Brokers stop rate shopping in its tracks

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It may be a controversial tactic, but one broker has admitted to using it to discourage clients from shopping for rate at the big banks.

“Unfortunately you do have to issue preapproval letters but any time you put a rate on a piece of paper you are a sitting duck. I don’t know how to avoid that because many customers and Realtors want to see the preapprovals,” George Christopoulos of the Mortgage Centre told “The only way around it is if you build a relationship with your client where you say, this is today, ‘this is the highest you’ll pay but if the rate changes when you have an actual deal we’ll lower it for you.’”

Christopoulos, who says clients often use preapproval letters to negotiate rate with other lenders, also covers legal fees if the situation warrants it, as well as taking small commission cuts in a bid to encourage clients not to rate shop.

“It comes down to commissions; many of my customers are repeat customers who refer me and I don’t mind going a little bit deeper and taking a small cut to maintain the relationship,” he said.

According to CAAMP’s annual mortgage industry report, released in November, mortgage broker share has shrunk, year over year, with much of that lost business being absorbed by the big banks.

For all mortgages purchased up until the release of the survey, 61 per cent were funded by a bank. Meanwhile, brokers only accounted for 31 per cent market share.

In 2013, up until the date of that year’s publication, banks accounted for 42 per cent of mortgage market share, while brokers accounted for 40 per cent.

And these statistics are worrying mortgage brokers.

45 per cent of those who participated in CMP’s Broker Sentiment Poll – set to be released this month – admitted they are worried about shrinking market share.

But there are ways to win back that business, argue savvy brokers. One key is to focus more on alternative deals.

“Competing with banks is getting very difficult because they’re matching discounted rates that brokers are offering. I’ve had it many times when banks will break their own rules to get a client something they wouldn’t normally approve it was submitted on the broker side, which is extremely frustrating,” Anson Martin of Verico Fair Mortgage Solutions told “Fortunately, in my case, a lot of my work is spread out; it’s not just A-work. I don’t have to deal with it as much as brokers who only deal with A-work. I don’t have to worry too much about competing rates.”
  • Tomas on 2015-03-11 1:09:56 PM

    Good luck.

    Matching lowest price is tough to beat. Walmart has made an empire with this simple tactic.

  • Ron Butler on 2015-03-11 3:03:54 PM

    We beat banks on rates every day, not ALL banks mind you. Some are willing to match very low rates and other simply will not.

    Tomas, you are correct with the Walmart comment, to be successful with very low rates you have to give a ton of margin and become super efficient.

  • CC on 2015-03-11 4:12:29 PM

    What happen to selling ourself & our service?
    We as brokers have better products than what most banks offer.
    We need to spend the time with the client explaining the difference's, and this isn't happening at the bank level.
    Just speak with your clients that have tried the bank route, they only know they were approved or declined .
    I would like to think that 99% of the time that clients have dealt face to face broker, they would not return back to the bank for their mortgage needs.

    ITS ALL ABOUT THE SERVICE.............

  • Ron Butler on 2015-03-11 4:27:31 PM

    CC Dude, I hate to break it to you but the bank's road reps will spend hours in the clients home and answer every question under the sun and offer advise and freebies on a ton of additional bank services. The ultimate truth of the so-called "service" the average mortgage agent offers is that it is actually "selling" the consumer on the bright, sunny personality of the mortgage agent. At the end of the day a mortgage is a rate, a term and contract provisions and text, email and the telephone can do the a great job of providing that information.

  • Jim Tourloukis, Advent on 2015-03-11 7:30:32 PM

    Very simple solution - just do not do pre approvals for your customers. We no longer do them. We tell clients to go to their bank for a pre app and when they buy to give us a call. Nine out of ten times they come back for our rates. Very simple

  • John W on 2015-03-12 12:24:09 PM

    Jim, that may work in a stable rate environment. What happens when or if rates rise? Every pre-app you sent to a bank will be lower than what you can offer.

  • long time broker on 2015-03-12 12:37:59 PM

    People who advertise on rate sites will continue to do so as long as the costs of doing so are substantially less than what they make on the mortgage commission.

    Here is my suggestion to increase the costs for those people.

    Every few days, go to a rate site and click to request a quote. They pay for that request whether you get a mortgage or not.

    Just for fun, what if everyone who is reading this requested a rate quote from a rate site. The person advertising would spend a lot on leads that aren't going anywhere.

  • Peter Kinch on 2015-03-12 2:57:24 PM

    I find it interesting when reading these comments - the majority of the feedback comes back to rates. My experience is that a road rep at a chartered bank who chooses to match a monoline will always be able to provide a better products and more options than the broker (as Ron mentioned earlier). The broker channel has to reinvent their value-add proposition - otherwise this will be a race to the bottom.
    Here's a simple question:
    If you woke up tomorrow and there was absolutely no way for a broker to offer a rate better than a bank, what percentage of brokers in Canada would be out of business?
    Without a value-add beyond rate - that number will be very high.

  • George on 2015-03-12 2:58:58 PM

    Long Time Broker, you sound like you are losing business to these rate sites. Too bad you for I guess. Maybe time to hang up your abacus.

  • Jim Tourloukis, Advent on 2015-03-12 3:02:37 PM

    John W, you are correct. In a rising rate environment we would lose these potential clients. If we ever get to this situation again (a rising rate environment), I might change my mind and start to do pre approvals. However, at this stage, we are far to busy to spend time on pre apps. The funding ratios on these are far too low to spend time.

  • Dylan Althouse on 2015-03-12 3:28:45 PM

    Ron Butler, interesting comment. What questions do you ask of the client to ensure the client is being fitted with a suitable product? As a median measure, about how long do you spend on the phone or in person with them? I'm curious what the overall experience is with this model from the client's point of view.

  • long time broker on 2015-03-12 3:37:54 PM

    George, You have assumed partly right about me losing business to rate sites.

    I tried ratesupermarket for a few weeks. Leads came in, but then I had to cut commissions to get the deals. I'm not interested in that. My time and expertise is worth more than that.

    Then I saw my annual volume drop, partly due to rate sites (not much) and partly due to mortgage rule changes (more so). Rather than cut rates, I reinvented my business.

    I got my realtor's license and now I do both. Fewer clients, But more commission per client. My first year as a realtor was my largest volume in 10 years (when adding mortgage commissions to realtor commissions). I just tapped into my database and the clients were there. My clients now don't even talk about rates usually. I have a relationship with them.

    Any mortgage broker with a good database could do the same as a realtor, life insurance agent, financial planner etc.

    I'm not upset with rate sites. In fact I wish I would have thought of it first. I think they are making a killing. I'm just not interested in cutting rates myself.

    If we sit back and try and obtain mortgage clients like we did 7 or 8 years ago, we will go out of business. As brokers we have to get creative.

  • Ron Butler on 2015-03-12 3:52:32 PM

    @ Peter I know you work in specialised rental world where rate issues are often less in play when the investor prioritizes leverage and increased number of doors over rate, but in answer to your question if every bank in Canada advertised rates every day that were ALWAYS lower than the rates brokers could offer then "A" business in the broker space would drop 90% plain and simple.

    @Dylan, we never spend any time in person with a client but we may spend an hour or more on the phone. 90% of the clients are "A" clients so suitability is rarely any sort of issue. I cannot speak to the client's point of view except to say we get our fair share of referrals from clients which would seem to speak for itself.

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