A veteran brokerage head is defending the controversial practice of pooling mortgage volumes as a key weapon for an industry fighting to retain promising but unseasoned talent.
“What’s true for this industry, as for others, is that 80 percent of the money is made by 20 per cent of the people,” said Kevin Power, president of Power Mortgages Inc., an independent 10-member team operating in the Kitchener-Waterloo market. “In a perfect world, that wouldn’t be the case and we wouldn’t need to pool volumes, but the fact is that it is really the only way that many brokers can afford to pay new agents top-end commission splits starting from day one and so secure an income for them that allows them to stay in the business while they learn and develop. They can’t do that getting 50 cents on the dollar in terms of commissions.”
The comment answers growing calls from some brokers asking lenders to limit the practice or ban it outright. They argue it un-levels the playing field and ultimately erodes the reputation of mortgage brokers by propping up “poor performers.” On a more fundamental level, they see it as unfair.
“The pooling of mortgage volume and the ability of low producing and part-time mortgage agents to access preferred pricing and greater compensation plans has to stop if we want to once again function in partnership with our lenders,” said Calum Ross, senior VP of The Mortgage Centre-Mortgage Professionals Inc., reiterating a recent post to MortgageBrokerNews.ca. “If we returned to a world where status was earned, the way it was intended to be, then lender profitability and the need for brokers to achieve individual excellence would once again return to the market. There is no way that I should be given access to top discounts or top status with a lender I do little or no business with just because some person at my brokerage firm has top status.”
The practice is now widespread, lender-sanctioned for use by small or medium-sized independent brokerages like Power’s but also super broker networks. Power concedes that broker concerns around the latter are valid, something some lenders are, in fact, moving to address, he said. But the industry’s move to use efficiency ratios as a prime way of evaluating individual broker performance should also help to reward the industry’s top performers, argue supporters of pooling.
Still, those on the other side remain concerned that non-bank lenders, in continuing to accept the practice, are weakening their viability at the same time they face renewed pressure to match rock-bottom pricing by the banks. More and more, the Big Six are willing to use mortgages as a loss leader in order to cross sell other products to new and existing clients. Monoline lenders are largely without that option.
But brokers argue that pooling has become a necessity, not just in terms of securing commissions but deals, themselves.
"If you're just on your own and not with a team of brokers, you may not even be able to present the file at all," Michael Sjerven, a broker with Dominion Lending Centres - SmartyMortgage in B.C.'s Lower Mainland, told MortgageBrokerNews.ca. "Pooling is not ideal but the lenders are almost forcing brokers and agents to do."
But the broker channel is also grappling to shore up retention levels as originations slow forcing a growing number of young brokers to seek part-time employment outside the industry or to quit it altogether. Brokers in small markets with perennially low home values also rely on pooling as a way of accessing rates more competitive with the banks in their communities. Any move to remove that tool would accrue to the benefit of the country’s largest retail lenders. In fact any concerns about pooling in order for brokers to access the channel's lowest rates may be made moot by banks that are increasingly willing to undercut even those thin margins, said Power.
Regardless, the topic continues to polarize.
“Every time someone who does not have the efficiency or volume required to get the extra consideration gets to participate in perks they have not yet earned there is money being taken off the table from those people who have built their mortgage practice around realizing those gains,” Ross told MortgageBrokerNews.ca . “I fundamentally believe that paying for performance that has not been achieved and awarding status that hasn’t been earned is a threat to the integrity of the pay for performance model that we all subscribed to when we entered a professional commission sales role. Since when has capitalism or ‘the free market system’ function effectively by rewarding mediocrity?”