Broker, meet your Frenemy, Rate Site

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By Ron Butler

Let’s get some of the details out of the way: A mortgage rate comparison site is typically a website built and owned by an independent company that makes its living charging for leads and website clicks that are fed to mortgage brokers and other lenders. The aim of the rate site is twofold:

1. Find great rate offerings to spark public interest in its information or in clicking onto the websites of mortgage brokers and lenders offering those rates;

2. Do all the search optimization work on Google to make sure every time someone searches “Best Mortgage Rates” the rate site’s name appears at the top of that Google list.
Historically, my brokerage has used and if you Google “Best Mortgage Rates” that site will come up No. 1 or 2 on Google’s list every time.

The rate sites are smart: if you want to be the featured mortgage broker on the website, you need to buy-down rates by reducing commission levels to the point where the rate is extremely low, it’s almost a reverse auction system.

So picture this: you have paid the website for the leads and only about 42 per cent of the leads work out to the point the applicant gets a commitment; so you pay for about 2.5 leads to get a shot at one.

You have discounted the rates so you are only working on about 65 bps total compensation not 115 bps. The applicants are extremely rate-sensitive and have zero loyalty to you, if a bank rep offered them 5 bps less they would jump to the bank rep in a heartbeat. The applicants are unlikely to ever stop being rate-sensitive so when they come up for renewal it will be the same fight for their business all over again. These types of clients may very well refer others to you, but those referrals also want super low rates. These clients will likely never think of you as a trusted adviser; they will only think of you as a source of low rates. So the leads are very expensive, the commissions are highly discounted and the clients will always check to make sure they are getting the best possible rates.

So why should you do it? - continued on page 2

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  • Ross Taylor on 2013-04-12 6:53:57 AM

    Excellent article thank you


  • Rob Campbell on 2013-04-12 7:22:12 AM

    Very well done, Ron.
    Well said.

  • Wane Davis on 2013-04-12 7:39:47 AM

    Just for clarification, Banks sell rate because, even with little or no margin, they attract customers to cross sell more profitable products like credit cards, chequing accounts and other deposit may get them with your rate site and low bought down rates but you haven't solved the problem of renewal when, after acquiring the homeowner you have no sticky product to get the are just continuing to feed the machine and letting banks eat your lunch. Brokers need to do more to KEEP the client and the only way is to do more than mortgages.

  • Kerri-Lynn McAllister on 2013-04-12 10:02:33 AM

    Ron, I applaud you for giving such an honest and straightforward view on rate sites. Your comparisons to travel sites are spot on, and obviously those in the industry who want to work with rate sites do have adapt their businesses.

    Like any competitive industry, there are areas to segment. It's just that rate sites is the fastest-growing segment at the moment, and other brokers wishing to specialize in other segments will have to have a strong and defined value proposition.

  • Paul Therien - CENTUM on 2013-04-12 10:41:43 AM

    Ron - Great article - well thought out and well explained. I think that in our industry we often forget one key thing however... Back 20 odds years ago when I started in the industry mortgage brokers had two key selling points, and they were what built our industry. #1 – If you can’t get approved by the bank, we can help and #2 – we can beat the banks rates. #1 started to wane as more and more A lenders entered into the broker origination channel and felt that it was an excellent low cost source of mortgage business for them. Because of that lower cost of funds – independent brokers could offer lower rates than the branch network. There were also much more limited options for the consumer 25 years ago.

    Our industry rode the low rate methodology for many years in order to gain traction in the A side of the business, and it worked - beautifully.

    Banks now directly compete with us on rate, and you are 100% correct that we need to compete on a different level because a mortgage is about so much more than rate. Product, terms, etc. all play a fundamental role in the suitability of a mortgage for the consumer. I just think that we need to remember that brokers have been selling rate for decades, as have the banks. WE have created a culture in Canada where rate is king and sold the consumer on this concept. Ron is correct that we need to move away from the concept, but don’t be surprised when it turns out to be much more difficult than anticipated.

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