Brokers anticipate wave of compensation cuts

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Mortgage professionals are fearful a recent move by First National to lower commissions will kick start a trend, as channel lenders face fewer competitors for broker business.

“First National sent brokers a message last Thursday that they will be lowering brokers fees across the board by 5 bps,” Brad Geisler, a broker with the Mortgage Centre in Alberta, told MortgageBrokerNews.ca. “They say the move is aimed at reducing costs, but I suspect it is partly the result of FirstLine exiting the market.

“With less competition, lenders can afford to lower their fees. I hope this does not become a trend.”

First National denies that as the reason behind its move.

“Yes, we have reduced our fees across the board effective last Friday,” Karen Biernaski, with First National, told MortgageBrokerNews late last week. “But the speculation that this is tied to competition is not valid.

“We looked at it from a cost perspective.”

Still, Geisler and others are concerned FirstLine’s shutdown last month now holds repercussions for their remuneration as lenders benefit from the mono-line’s withdrawal.

“First National was big winner when FirstLine left the scene,” said Geisler, “I’ve been told that they had been swamped since FirstLine left.”

Biernaski refutes Geisler’s theory, reiterating that the lender examined its operating expenses and found the need to improve cost-effectiveness in the following three areas:

•    Portfolio leases
•    Securitization
•    Broker compensation

With regards to broker compensation, Biernaski said, First National found out that its Wizard Reward Program was not working out as intended.

“This was a loyalty program designed to reward top performing brokers, but with brokers pooling their numbers, First National was not getting the operating efficiencies it was targeting,” she said. “For instance some brokers were not using the (Wizard) online mortgage system which was meant to make transactions more efficient.”
 

  • Stan on 2012-08-21 3:19:33 AM

    Simply stop dealing with them and see what happen!!!

  • Nolan Matthias on 2012-08-21 3:23:54 AM

    Perhaps the industry is trying to overcomplicate their interpretation of this a little.

    When was it that bps went from 75 to 80 on a 5 year mortgage? About the time when amortizations went from 25 years to 40 years.

    Doesn't it make sense that the move from 80 to 75 is just a normalization to commission rates that were once paid on the less profitable 25 year amortizations?

  • Jim T.. Advent Mortgage on 2012-08-21 3:28:46 AM

    Ladies and gentlemen, if you are honest with yourselves you will admit that as brokers, we are overpaid for what we do – grossly overpaid!!! I know nobody wants to admit this but it is a reality. Don’t get me wrong – I consider myself very fortunate to be in this industry and earn the money I do. At the end of the day, economics will prevail and we’ll get paid what competing lenders are willing to pay for our business. It’s as simple as that. If you don’t like it, become a real estate lawyer (who not only owns the majority of the risk in the transaction) but is also paid less today than what they earned 20 yrs ago for the same transaction. I think a good first step is for lenders to look at this pooling business and volume bonuses. They need to get rid of this altogether and pay brokers on efficiencies. The lenders all know they are being manipulated and are overpaying under this pooling/volume bonuses and the sooner they fix this the better for the industry.

  • KG on 2012-08-21 3:47:21 AM

    I agree, stop dealing with them... Our brokerages have put us in the cross hairs of lenders, whether you call it "pooling", or "teams"... Get with the program folks, brokerages make a larger cut, the bigger our commissions... lenders should pay on efficencies with individuals brokers (agents), and stop paying for volume!! Will they ever learn??

  • Barbara Buote on 2012-08-21 4:11:43 AM

    As a broker who did not have to pool mortgages to reach Merlin status, I take exception to KDs comments.

    Number one reason for dealing with Fist National is their products, rates and integrity. 5 basis points and $50 per deal was not the incentive to do business with them.

    However, when you have been promised these "extras" at the end of a calendar year and you receive notification of the withdrawal prior to years end, I call this breach of contract.

    Notification of the cancellation of this aspect of the Wizard program with an effective date at the end of the year would be fair game. The manner in which it was done certainly does smell like an industry tactic initiated by First Line and it has now become an easy out.

    By the way, my closing ratios are over 100%. So that blows your theory of brokers across the board wasting aq lender's time.

    In conclusion, don't fool yourselves - between the government changes, lender changes, etc, our jobs are only gong to get tougher. As broker with over 30 years experience, I do not take well to "cheap tricks".

  • Cory on 2012-08-21 5:33:41 AM

    Simple solutions: Lenders don't like pooling, stop offering VB based on unattainable numbers for many (aka pooling). Make every Associate sign up for themselves. Without the choice the problem evaporates (if that is the real problem).

