Broker not intimidated by rate sites, buydowns

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Despite increasing competition from rate sites and competitors buying down rate, one leading broker sees the changing industry landscape as an opportunity to refocus his business.

“People should stop complaining about (rate buydowns) and start doing something about it – like change the way they do business. If they’re trying to do business today (the same way) they did ten years ago they’re going to fail miserably,” Paul Mangion of the Mortgage Centre M.O.S. MortgageOne told “Pick different niches of the market, pick the sub-prime; if you deal with upper clients, educated clients most of them don’t care if it’s 10 bps lower or five bps lower.”

Mangion sees similarities between the current mortgage industry and the evolution of the trucking industry; one he was forced out of when profits shrunk. He isn't as pessimistic about his current vocation, though.
“I was in the trucking industry and I saw ten years later we’re still charging the same rates only gas isn’t 60 cents a litre it’s $1.20; it was a race to the bottom (and) I saw the writing on the wall (that) only the big guys (were) going to succeed,” Mangion said. “Here’s the beauty of our industry: We’re service oriented so we can control our costs (while) the trucking industry is very labour-intensive plus you’ve got to pay for the capital equipment, insurance.

“In this industry what do we pay for? An office and the internet.”

His comments follow news that yet another lender is offering a sub-three per cent five-year fixed rate, which will certainly force a number of brokers to buy down rates to compete. Much ado has been made about the prevalence of rate buydowns and the long-term effect the trend will have on the industry. And while Mangion isn’t a fan of the model, he realizes there is still a market for his own business style.

“I don’t do any advertising anymore … because it’s a waste of money,” he said. “You pay the greatest amount of money for the worst type of client; the best type of clients are referred clients.

"Pick and choose the clients you want to deal with. There are hundreds of thousands out there; you don’t have to deal with everyone of them."

  • Rae Steil on 2014-02-25 12:25:46 PM

    I had a client (referred by a past client) recently ask me why he should deal with me as opposed to another broker or bank. He didn't care about the rate. We should all be able to answer this question. Rate won't be an issue if you know how to answer this.

  • James Shinners on 2014-02-25 12:44:36 PM

    Are all the banks on these rate sites? No. Do banks alwyas offer the lowest rate? No. Are the banks worried about going out of business due to rate sites? No. If some brokers want to give up a chunk of thier commission, who cares? At the end of the day you really don't have to be cheapest place to get a mortgage to be a great mortgage broker. I think clients understand that they get what they pay for. Marginally higher rates usually means better service.

  • Jeremy Nagel on 2014-02-25 2:10:25 PM

    I agree with Paul and the others posting comments here. However, I would like to ask, what is 'great service'? The term 'great service' is subjective and over used, in my opinion.

    if it's true that 20% do 80% of the business, then what is it that the 20% are doing? The 20% realize they have to decide on who they are. See, in my opinion, they have chosen to either cut commission and offer cheaper rates or work for full commission and provide value beyond rate. While the other 80%...they haven't yet decide who they are. They are busy trying to be all things to all people. Pick your model.

    Commission cutting is a race to the bottom, period. And for some it's an easier conversation to have with their customer, path of least resistance. I'm okay going head to head with Ron or Dan or any other commission cutter. At the end of the day I'm looking for loyalty/relationship and you don't attract loyalty based on price. I have accepted the reality that there will always be someone willing to undercut, and if the banks saw value in the model, they would put all the commission cutters out of business. It's such a small segment that it's not going to happen.

    Have a great week everyone!

  • Ron Miller on 2014-02-26 11:53:26 AM

    If someone is educated and has their documents together and the mortgage is a decent size... I would buydown for them without question. These clients tend to take less time and do not want anyone holding their hand. They prefer the commitment be emailed to them and usually don't care about the birthday card.

    To them this is 'great service'.

  • Jeremy Nagel on 2014-02-26 12:10:01 PM

    @ Ron What does educated mean? I have a client with a PHD in engineering who doesn't understand the basics in finance. He is a smart guy...when it comes to engineering. But he doesn't know what he doesn't know!

    And why does the size of the mortgage matter, it's all relative?!

    I do agree with you that 'great service' means different things to different people.

  • Broker on 2014-02-26 4:10:24 PM

    @ Jeremy......... You really do not know what Ron means when he says educated client? He means the client is educated about mortgages!!!! And does the mortgage size matter? Really? Do the math my friend. Let me help you: As brokers we make 115bps so on a $1,000,000 mortgage, we make $11,500 in comp. On a $100,000 mortgage, we make $1,150. You don't think the size matters? We do the same amount of work no matter the size of the mortgage and we get paid 10 times the amount in this example. So, to Ron's point that he would buydown a mortgage that is simple and big, I agree. If he bought it down 15bps at a cost of 60bps in come, he is still making $5,500 for this transaction. What is wrong with that? Absolutely nothing!

