The nation’s biggest credit union, Vancity, is pulling out of the mortgage broker channel.
The Vancouver-based company sent an email to notify brokers this morning. It has been in the mortgage broker channel since 1991, when it acquired Citizens Trust Company. The channel was administered through Vancity’s subsidiary, Citizens Bank, until 2007 when it was transferred directly to Vancity.
When asked why it was leaving, John Derose, Vancity’s Director of Mobile Sales, explained:
As a member-owned financial co-operative we place a high priority on building strong relationships with our members. The business we generate through our mortgage broker channel often does not allow the best opportunity to build these relationships and we want to focus on those channels that do.
We are able to make this move in large part because our mobile [sales force] capacity has grown significantly since the 1990s. Historically, people have used brokers to get mortgage support and advice at the times and locations that suit them best. Now, with our mobile capacity, we have an expert capability to do this in-house.
Finally, the industry as a whole has been moving towards greater transparency and our members and prospective members can always see our rates posted on Vancity.com. This allows people to determine the best rates without necessarily having to use a mortgage broker.
Vancity did have some success with brokers. Reportedly its Victoria, B.C. market penetration was thanks in large part to broker-originated customers.
That aside, and while it’s sad to see a big brand name leave the market, Vancity was truly a marginal player in the broker space. It has been for a long time. As of the first quarter, it was only the 27th largest lender in the channel according to D+H data, a ranking it’s been more or less stuck at for years. Vancity’s overall broker market share was a mere speck at one-tenth of one percent.
Part of that is because of service issues, say Vancouver brokers we interviewed off record for this story. The other part is price competitiveness. Its broker rates have been absolutely horrendous in the last year. Its 5-year fixed, for example, has been over 3.00% for months. Meanwhile, it’s openly advertising 2.79% on its website for the general public.
Clearly the company didn’t want much broker business and we suspect this decision was in the back of its mind for a while. “The mortgage broker channel represents less than 5% of our overall mortgage portfolio,” said Derose. “We are confident we can replace this business through our branches, our call centre and through our mobile mortgage specialists.”
Naturally, brokers have a different take.
“I think it’s regrettable for a couple of reasons,” said Paul Taylor, CEO of Mortgage Professionals Canada, the country’s main broker industry association. “For our member brokers and the growing number of consumers who choose to use a mortgage broker, Vancity will no longer be an option to consider. With the difficulties many consumers are already facing in the real estate market in Vancouver, less financing options is not a good thing.”
Taylor went on to add, “It is also a disappointing that Vancity couldn’t find a way to make their broker relationships work for them…As other new entrants to the mortgage broker channel are finding, brokers offer a great way to access portions of the marketplace that direct marketing often doesn’t reach. Their individual customer relationships also ensure product suitability when presenting options, simplifying internal underwriting and approval processes.”
One of the new entrants Taylor is referring to is Manulife Bank. The bank invested millions of dollars to enter the broker channel earlier this year, and has reportedly been pleased with its performance to date. Brokers currently account for roughly one-third of all mortgage originations in Canada.
“I hope Vancity revisits this decision soon and reconsiders its position,” Taylor added. “As broker market share grows, it’s difficult to understand why any lender wouldn’t want to be a part of it.”
Interesting comment: “mobile sales force capacity has grown” I think this will be a factor that haunts some Bank/CU broker relationships in the coming years. Financial Institutions constantly look to reduce costs and gain greater control and therefore higher cross sell with their clients. There is no doubt that broker channel profitability is constantly reviewed.
True Ron, and not just traditional commissioned mobile salesforces. Witness what CIBC is now doing with its dedicated salaried “e-Mortgage” Specialists.
They never took the time to understand our market, they were always focused on their mobile sales force…take a look at Mr. Derose’s title for example. It is a shame they didn’t take the time to actually talk to us, I have no doubt they could have found a way to make this work.
I have no doubt as well Mike. Regardless of the challenges (broker compensation, low cross-sell, etc.) there are solutions, and some solutions have not been tried yet. Lenders like Vancity might be better off leaving the channel open to maximize growth, but at the same time:
* Making it far more efficient (with select broker lists, using only inside sales BDMs, broker support via live chat, useful online portals with search functions, etc.)
* Tweaking rates and compensation and making them efficiency and trailer based
* Promoting ancillary products with special offers, in all their approval packages
* Using branch signings for better cross-sell
* Maintaining a crystal clear zero-tolerance fraud policy that refers all offenders to regulators, RedX and the authorities
* Beefing up retention
* Improving customer communications after closing.
I know brokers hate some of this stuff (branch signings, aggressive retention, etc.), but believe me, it’s better than losing a lender altogether.
This decision was taken many years ago, non competitive rates and they didnt take new brokerage firms.
Two points – “With the difficulties many consumers are already facing in the real estate market in Vancouver, less financing options is not a good thing” how is this less financing options? It’s just a different channel.
It seems like they have just made the decision based on cost. Mobile sales teams are much cheaper than brokers. Broker commissions are structurally too high in this low rate environment and if that doesn’t change then its likely we’ll see much more of this.
i don’t see the cost factor since they pay their in house mobile sales force almost the same commissions that they pay through the broker channel. in fact they provide them with much more then just the commissions to the so called mobile sales force (stationary exp. laptops, iPhone including the phone bills, gas and much more) where as we broker carry all these cost on our own. Vancity even provides office space with in their branches for the mobile sales force.
I don’t see how we brokers cost them more………