Lender Access is Sacred

One of the most touted value propositions we express as mortgage brokers is choice. Brokers can compare dozens of lenders whereby lender reps push only one brand: their own.

Having a wide array of lenders allows broker clients to enjoy more customized financing solutions. That’s important because one lender doesn’t fit all. A given bank, monoline or credit union may have punitive penalties, restrictive porting policies, poor blend and increase options and so on. Customers need choice, and our industry depends on it.

That’s why I’ve always found stats like this—from FSCO, Ontario’s broker regulator—to be surprising: Roughly one in five brokerages finance more than 50% of their mortgages with just one lender.

Now, some of this can be explained in cases where licensees must register as brokers under the Act, but essentially act as lenders. But many are just everyday brokers who choose to funnel the bulk of their mortgage volume to one supplier.

Maritz discovered a similarly eye-opening stat in 2011 when it found that 90% of the typical broker’s volume goes to just three lenders. That’s profound for an industry that promotes consumer choice.

This raises important issues:

  • Firstly, if you’re a broker who does over half your business with one lender and/or 90% of your business with three lenders, and you boast something like “We have access to more than 40 lenders” on your website, your marketing is deceptive at best.
  • It’s a sad commentary when full-time brokers are forced to route their volume mainly to 1-3 lenders in order to access competitive pricing and service. Most brokers would prefer to sell the best product and rate for each unique client, if they could. But too many can’t. They don’t have the deal flow to get those rates and products.
  • This reinforces how critical it is for lenders to embrace deal desks (a.k.a., Central underwriting hubs), so that up-and-coming brokers can access status pricing/products while ensuring lender efficiency.
  • Similarly, it underlines how vital it is that ALL brokerage networks operate professional deal hubs. It’s unbelievable that some national firms still don’t have them. Those who don’t are doing a massive disservice to their small and mid-sized broker members who are handicapped by their volumes.

One more thing on that topic. For you brokerages who run these desks, please don’t fleece your agents by pocketing the volume bonus and efficiency bonuses. Charge a flat, transparent and fair fee (e.g., 5-7 bps, minimum $100) that’s commensurate with your actual processing costs.

Lender access is sacred. Deal desks should be a service to agents, not a fat profit centre for broker networks, which already earn splits and/or franchise fees. If you superbroker owners out there want the bottom 80% of your agents to prosper, and you want to support young brokers entering the business, start thinking long-term and strategically on this issue.

Brokers may someday lose the rate war, but if we play our cards right, one battle we’ll never lose is product selection. We have to use this benefit to our advantage as an industry by helping smaller/newer brokers access more products efficiently, and with fewer volume commitments.

  1. I think Rob’s point about deal desk availability is right on the money. These facilities allow mortgage agents and brokers who do one or two deals a year with a lender, access to the lender’s products and are also good for the lenders. There are countless times I have heard lending bosses make the same comment: “even if the pull through rate is 100% it is not efficient to deal with a broker once a year” Using a deal desk makes those “one of” transactions completely efficient.

  2. As a lender, we have found that the efficiencies are low with the submission desk. The cancellation rate is fairly high and as a result we don’t get the quality of business we see from accounts who do regular business with us. When the cancellation rate is high, there isn’t much we can do. If we dealt directly with the agent we could work with them.

    Although all lenders have different philosophies on how we deal with brokers (and newer ones), we have found that by encouraging new business with a new broker who is willing to get to know your products and service isn’t necessarily a hard thing to work with – it’s working with the new brokers who are willing to put the effort in that we see the biggest ROI.

    Further, although most brokers would prefer to access competitive pricing and service from all lenders, it isn’t feasible for a lender to offer that to all of our clients. Give the already tight margins in our business, we need to choose who we offer our best rates and referral fees to and that generally goes to those brokers who give us more business with good pull through ratios.

    1. Hi Gregg,

      Thanks for the post. Some good talking points here.