  • Jeremy Nagel on 2014-02-26 6:06:15 PM

    @Broker Firstly, you don't have to be ashamed to post your name, it's okay. I mean, why would you not want to own your comment? You say "we do the same amount of work no matter the size of the mortgage", but then you go on to describe a mortgage as "simple and big". So, do they require the same amount of work or not?

    I find it sad that some would discount their own worth and work harder for less. Don't forget how many years it has taken you to become proficient in what you do.

    Here's a story that may help you.

    A lady was walking around an art fair and stumbled upon Van Gogh. Mr. Van Gogh she says, can you do a quick sketch for me on this pad? Mr. Van Gogh replies, oh course young lady, does a quick sketch and hands her back the pad. The lady says thank you and turns to walk away. Where are you going, that will be $1 Million dollars, says Mr. Van Gogh. The lady replies, but Mr. Van Gogh, that only took you 30 seconds. To which Mr. Van Gogh replies, that's where you are wrong, young lady. It took me 30 years to be able to do that sketch in 30 seconds.

  • Ron Miller on 2014-02-26 7:12:10 PM

    Well... @ Jeremy

    When someone is shopping for the best rate they do not care how good your service is.. I KNOW THIS! I provide what they want, not what I want to give, sell, show or explain.

    All they care about is saving money.

    Which isn't a bad idea.

    I am not Mr. Van Gogh so rather than turning the deal away, I will do it.

    BTW, the educated rate shoppers send referrals.

  • George on 2014-02-26 7:51:49 PM

    @ Jeremy................ Jeremy Jeremy Jeremy, you criticize Ron and Dan for buy down rates and call it a race to the bottom. However, how is your $2000 cash back to he client any different? You package your mortgage services together with a realtor service and then drop your pants giving the client $2000 cash back. You are no different than those that buy down. You just use a different form. Actually, Dan has a similar program and had it before you.

  • Jeremy Nagel on 2014-02-26 8:36:51 PM

    @ George You ask a question and follow it up with a statement, lol. A slight oversight on your part as it reads "Up to $2000 CASH Back". And you couldn't be more wrong. Perhaps you should have just asked the question and left it at that. This program pays me full comp.

    I would ask that you revisit my earlier comment as it relates to Ron and Dan. Nowhere in there did I criticize Ron or Dan. In fact, I paid Ron and Dan a compliment and suggested that they are among the top 20% doing 80% of the business. They know who they are and are very consistent in what they do. I go on to say that I don't see Ron or Dan as a threat to my business, as our models are very different, not to mention we are servicing different clientele.

    And George, if we start off at the top at 115 bps, as suggested in an earlier post, and we undercut one another...95...75...55...etc... which direction are we headed?

    To provide clarity on my stance... There is enough room in the market for the rate discounters and those offering services beyond rate, whatever that might be. As an industry, we have what...26% market share? Our industry has a lot of room to grow. And I am concerned about rate discounting. By willingly foregoing a portion of our comp, what message are we sending to lenders? I would be willing to bet that if lenders cut their comp by 30 bps tomorrow, there would be a lot of unhappy brokers. Those who are cutting their comp willingly, the ones who should have nothing to complain about, would be screaming the loudest from the roof tops.

  • Ron Butler on 2014-02-27 9:27:19 AM

    @ Jeremy, if the lenders cut the comp by 30 bps tomorrow and put the savings into rate reduction that's a positive to the consumer. Also, I already know how to survive on less bps; so again in my favor. Would I continue to discount? Yes, just not as much obviously.

    You are correct that Dan and I are not a threat to mortgage brokerage business, great full service mortgage brokers are here to stay but history does not stand still and tech is the great driver of change in any business.

  • Paul Mangion on 2014-02-27 6:42:53 PM

    We need to respect other peoples opinions even if they go completely against what you believe in. There is enough room for serious agents. What I think we need to be worried about is the agents with the lack of experience, knowledge or oversight to do the job competently. Some of the comments on this forum are so ridiculous that it makes me wonder what kind of values the broker they work for are instilling on there agents. We don't need to bash the banks or other brokers because it serves no purpose to our industry. As an industry we do need to purge once and a while. If you don't cut the cancer out it just spreads and eventually we die.

  • Salim J Kanji on 2014-03-03 8:24:06 PM

    Paul, Well Said!

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