It may be the broker equivalent of, “If you can’t beat ‘em, join ‘em.” But an industry veteran studying the channel’s growing use of the big banks says brokers have now earned renewal fees from those lenders.
“I don’t know what they’ll do or won’t do,” David Hetti, an Invis agent in Oshawa, told MortgageBrokerNews.ca, “but if the banks that use the broker channel are willing to talk about it and do move to offer renewal fees of even 15 basis points that will strengthen their relationships in the broker channel, where the mono-lines already benefit from higher broker loyalty.”
The suggestion is a tacit acknowledgement of the strong pulling power both Scotia and TD exert on brokers. It’s a more overt acknowledgement of the strong client retention those lenders already enjoy at renewal, whether the borrower comes by way of the broker channel or the branch. Brokers are generally cut out of that equation, something a 15-bps renewal fee would change.
“It would also encourage brokers to work with the banks at renewal instead of against them,” said Hetti. “It would also reward us for bringing in that business initially.”
The cooperative approach is something several mono-lines have already adopted, with others moving to introduce trailer fee options for their brokers. The model Hetti is proposing represents a slight departure, although it also hinges on brokers staying in close communication with clients both before and during renewal time.
There may, in fact, be growing incentive for banks to cooperate with brokers, as those mortgage professionals increasingly look to switches – both at and between renewals – to lift sagging bottom lines. In offering renewals Scotia and TD would reduce broker attempts to move clients to other lenders, in the process minimizing the competitive forces that mandate lower interest rates.
Renewal fees would also acknowledge the very real helping hand brokers are now extending to their Big Two as home purchases across much of the country slow.
Brokers – specifically, a bigger piece of their action – helped cushion the blow for Scotiabank in its third quarter even as its overall market share fell.
“If they (Scotia) were smart, they would look at expanding their efforts to grow business through the broker channel as a more cost-effective way of originating mortgages,” said Della Dwyer, another Invis mortgage professional, in Barrie. “I don’t know that they’ll do it, though.”
For the three months ended June 30, Scotia reported an impressive $2.5 billion growth in funding volume of residential mortgages, relative to the year-ago period, while its overall market share fell from 20.40 per cent in Q2 2010 to this year’s 20.30 per cent.
It suffered an even bigger slide in the last six months, having reached a 20.54 high in the first quarter of this year. Percentage gains and losses of even one basis point represent hundreds of millions of dollars for lenders prepared to undercut each other’s discounted rates in order to meet year-end targets, says analysts. That may help to put erosion of Scotia’s residential mortgage portfolio in perspective. The slip would, in fact, have been steeper were it not for brokers.
Scotia was the broker channel’s No. 1 lender by volume for the quarter ended June 30, moving up from second position, according a quarterly report from D+H. While a slowing real estate market clipped away at its originations even through mortgage professionals, the decline was less than those sustained by most other lenders using brokers to bring in business.