      You raise the key issue, pull-through. If a deal desk isn’t maintaining high funding ratios then what’s the point? We don’t have data from all hubs and all lenders, but two of the hubs I know best get rave reviews from the lenders I’ve spoken with. (That said, I am aware of at least one desk that’s been a failure, for the reasons you mention.)

      The efficiency of a hub is largely determined by how well managed it is. Poorly managed hubs aren’t the rule, and they don’t invalidate the concept.

      Broker networks can do all sorts of things to encourage efficiency through their deal desks, including but not limited to:

      * Hiring competent underwriters who care
      * Forcing brokers to use deal templates (i.e., submit deal notes that address each of the lender’s key underwriting criteria)
      * Making up-to-date lender guidelines easily available online to hub users
      * Charging agents cancellation fees (a $100 fee would go a long way to discouraging frivilous or unthought-out applications)
      * Have a clear policy about cutting off agents who abuse the desk.

      Lenders too, should encourage performance by penalizing hubs that don’t perform.

      The bottom line is that there should be no reason a lender refuses volume from a deal desk if the efficiencies are high. I’ve heard the argument that some lenders prefer to maintain one-on-one relationships with brokers. That’s fine. Once a broker graduates from the deal desk the lender can service them directly. But quality business is quality business, and if the industry withers because access is not there, it hurts everyone in the space.

      1. Hi Rob, another couple of points about efficiency from the lender perspective:. If a lender has clear, concise and published guidelines that we brokers can refer to, the quality of their submitted deals would go up. If i know a deal won’t fit a lender, they will never see it.

        That is part of the reason a broker sends a large percentage of deals to single lenders – you need to see many declines to get a feel for the lender’s policies. And most BDMs have one email template – Just_Send_It_In.docx

        Since there are only a few TYPES of lenders (banks, monolines and private/B), I have a few of each that I deal with frequently. Unless their rates go out of market there isn’t much need to use their competition (and go through the pains of re-learning their quirks, where pain means service to the client suffers).

        All this points to deal desks being a good thing, for sure.

        1. You’re right Reed. There are only a handful of lenders out there who put all their guidelines, rate rules, staff contact info, SLAs, comp and product details online and make them easily navigable and searchable. I’ve never understood why more lenders don’t hire UX experts to create intuitive broker portals.

          When it comes to certain trickier applications (e.g., non-prime deals and those with harder exceptions) where pricing is less pivotal, I especially agree with you. It can pay to stick with lenders you know. But for the majority of ‘A’ deals, we owe it to clients to recommend the best fitting product from a wide array of broker lenders, or clearly disclose otherwise.

  3. You’re forgetting to mention the importance of relationship-building with new lenders. Brokers and agents alike find it difficult to submit deals to new lenders based on the lack of relationship that there is. Many BDM’s and underwriters do not take the time to develop new relationships with potential business partners because they are too busy or too lazy. This, in turn, delays the underwriting process and makes the “art” of closing the deal that much more difficult.

    Central underwriting desks (CUD) are great in concept, except that it adds an additional layer of processing, which wastes time. Furthermore, CUDs are not always coherent, professional, adamant on following up on time, and frankly do not care about deals as much as you do.

    I agree that “lender access is sacred” and the more viable options an agent/broker has, the better he/she can service the client’s needs. However, as you are well aware, in this industry it is mostly about Who rather than What you know. In reality, all the term sheets and special offers many lenders send out does not necessarily mean that your client will obtain that rate or product. Because when you’re in a business that’s scrutinized daily and lender guidelines are becoming more strict, all while juggling rate sensitivity and exceptional customer experience, agents/brokers are forced to stay in their comfort zones where they’re confident the deals will close.

    1. Hi LT,

      Thanks for posting. No doubt, a good working relationship with a lender smooths out inevitable bumps in underwriting and fulfillment. And hub underwriters can create those relationships as they do tens of millions with each lender.