    Like any business if profitability is not where you want it to be you either need to buy cheaper (broker commission included in this) or sell higher. As long as so many brokers are buying down rate (essentially telling the lender they are o.k. to work for less) the lender is not going to sell higher when the easy answer is already sitting in front of them. A 5 BPS increase to rate across their board would have offset the 5 BP commission reduction 10 fold. Would 5 BPS hurt their market share, maybe for a week, until the next lender says hey we can increase too, and on down the chain it goes. All you need to do is watch what every one of our channel lenders does when RBC increases rate.

    I said 3 years ago when quick close specials and rate buy downs started to become prominent this was going to happen.

    In my market where average mortgage sizes are 200K, not 500K, 600K, a million etc I am far from grossly overpaid. I am being very honest with myself and that is a comment clearly limited to only some markets, not all. The 5 BP decline is only the start to a tough couple years. Welcome to Australia, sure hope the sun shines here like it does there.

  • Jeremy Nagel on 2012-08-21 1:34:58 PM

    Firstly, 40 year amorts were introduced in 2006 and First National increased their 5 yr comp on March 3, 2009. Let's get our facts straight!

    Secondly, I think it is far easier for us to cut our commission than to invest time and effort into improving our sales skills or putting together a strong value proposition to differentiate ourselves.

    Thirdly, it pains me to hear some suggest we, as brokers, are grossly over paid. If you are transactional, I agree, you are over paid. But for those of us who take pride in their privileged position as a mortgage advisor, offering proactive mortgage follow-up and systems to ensure success, then I suggest we are worth every dollar! To those who offer far more than just a transaction, keep up the great work!

    I would suggest lenders are just as guilty as brokers. Let's be honest, lenders have taught us that it's about quantity over quality. I know of many brokers who should not be in the industry due to their shaddy dealings, however, both lenders and their brokerage continue to allow them to do business. In my opinion, they should be punted out on their head! That said, I also do not contribute to the buy down philosophy of some, what are you teaching the lenders? Are you really willing to work for less? Be careful what you wish for because you just might get it!

    I think we as brokers/broker owners can be doing a much better job to ensure that our industry thrives. Question is, what are you willing to do to help our industry?

    I can assure you that more change is coming. What are you doing to differentiate yourself?

  • Jerry Schindel on 2012-08-22 3:15:32 AM

    Very well put Jeremy. The only other thing I would like to add is with rates being so low the spreads are thin between rates and bond yields. It's a double edge sword as when rates rise and the spread increases for profitability, we may see a slow down in new deals and housing. Also with the refinance business down under the new rules will make being an agent tougher. As Jeremy stated above we will have to become better and more efficient or look for a new career.

  • Paul Therien, CENTUM on 2012-08-28 4:46:34 AM

    If we as an industry want to maintain the compensation rates that exist today, we need to look at what we can do, as mortgage brokers, to positively affect this. With funding ratios hovering at near 50% for us as an industry, it clearly indicates that we need to do our part to improve efficiencies.

    Sit back and imagine what it would be like in another industry to have ratios like this. Liken it to the automotive industry... Where would BMW be if it cost them twice the amount to build a car? We certainly would not see as many of these cars on the road, they would not be affordable.

    Here we have lenders that have to underwrite two applications to fund one. This is not an effective business model for either Brokers or Lenders. Aside from the lenders own internal issues with this, the broker is also having to do much more work to fund a single application. Even if we factor in reasonable rates of declines, and customer cancellations, there is still much room for improvement. From the broker perspective, imagine if you could know for certain that at least say… 80% of the business you sent to a lender would fund with that lender. Imagine how much easier it would be to provide exceptional service to your clients, and how many more deals you could complete in a month.

  • @kiltedbroker on 2012-08-21 3:05:09 AM

    I don't blame First National at all for cutting broker compensation. I would probably do the same thing... Don't get me wrong, I am not happy about it, but I think we should look at the business we put forward as a channel before pointing the finger at First National. Ask yourself, would First National have cut our commissions if our average funding ratio was 85% as an industry?

  • KL on 2012-08-21 3:05:19 AM

    Cease the pooling ! Cease the rate discounting below BPR and make our lenders happy. Greedy [brokers] buying down deals - loosing 40 - 50 bps of their commish, just so they can get the deal !! Really ...!!! . Our lenders have been our way to make hay for the past 30 years (support them accordingly) - and now lenders tighten their draw strings and brokers will exit -?? C'mon Man ! If any of you know anything about our biz - it is the pooling that hurts ! why should one dude giving one deal a year get the same as the dude with 100 ! Big brokerage or not - this has gotta stop or other mono lines will follow ! You will see other Loyalty prograqms dimish, these are expensive and if the brokers look for best rates with best loyality and rewards - could be trouble. I beliee you will see a choice - you can have this plus this, but not that ? Time will tell !!!

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