BMO's 2.99 gamble pays off

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It’s a gamble that may well have paid off, with BMO’s 2.99 per cent five-year fixed helping grow its mortgage book by $1.2 billion in the second quarter, according to the big bank’s latest financials.

"In anticipation of market conditions, we acted to introduce offers that we believe are more suitable for all customers,” reads that Q2 report released Wednesday, “ and we are helping to move the market as a consequence, to a better place.”

Those efforts have also helped to move BMO deeper into the black. It realized a $6.6 billion increase, year over year, in net loans and acceptances for the three months ending April 30. The growth was primarily due to an increase in residential mortgages of $1.2 billion as well as $5 billion in loans to businesses and governments.

That mortgage leap is largely owing to that controversial 2.99 no-friller BMO re-introduced in March, incurring the wrath of other big banks as well as brokers, many of who moved to buy down rate in order to keep clients from going to the Bank of Montreal.

Brokers are now waiting on quarterly results from D+H to determine just how effective they were in keeping hold of that business, although many fought back by diverting client interest into four-year mortgages.

Either way, the BMO offer likely helped brokers to convert hundreds of preapprovals just ahead of the slower market expected across much of the country this summer and fall.

That 2.99 per cent can also be seen as a testament to the challenge the bank has had in growing its mortgage book since quitting the broker channel in 2007.

“Take note of the hoops BMO is having to jump through in order to get back originations it lost after leaving the broker channel,” says Rob Campbell, an agent with Verico The Mortgage Wellness Group. “Absolutely, it is a validation of the broker model.”

The bank watched its share of the mortgage biz drop from about 10 per cent in its 2007 heyday to today`s 6.5 per cent, according to its own stats. March activity helped to boost that figure, although analysts are waiting for reports from the other big banks to determine how successful BMO was in stealing business from its competitors.
 

  • John Dearin RPA,. AMP. on 2012-05-24 5:11:04 AM

    That's great BMO, but are you making a profit on this? And what kind of bad will is going to be generated in the next five years when people look to refinance or sell and can't. Because we know the sales staff was not giving full disclosure. $$ to donuts BMO will take a hit on this in the long run.

  • Tracie Osuala on 2012-05-24 5:58:31 AM

    The sales staff at BMO was very candid with the product. Maybe you should read up in it and then you would be aware of what you were talking about.

  • Julie Cooper on 2012-05-24 7:58:33 AM

    While sales staff at BMO may or may not have been candid about the product at signing, the fact remains that many borrowers refinance or change the mortgage in some way before the term is up. Nobody at the beginning of the term expects to refinance, move, die, divorce, etc. What BMO has set themselves up for is recouping the lower profits at 2.99% for a couple of years by charging a penalty and/or a higher rate when the borrower has no other options but to take what BMO will give them in a few year when they need an "unforseen" change. That is the unfortunate part for the borrower.

  • Johnie Banker on 2012-05-25 2:19:01 AM

    I don't believe negative comments help us enhance our image or business. All one has to do is spend 30 seconds on the BMO website to research and find out the low rate mtg , while it is considered a "no frills" mtg offer, a customer can refinace the mtg and can sell the house before the 5 yrs is up. And i don't believe the sales staff were hiding or not disclosing anything as a mtg committment would have had to be issued and the customer's lawyer would have had to review the file if a purchase ,with the customers. Rather than bash each other because we may not be able to compete on a rate issue, let's add some value to the overall customer relationship to garner more business. No one FI can always have the best rate so let's continue to offer our clients competitive rates; informative offerings; great service to grow our respective portfolios.

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