      Interestingly, some of the lenders who embrace newer and smaller agents are re-investing in their inside sales teams. They’re providing ways, partly through technology, to create better relationships with agents who have limited volumes. This is a welcomed trend.

      Hubs aren’t perfect, and yes, they add another layer to the process. But with proper management, they work. Given the difference of extra steps and not being able to service a client’s best interests, I’d argue the former is preferable. Our market is becoming more competitive each day. Prime consumers can now size up a broker’s recommendations online — complete with rate and features comparisons — in seconds. That’s going to make brokers more accountable and necessitate comprehensive product access. If a broker’s “comfort zone” prevents him/her from recommending the optimal product, it’s going to increasingly hurt them.

  4. I find some of the reader comments interesting: “Some underwriters and BDMs are too busy or lazy” that has not been my ordinary experience. Most are busy but efficient, very few are lazy because their companies would let them go. I get the perception from an agent: “if they just paid more attention to me I could send them more deals” but that his not how the world works. Send in the deals and they will pay attention. It makes sense that there is a lack of comfort with new lenders and frankly there is a huge variance between lender underwriting styles, heck, there can sometimes be a bit of variance between underwriters at the same company but here’s the truth, if the lender offers the best deal for the client: put in the effort! Suck it up and fight through the tougher, more time consuming underwriting for the client’s sake. I would much prefer to send every single deal to one or two lenders but we send big volume to 9 different lenders because that is where the client’s needs take us.

    As for the criticism of the lending desks, I have never used one so maybe I don’t know, I have talked to lending bosses about them and they tell me they are reasonably efficient. Brokers should realize that to lenders efficiency is not just a pull through ratio, it is mostly about pull through ratio but it is many other things: how easy is it to get questions answered? Does the lender have to keep asking because the responses are erratic? How clean is the business? This effects so much: how fast the insurer approves, less write up for insurer and investor, on and on. So, as Rob points out, if a deal desk can do the right job they have to be more efficient than an agent sending his first deal to a new lender.

  5. As a lender and in a unique position because I am private label brand specific, and every major brokerage has one, we welcome the new folks and provide he same service and rates if they send us one deal a year or 100 deals a year. Every new agent needs a start and a start where they can send deals in under their own name to start building a relationship without the need to pool and send in under somebody else’s name whereby the submitting agent gets all the attention and relationship.(Note: personally I believe FSCO should stop this practice but that is another topic). Deal desks have value, not that I deal with one, however there really does have to be control around the business model and the funding ratios. Many comments have addressed some positive solutions so I won’t go there. It takes the same amount of time to underwrite a deal for the most part for a decline as it does for an approval. Just because someone can say they have an 80% funding ratio on commitments doesn’t necessarily mean they are great or efficient for that lender as they could have sent in the same amount of deals that were declined. 100 deals at 50% approval at 80% funding is 40 out of 100. If I could get every new agent to fund 4 out of 5 submissions every year I will take 10 of these agents every day of the week and save the underwriting centre 50% of their underwriting time. On the topic of sharing the wealth/business around then I have seen what happens when you put too many eggs in one basket. Firstline was a prime example where brokers who sent 75% or more of their volume to them had to make new relationships/volume deals with others when FLT left the market. Reality is most brokers will use 3-5 lenders for 90% of their volume so make sure to manage that and not get caught up in sending to just one because you made a volume commitment for the year. The next client in the door won’t be the same as the one before and may not be best suited for that same lender but you forced your hand with the commitment.

  6. Thanks for bringing this up albeit under a different title. I used to work with a hub as I’m an independent broker but one fine day they told us ( 1-4) deals to one lender a year, they are closing shop. Whereas I hear they are only catering to the biggies.
    My point is can you list the choices for small no name non franchise brokers how they can get deals funded from the IAs and TDs. Also some solutions for those who need funding under corporation names with competitive A side lenders.
    Appreciate the choices or list for both

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