Lenders Demand Cheaper Connectivity

Network FBLenders pay a toll to get applications from mortgage brokers. The long-established toll keepers are D+H and Marlborough Stirling. These two technology companies get a slice of every deal lenders receive through their online platforms.

But lenders are growing weary of this expense, which is reportedly as much as 5-6 basis points per funded mortgage in the case of D+H (i.e., up to $180 on a $300,000 mortgage). Lenders resent having to pay more for bigger deals when D+H’s processing costs are much the same regardless of deal size. So they’re taking matters into their own hands.

The talk out there is that a consortium of lenders is making a play for Marlborough Stirling’s MorWeb platform. The MorWeb business is rumoured to have been hemorrhaging cash. Its parent, Capita plc, has reportedly been running a process to find a buyer for weeks now, as MorWeb clings on to just 5-9% market share (our best estimate). If lenders are successful in buying MorWeb, their connectivity costs could drop by 50%.

But lenders may have competition for MorWeb. Word is, Dominion Lending Centres and a few other broker networks have been separately eyeing the company. With DLC controlling roughly 40% of broker market volume, it could make MorWeb viable overnight by cutting lenders’ costs (relative to D+H), pumping $30+ billion in volume through the system and charging its own access fees.

If the MorWeb transaction doesn’t pan out, lenders seem open to cutting deals with Canada’s largest superbrokers for direct access. Lenders would then invest some of their D+H savings back into the brokerages (perhaps 1 bp a deal, or a small flat amount per mortgage). That could fund new technology and marketing initiatives for broker firms, among other things.

Case in point is a firm like Mortgage Alliance. It’s decided to build its own direct channels to lenders. Just today it announced a link to First National, Canada’s largest non-bank lender. Last month it hooked in to Paradigm Quest and its brands Merix and Lendwise.

It’s Been a Long Time Coming

Most monopolies don’t last. D+H might have avoided his fate had it restructured its pricing and built in value that end-users (brokers) crave. Brokers have long been underwhelmed by Expert’s functionality, as this sample ILMB Facebook post conveys:



D+H could have broadly released tools like online application APIs (accessible to tech-savvy broker-owners, not just superbrokers), better links to third-party CRM systems, a native CRM system, a slick mobile app with document imaging (it demo’d this a few years back…where did it go?), secure email document sharing and so on. That might have instilled broker loyalty.

Instead, it’s seemingly opted to milk its cash cow — and despite all of its well-drafted lender contracts, that could cost it long-term.

Here’s to hoping that D+H surprises everyone with innovation at this weekend’s MPC conference in Vancouver. 

  1. Fully agree. I’m a 20 year veteran of the software industry and Filogix is an old and outdated piece of spaghetti code. It’s slow the user interface is horrendous and has obviously been perfumed to hide it’s ancient roots.

    So much more could be done to improve functionality and features but it just doesn’t seem to happen. It’s pretty typical for industry specific software though – why improve or invest when you own the market? Here’s hoping an industry player takes action on this.

    1. The market competes away monopoly profits whenever and however it can. Monopolists should always be looking over their shoulder if they want to continue owing their market.

  2. More great insider reporting and analysis from Rob.

    We know D&H Expert will eventually change, be sold or disappear. The bps per deal system just makes no sense today. That being said this is a sad example of missed opportunity. In a perfect world an entity would come into our space offering low cost or no cost connectivity to all the lenders paid for by BROKERS so we could all have our own say about add-ons, tools and all other features that Rob outlines.

    When we have super brokers and networks building or buying the connectivity individually it is reasonable to assume that connectivity will act as more leverage to require a broker to belong to one of those networks or super brokers. Don’t get me wrong, D&H made a decision long ago to let Expert whither away but we all may not all be totally pleased with what ends up taking its place.

    As a side note DH corporately has been in the news recently as their quarterly profit has tumbled and their dividend took a sizable cut. While Expert is a very small part of their business clearly things are taking a hit on many fronts.

  3. It gets worse. What lenders really hate is that the DH fees have gone way up as house prices and AVG mortgage amounts have risen in lockstep. Why is a deal costing so much more today, on the same system that was used 8 years ago.

    Lenders need to band together and support a change. Better technology is needed by brokers to compete – and so this would help lenders ensure the broker channel remains customer-expectation competitive AND cost competitive.

    Monolines come to mind

  4. So at 90 billion per annum in loan volume. Whats that amount to – about $45 million dollars each year paid for technology. Multiply that by 10 years and thats 450 million dollars spent on technology in the broker channel alone in the last decade alone. A decade thats seen huge advances and changes in technology from mobile to social media to online shopping.

    And expert isnt even mobile, isnt social media, isnt crm, isnt….. at all.

    If i was a lender i would be fairly upset. Has anybody seen any new innovation by D+H in our industry in the last 10 years – i can think of none, and certainly not 450 million worth

    Thats what monopolies do. Switching to morweb soon as i can but lets hope it gets into a safe canadian focused fintech companies hands – with monoline supoort.

    Why is there no monoline outrage on this. Its killing them/us

  5. A few points:

    This sounds like a network effect monopoly, just like Facebook or Ebay. Entrepreneurs don’t lie awake at night dreaming about building a new and better x so they can get into a price war with the dominant player in the industry, whose development costs were paid off years ago. Brokers and lenders don’t salivate over signing on with the #2 intermediary which only has a few % of their counterparties as customers so far. D+H prices are where they are because they can be. For the same reasons as you aren’t concentrating on the #2 social network or the #2 auction site. In passing, I’d also note the amazing symmetry between lenders complaining about D+H % based pricing and consumers complaining about real estate agents commissions.

    What could change this? An open system built by a few broker networks who together had a big chunk of the market. Except that each of those networks doesn’t want an open system, they want one that favours “preferred” lenders in exchange for a fee. Likewise, a few of the larger lenders could build an open system, except that each of them wants a system that prefers their product. And a small intermediary can’t afford to get into a price war with D+H, and probably sees better opportunities elsewhere.

    1. Times are changing. There are many ways to incentivize brokers to use another platform. An easier and faster user interface, better document handling and rate or compensation incentives come to mind. The reason MorWeb never took off is because brokerages didn’t push it and because it didn’t connect to all lenders. I bet you that will change in the next 6-9 months.

  6. Does anyone remember Uniqueh.com? Another one of Harold Kennedy’s great contributions to the industry. In my opinion, the best of all three loan origination systems. Uniqueh never could establish marketshare in Canada. But not because they couldn’t compete. They even offered lender’s a no fee model. For brokers, they offered $4 towards each credit report. And this LOS didn’t have the burden of supporting a legacy system. It was built from scratch with preferred web based technology.

    Yes, they are still around, and most importantly, they are independent! Perhaps we should all have another look. Originators and Lenders.

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