Brokers vs. lenders at renewal time

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Competition may be ramping between brokers and lenders for client business at renewal time. We spoke with two brokers and a lender to get a sense of how that delicate process is navigated.

Our story starts with a broker who contacted with an axe to grind. He’s considering leaving the industry as a result of dwindling renewal business. Lenders are becoming more aggressive at renewal time and offering rates he couldn’t compete with, he said.

“What we do is bring business to lenders, obviously, and what they’ve been doing is at renewal time is offering (clients) rates we couldn’t possibly match,” the broker, who spoke with on condition of anonymity, said. “They offered rate guarantees for seven months. The most we can get is 120 days. So they were pricing us right out of business.

“The only way to compete is they know the most we can do is drop a rate by 15 basis points.”

The broker, who has nearly 20 years of industry experience, claims his income has been cut by 35% as a result over the past two years.

But does this broker have a leg to stand on?

Dustan Woodhouse, a broker with Dominion Lending Centres, doesn’t think so.

“I think that’s a broker who fails to understand the nature of the business we’re in, because we are paid for an introduction. We’re paid by the lender to bring that client to the lender. Period, the end,” he said. “You aren’t bringing the client to the lender for 1,2,3,5 years but to make the introduction. A lender doesn’t really earn anything of substance in that first term of the mortgage; their whole core of their business is based on that second and on the third term.”

Lenders who contact clients at renewal are doing so to cover their bases, Woodhouse argues. And that’s just good business.

“If they don’t get that renewal at the second term it hammers their books big time … it’s a two-way street,” he said. “The lender is running a business as well and they need to retain that client in order to be there to place another mortgage with them.”

The competition is healthy, according to Woodhouse. And all is fair in love, war and, of course, business.

After all, brokers are free to put up their own fight at renewal.

“As far as beating them to the punch, Scotia goes after the clients at the six month mark, most lenders go after clients at the 120 day mark – we all know that,” he said. “I reach out to most of my clients six months out to be ahead of the curve. But I don’t think that’s anything special.”

Speaking from the lender perspective, Elaine Taylor, vice president of sales at MCAP, says it’s in their best interest to try to service the customer at renewal.

“There is a process that says within a certain number of days before the expiry of the mortgage, a lender would reach out to see if the customer has been serviced,” she said. "We don’t know who has and hasn’t been contacted by the broker.

“We have to understand it should be win-win-win; a win for the customer, a win for the broker and a win for the lender, whoever that happens to be,” Taylor continued. “If (the broker) did a good job they would expect the deal to come back.”
  • David Larock on 2016-09-14 10:53:27 AM

    “Don't wish it was easier, wish you were better. Don't wish for less problems, wish for more skills. Don't wish for less challenge, wish for more wisdom” - Jim Rohn

  • John Sayer on 2016-09-14 10:58:17 AM

    Eliminating competition is Anti Trust.

    A major reason most banks do not deal in the broker channel, they do not care to compete fairly with all parties.

    ANY lender choosing to favour a client at the expense of an engaged broker as well as the original broker are at risk.

    Anti Trust protects fairness, lenders big and small must abide.

  • Len Lane on 2016-09-14 11:21:57 AM

    Sad part is for the broker is that most of them do not have a crm program and so have no idea when things are up for renewal. Personally we start at 6 month ourselves to make the client aware that they should talk to us before auto signing the renewal. We have a very high success rate in converting clients if its in their best interest.

  • John Van Driel on 2016-09-14 11:23:52 AM

    Aggressive retention has been a fact of life for some time now. The issue that grinds my teeth is lenders who will scoop our referral sources (realtors especially) by offering them the same referral fee as they give us.

    Unethical, yes, but illegal??

  • Michael Yasny on 2016-09-14 11:45:44 AM

    If brokers were more than just a mortgage broker they would have a relationship with the client were the client would always seek the advice of the broker when it comes to MONEY not just mortgages. If this relationship is in place, it will not matter if the bank has offered the client a renewal that they think is fair. The client will still call the broker for their opinion and at that time the broker can review the offer and either agree it is a good offer or suggest that they could find a better one. Even if the broker agrees the offer is a good one, the broker could ask the client to allow the broker to bring the deal to the bank on their behalf and then earn a commission. If the bank does not wish to pay the commission to the broker it would be a pretty good bet that the client will allow the broker to take their mortgage to another bank. We all know the new bank will match the previous banks offer and now the broker makes a commission.

  • Paul Hudson on 2016-09-14 12:04:55 PM

    I agree with Dustin & Len. 6 months before renewal is when all brokers should contact their renewing clients (as well as once a year on the anniversary date, to see how all is going). It's a good opportunity to review whether the current mortgage features still fit the client's needs, whether they are still happy with the FI we set them up with, whether they plan to buy something new...the list goes on. Sometimes I recommended my clients stay with their current FI at renewal if it makes sense, knowing my good advise is appreciated and will likely lead to future business (referrals or otherwise). Staying in touch with clients regularly is one of the easiest ways to stay top of mind and retain future business.

  • harold tagg on 2016-09-14 12:48:14 PM

    I love when a client calls me about their renewal and then I find out that I placed them with Merix. I just help them get the best rate, stay with Merix, and I get paid every year after the renewal.

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