“Brokers in Canada get paid their commission no matter what the profitability ratio of the product they are selling is. They do not take a hit like the lender does when margins narrow, and any lender who even contemplates having brokers share that pain is ostracized by the broker community,” writes “M. Robertson” a regular commenter on MortgageBrokerNews.ca. “The reality? The broker channel as it exists today is unsustainable. In almost every other country in the world there has been change because of this and it means that brokers in Canada better watch out because it will come to Canada too. It is only a matter of time.”
Robertson has been vocal
about the profit discrepancy between the bank- and broker-originated mortgages for members of the Big Six and those credit unions operating in the channel. And with rates being at record lows, spreads have taken a beating.
“Mortgages originated by brokers are a loss leader for most banks, it is why so many have exited the broker channel and why when brokers demand lower rates they have no concept of how much that impacts the bottom line of the monoline lenders in this country,” Robertson wrote. “Yes, they are profitable in the end, but at current levels of profit, how sustainable do you think this all is?”
And most recently, Robertson justified
Meridian Credit Union’s decision to offer a special promotional rate at the branch-level only.
According to Robertson, the credit union will earn $8,627.47 on a $300,000 mortgage if it goes to full term. If the mortgage were originated by a broker, Meridian would have to pay a $2,400 commission.
“That means that they would not earn one cent in positive revenue on the mortgage until the 7th month,” Robertson wrote. “When you factor in hedging costs, etc. it means that they lose money on the product, at least twice what they would with strictly branch origination.”
And, by the way, would the real M. Robertson identify him or herself!
One industry player is claiming the broker channel is unsustainable, citing eroding profit margins for lenders paying out on broker-originated deals.