It wasn't long ago the broker channel was predominately represented by small-shop brokerages. In a November 1992 survey commissioned by the Mortgage Brokers Section of the Ontario Ministry of Financial Institutions, an estimated nine in 10 brokerages had five or fewer people. In fact, 48% of brokerages had only one person. This was the lay of the land for many years.
Fast-forward to today: the 1,436 mortgage brokerages registered in Ontario paint a very different picture. Yes, the traditional small-shop brokerage is still around, but the larger national networks have taken centre stage. At least, that’s how it seems when it comes to influencing lender policy. (The Financial Services Commission of Ontario [FSCO], the current regulator for the province, has neither commissioned a new survey similar to the one cited above, nor was FSCO able to share this information when I requested it.)
For the past few years, there has been a trend among some lenders to cut off business ties with the small-shop brokerage by requiring brokerages meet minimum-volume requirements. For example, if the brokerage can’t originate $5 million in new loans annually, the lender will cut off the brokerage. It doesn’t matter how well the loans perform; or if the brokerage maintains an application-to-funding ratio at or above the lender’s standard. It’s simply a matter of volume.
For a large national brokerage, this isn’t a problem. The number of mortgage agents together will satisfy any lender’s minimum volume requirements. But for the small-shop brokerage, there’s not enough business to go around to satisfy multiple lenders. This draconian measure is wrong on many levels. And as the proprietor of a small-shop brokerage, I can no longer stay quiet.
Every mortgage broker and agent in Ontario – or any other part of the country – should be as outraged as I am about this unfair practice. It doesn’t matter what size brokerage you work for now or may work for in the future. As licensed mortgage professionals, we’ve all fulfilled the same requirements to do business. That doesn’t change because you prefer to work in a smaller office. Where you decide to do business should have no influence on the number of lenders to which you have access. For years, that was the fair practice. What changed?
And what about the public? Is the consumer better served by marginalizing smaller brokerages? Definitely not! Ask any small-shop brokerage about their level of service, supervision and training. I’m sure they’d match up against any large office.
But that’s not the point. There should be room for everyone to operate in this industry. You should have the opportunity to work wherever you want, and with the same access to lenders who service the broker channel.
No one would argue against lenders controlling their costs. If your benefit to a lender is net negative because your application-to-funding ratio is consistently below the industry standard, and no amount of training has changed that, you deserve to go. If your business adversely affects the lender’s delinquency ratio, and they have good reason to suspect fraud, you deserve to go. On the other hand, if any business you originate performs well; your application-to-funding ratio is good; and no BDM is spending extra time or money on you, then your benefit to that lender is net positive.
By being forced to comply with minimum volume requirements, mortgage brokers are losing their ability to shop around so they can maintain their active status with lenders. This undermines the integrity of our professional service.
So what can be done to reverse this ugly trend and restore the fair practice that has characterized this industry for decades? This is my call to action for every brokers’ association, including CMBA, to right this ship. Collectively, you represent every mortgage originator who works exclusively in the broker channel across Canada. You have the ear of the lending community, and I can’t think of anything more important you can do for your membership.
At the grassroots level, I encourage every originator who works in the broker channel to make some noise. Let’s unite and reinforce the ground we stand on.
Blair Anderson is a mortgage broker at Anderson Associates, a professor at the Real Estate and Mortgage Institute of Canada, and the founder of MortgageResource.ca.