Rate buy downs affect broker networks more than they do individual brokers, suggests one leading industry player, and 2014 will foster even more of these types of deals as brokers try to compete in an increasingly competitive environment.
“The super brokers and the networks have one big problem: Rate discounting … (which) has a real harm to the super brokers,” Ron Butler of Verico Butler Mortgage told MortgageBrokerNews.ca. “Their income is based on their expectation that they’re getting paid full pop, that all their brokerages, all their brokers, all their agents are getting paid full pop.”
According to Butler, this problem will be exacerbated by a shrinking market share within the broker channel overall which, he argues, will have a negative trickle-up effect on the broker networks as brokers are forced to buydown rates.
“The broker market share (will) not go up and not only are there going to be less mortgages written period in Canada this year – there’s a whole universe of mortgages that shrank slightly last year and it is going to shrink even more again this year,” Butler said. “If their agents make less, they make less.”
And while individual brokers can make individual concessions to offset the lost income, broker networks have no such luxury due to their overhead costs.
“An agent can stop going out to dinner if he makes less, an individual broker can have a few less holidays if he’s feeling the pressure of smaller commissions but these big networks and super brokers have fixed overheads, they’ve got salaries, they’ve got people in place,” Butler said. “It’s tough on them to have their mortgage brokers taking 20, 30, 40 per cent off their earnings and (although) the volume is the same there is less income.”
This is part two of a three-part series. To read part one, click here. Watch for part three tomorrow.