Broker compensation stuck in the dark ages?

by |
Another lender’s move to axe trailer fees is an indication brokers remain locked in the eat-what-you-hunt mentality, say industry veterans, suggesting that’s stunting the industry’s growth.

“I think, in part, it holds back the industry because you have a very transactional-based business model as opposed to long-term residual income for brokers,” says Isis Jimenez, a mortgage broker with Mortgage Alliance. “The less agents and brokers are willing to adapt to new models, (fewer lenders) are going to be willing to transfer to a trailer fee.”

Street Capital, the third largest lender by market share, announced earlier this month its decision to end its trailer fee program, suggesting it did little to impact client retention.

Jimenez says many brokers are still struggling to accept the change to the trailer fee model, which, she argues, are more customer-centric, providing agents and brokers the opportunity to develop a stronger relationship with the client.

“It’s difficult for most mortgage agents who are accustomed to a certain way (of being compensated), she says. “When you have agents and brokers who have been used to a certain business model, in order to transition there has to be a certain amount of education from the lender.”

Indeed, Rob Regan-Pollock, a broker with Invis, agrees, adding that applying the trailer model to the wrong type of client could also be behind its inability to catch on among brokers.

“I don’t know whether it’s a question of education or product suitability,” he tells “I haven’t heard this directly but I believe that part of the issue is that the run on the book is the same whether it’s trailer fee or stand-alone product.

“People (who were) put into the trailer fee model were upwardly mobile, so the suitability of putting them in a trailer model is questionable.”

Regardless, Jimenez and Regan-Pollock agree that acceptance of the program really comes down to that crucial education.

“I think it’s really to do with the lack of education,” Jimenez says. “I don’t think a lot of them truly understand the trailer fee model.”

Regan-Pollock adds it’s important for knowledgeable brokers to explain the pros and cons to clients, too.
“I think brokers, including myself, like to believe in the model, but it depends on where people are in the lifecycle of property,” he says. “If they’re young, we know their needs are going to change over time.”
  • Arbitrage on 2015-06-15 10:06:04 AM

    All things being equal I direct as much business as possible toward trailer/renewal lenders. I think when brokers act in the spirit of the arrangement all three parties come out ahead.

    The lender lowers their origination/retention costs overall when the broker actively participates in the renewal process.

    The client benefits from having the broker acting on their behalf at renewal. When a broker can say "we will stay with these guys as long as we can get a fair deal" instead of saying "we've gotta move so...ummm...I can get paid again" the client wins.

    And of course brokers win as they are truly acting in the best interest of their clients and will be compensated one way or the other.

    I always find those who oppose the renewal model the most are brokers who are very transactional in nature and don't really bother with their client much after the deal closes. Of course my sample size is small so it's just a personal observation.

  • Daryl French on 2015-06-15 11:35:17 AM

    The trailer model creates a much better partnership between agents and lenders which should over time allow us to all grow strong businesses and better serve our clients.

    It's a shame Street is pulling this program and I think a little short sighted.

  • Foys on 2015-06-15 11:37:52 AM

    Street Capitals problem wasn't in the model, it was in how they accounted for it. I sent in over 20 deals that were supposed to be on the trailer program, but never got put in. With Street Capital, you can't find a list of which clients are on the trailer model. Merix has the best trailer program. The accounting is transparent. They get all my trailer deals.

  • Arbitrage on 2015-06-15 12:48:36 PM

    @foys. With Street you could see on your commitment whether it was "Loyalty" or not. It's also included on the pay records sent to your broker.

  • Ray Rochefort, DLC Forest City Funding on 2015-06-16 9:58:31 AM

    When speaking to Street Capital, they indicated that brokers were still moving customers from Street Capital at renewal date. This was mainly because the Broker of Record was not passing on the renewal to the broker/agent who did the deal. Also some brokers who were receiving the compensation, were still moving the client in order to get another 90-100 bps instead of the 50 bp renewal. I don't blame Street for changing their mind on this (although I think this will hurt them in the long run), but blame broker/agents who are doing this. If you want to move the client at the end of 5 year, then don't put them in a renewal program.

    I think Street would have been wiser to just cut those agent/brokers off from participating in the renewal and let the other brokers who were playing the game fairly, continue with the renewal program.

    Those broker/agents who are not engaging with the renewal or trailer programs are short sighted. We don't have a pension in our business! Imagine having thousands of $ coming in every year, even if you did not work!

  • Arbitrage on 2015-06-16 11:59:11 AM

    @Ray...that's a great observation that I hadn't even thought of. If a large number of agents weren't benefiting from receiving the renewals fees of course they might have motivation to move the clients. Street didn't even give their program a full 5 years so while they can talk about low retention at mid term, I really don't see how they can comment on their actual retention at I'm sure at least 80% of their business involved a 5 yr term.

  • broker on 2015-06-16 3:39:37 PM

    I would rather get my money up front and invest it myself rather than rely of Street or any other lender offering trailers

  • Arbitrage on 2015-06-17 7:40:00 AM

    @broker. Why not do both? Street paid you the same comp up front whether you participated in the trailer/renewal model or not. DLC white label and a few others pay full comp upfront as well. No sacrifice not support such an arrangement in the face of 80-90% lender retention rates is just poor business acumen. Either that or you haven't done your research and don't really understand the various trailer/renewal models.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions