Mortgage professionals are worried First National's compensation cut will see other lenders follow suit or -- what's even more sinister -- adjust their interest rates to force broker buydowns.
“First National's decision was troubling because many brokers fear other lenders would follow suit,” said Sudip Adhikari, a broker with Centum in Toronto. “A slowing economy like this could be a perfect excuse for lenders to do the same."
So far no other lenders have announced plans to reduce compensation, Adhikari said, but shrinking broker compensation is not the only threat.
“Another worry is that lenders might decide to maintain broker comp. at current levels but hike their interest rates,” he said. “This will curtail our ability to compete and could force many brokers to buy down rates.”
Sometime in August, First National told brokers that they will be reducing broker fees across the board by 5 bps. The lender also moved to discontinue its Wizard Reward Program to win greater efficiencies.
At that time, some brokers speculated the loss of FirstLine also had a hand in the decision.
“First National says the move was aimed at reducing cost,” said Brad Geisler, broker with the Mortgage Centre in Alberta, “I suspect it is partly the result of FirstLine's exit from the market. With less competition lenders can afford to lower rate, but they need to recoup that somehow.”
The current market sump has forced many brokers to focus on searching for alternative revenue streams. If broker fee cuts become a a trend, that search will take on greater urgency, said Adhikari.
Indeed, in recent months many brokers have admitted to exploring other opportunities such as selling
insurance or leaving the broker business.
“Broker fees is our bread and butter," he said. "If that tap is reduced to a trickle we'll need to find another spout.”