Lenders 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.