insurers where they should put their marketing money. That is their own business. What I am able to say to the people paying the overrides: if anyone at the top of the organizations you are paying tells you they need to be paid because they influence who the broker chooses to use for the consumer; I am here to tell you that is wrong. Brokers decide what is best for the clients on their own. That is why we are here; to work with our clients and make the best choice of products for the client. No one else should be involved, just the broker and the client.
You make an important point that needs more airtime Ron. Directives from brokerages on where to send volume should never be a key consideration when a broker is selecting a lender to recommend to the customer. Suitability to the client must trump all broker-centric factors, such as compensation, “loyalty” to a lender, brokerage incentives, etc. For those who don’t believe that, ask your client for their opinion on this topic. Only when all other things are equal should these other considerations be relevant.
Regarding overrides, one point made on the panel is that brokers need better technology. One brokerage head I spoke with says it’s impossible to invest properly in technology and pass along the 1-3 bps lender overrides to originators. Can we really have it both ways? What’s your take?
“Can we really have it both ways? What’s your take? ” Robert McLister
I know the answer to that question, but it may not be the same for everyone. There is only one way to find out.
Meat and potatoes dialogue, good stuff, we need more of this type of informative sessions at CAAMP, interspersed with informative uplifting speakers and less fluff. This session had everyone’s attention.
What technology are brokers missing such that we need superbrokers to spend all this money on it?
TPrime, it is about reallocating money to where it belongs. No one is saying Superbrokers should pay for tech, The concept is: if the lenders are reallocated money going to Superbrokers to tech, we as brokers could have more products that require more back shop costs; such as monolines offering SLOC products, such as superior back shop software the speeds up auto approvals so that we get more commitments back same day, such as improved back shop tech that enhances investor / monoline integration to the point where monolines internal costs fall and the consumer ends up with better rates.
It is simple really: to grow this business we need to prioritize value to the consumer, not just in the form of rate but also product depth and speed of execution and that means looking at where every dollar is going: less awards dinners: better tech, smaller override payments: free appraisals, fewer lender sponsored “seminars and galas” and maybe we can get some free legal programs going on refinance.
I know that the math may not work out in exactly the way I am saying but to ensure mortgage brokers future success we MUST start re-allocating industry money that is not spent on the consumer and re-direct it towards the consumer.
I wonder if monolines or lenders could ever give brokers some lending limits. I’m kind of half serious, but besides auto approving certain deals, lending limits could be managed, since funders audit the supporting documents anyway. It would be interesting, if we got a chance to use our brains once again.
The thread of the discussion board, and Ron’s comments are interesting and I feel compelled to respond. Obviously I can’t speak to the policies or practices of other brands, what I can do is speak to what we here at CENTUM practice.
Since joining CENTUM in 2010 one of the things that I find most interesting is the philosophy of our parent company, the Charlwood Pacific Group. They firmly believe that our brands are the people who are on the ground, dealing with the customer, day in and day out. They also believe that our success is directly proportional to the success of each one of our franchisees, that means that if we want to grow our business we have to find ways to help our network grow.
In lender meetings we are often asked how they can drive more business from CENTUM. My response has always been the same… service – for our franchisees, their agents, and their customers.
Here at CENTUM in the very rare instance when we receive an override we do not consider this to be “money in the can”. This is the result of the hard work of our nearly 2500 agents across Canada and we believe that this money needs to be used to directly benefit the members of our family that are making a difference to Canadians. Those funds are used to directly benefit our members, by allowing us to hold events like Training, Awards, Chairman’s Circle, and other events at no cost to attend. Our national conference was $50 to attend, and that included all meals, including a black tie event for Children’s Wish, our national charity, etc. At that price point it makes it the most affordable conference in our industry.
We believe that the role of a franchisor is to build our success through the success of the franchisees, and we are committed to doing just that.
So why did I feel compelled to respond? Don’t paint us all with the same brush, because not all brands are the same.
Paul… your philosophy as a company is inspirational. It is why when I had to make the decision to stay where I was, or move to a new company , I chose CENTUM.
I remember hearing our CEO once stand up and say that we were a family owned business of family owned businesses. Not a truer word has ever been spoken. CENTUM is not just a brand that I decided to join, they are my family. When I joined you told me that there were two ways to make more money. Increase sales, cut unnecessary expenses – then you worked with me to make that all happen. I am more profitable today than I was in 7 years with my old brand, and I work less.
Interesting that the topic of fraud and the role mortgage brokers play didn’t come up. Ron you have to provide all that documentation because there is so much fraud, money laundering, and criminals in the mortgage industry. Don’t tell me your brokers didn’t know a deal is fraud. How much time did they really spend with the customer, it doesn’t take a rocket scientist to figure out when borrower are phony.
Glad to see the Duffer can take time from his criminal trial prep to comment on mortgage sites. There are a lot of issues in the mortgage industry that require over site and down payment can definitely be a means to launder money but the in the matters you are referring to: lawyers, non-registered persons pretending to be brokers, realtors and branch bankers often have higher rates of criminal behavior than mortgage brokers. At the end of the day the delinquency rate today is the same as it was 4 years ago so how important is 60 additional pages of docs to overall quality of mortgages? Hard to say.
With respect Ron… the instance of fraud in the broker channel is significantly higher than in the branch channel… why? Because very few brokers actually meet their clients. It is a well known fact that face to face meetings reduce fraud. It is not a sure fire way to eliminate fraud, but it does reduce it.
Delinquency rates are low, but that is not an indication of fraud it never has been. In fact, the instances of fraud being reported is very low because unless there is a loss, there is no value in reporting.
Fraud is much more than false title registrations, or down payment issues. It is also failure to report additional properties, inflating self employed income, “Gifted” own payment that is not truly gifted, brokers telling customers to put money in an account at least 90 days out, telling borrowers to claim that they are moving into the property so that they can get around the rental rules. This, and much much much more happens all the time with brokers… and it has been going on for years.
It has not been a big deal because arrears rates are low, but mark my words, when arrears rates go up – people will start to pay attention.
Most frauds can be pulled off whether the client meets in person or not. And fortunately, there are several things originators can do to mitigate it. When employed properly, those techniques essentially make remote mortgage origination as safe as face-to-face. (While we’re on the topic, let’s not forget that fraud is perpetrated everywhere in this industry, even in bank branches.)
I have heard this tired tale so many times before. Good Branches, Bad Brokers, surely by now people like Kevin would be tired of this foolishness. I have see underwriting rules twisted into a pretzel by branches, I have seen broker shenanigans and I have seen those brokers cut off by lenders. Let’s try trading in facts here. At Scotia just a touch over 50% of Canadian mortgage origination is from Brokers. TDCT just doubled down on Brokers with a multi-year deal with First Nat. RBC Securities has committed multiple billions to funding Monolines in 2015. Kevin, it would appear that the 3 biggest banks in this country are not as worried as you are about broker fraud. These banks have spoken loud and clear: they are putting their money on mortgage brokers.