Lender: Commission cut won’t protect broker channel

Lender: Commission cut won’t protect broker channel

Lender: Commission cut won’t protect broker channel
A lender is now weighing in on the debate about brokers lowering upfront commissions in order to protect lenders squeezed by tight margins, suggesting it would do little to protect the broker channel and keep other lenders from following Macquarie and Concentra.
 
“As an alternative lender, I’m more removed from this situation,” Nick Kyprianou, CEO for Equity Financial Trust, told MortgageBrokerNews.ca, “but I don’t think it would accomplish anything – brokers and lenders should get paid what they need to for what they do, and lowering commissions isn’t the solution. What’s called for is a more permanent change in how brokers sell their services, a shift away from an emphasis on rate and toward the value-add they and non-bank lenders present clients.”
 
The remarks follow those of a leading B.C. mortgage broker, one of the first to suggest that a significant percentage of brokers are now willing to accept as little as 60 basis points upfront on a standard five-year mortgage in exchange for a guaranteed renewal fee of 20- to 25-basis points.
 
Ryan Cooper, a senior mortgage consultant with VERICO Paragon Mortgage Group, views it as a way of stemming the loss of broker-channel lenders squeezed by commissions and thinning margins, suggesting brokers might be receptive to lower upfront payments in exchange for those guaranteed renewal fees.
 
His suggestion has riled some brokers, although most are concerned that the current market forces will eventually encourage other broker channel lenders to follow the lead of the sixth biggest lender, Macquarie Financial, which last week announced it would cease selling through brokers because profitability – constrained by commissions and interest rate spreads – failed to live up to expectations.
 
As an alternative lender, Equity Financial sets its rates independent of those variables, but Kyprianou maintains that brokers working both A and B spheres must shoulder some of the blame for the challenges now facing their industry and its lenders.
 
“In focusing on rate, they’ve set it up for the non-bank lenders and for themselves to lose,” he said. “The only winners in this are the banks. Taking deals to the banks based on rate doesn’t work to the benefit of brokers. And it’s not selling based on the expertise that brokers have to offer.”
 
It’s the kind of sea-change in marketing that many brokers themselves are calling for, asking colleagues to move beyond selling rate. Ostensibly, it would take pressure off non-bank lenders in some cases challenged to bring interest rates in line with heavily discounted bank rates, used as a loss leader to win clients whom can they be sold other financial services.
 
“Sacrificing rate in order to compete only on rate is essentially a race to the bottom,” said broker and industry trainer Greg Williamson, who is planning a 1,000-broker webinar discussion on July 13 focused on “winning the Rate War.” “That’s because today your rate may be the lowest, but tomorrow it may be someone else and pretty soon you’re working more for less money.”
 
A growing number of brokers are, in fact, scratching their heads over the increasing willingness of banks to eat premature-closing penalties in order keep clients from accepting broker-arranged deals. That tool is being applied at the branch level, and outside of any corporate-wide policy directive, say mortgage professionals. The consequences for brokers – even if they're bringing business to those banks – are, negative, argues Kyprianou.
 
“It can’t be all about rate,” he told MortgageBrokerNews.ca. “But I don’t think cutting commissions is the answer.”
12 Comments
  • Robert Stanfield 2011-07-01 1:55:46 AM
    In regards to Macquarie's comments about finder fee's being to high, maybe they shouldn't have negotiated such a ridiculous pay structure with Verico offices. That pay plan was way to high. Kudo's to Verico for negoitiating a great pay plan for their offices. Their main focus, as told to me by a Macquarie BDM, was Verico offices due to the relationship they had and the pay plan, it was an easy sell. Macquarie made their bed, now they are blaming the spreads for leaving the market. You make your bed, you haveto sleep in it. Close minded lenders like that, good ridance, don't need you in our industry. I agree, as a broker you should be more than just about the best rate, you should be offering knowledge and service, which we all know the banks lack. FYI: I am a former Verico agent now with Invis.
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  • AB Mortgage Broker 2011-07-01 2:23:15 AM
    Macquarie left the industry years ago when they decided they only wanted the top 1% (cream of the crop, if you will) of consumers. I will miss Concentra has there were easy and a pleasure to deal with. As for Canadiana, beware of the wolf in sheeps clothing.

    Lenders are giving away the farm to attract more business and that's not the fault of the industry. They got caught up in there own game and lost. That said, I do believe mortgage associates need to pull their head out of the sand and quite competing on rate. It's time to add value!! Or get out of our industry and go sell cars.

    And to Invis, Mortgage Alliance, Centum, TMG, The mortgage Center, and all the other big brokerage houses, it should be about quality not quantity. Time to clean up your backyard and do your part for the longevity of our industry!
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  • John 2011-07-01 2:31:07 AM
    Plus look at who was running Macquarie and where they were before that. It was a system destined to fail. This article is making news of nothing. Just like 50% of the rest of their articles. As for Concentra, I'm surprised they lasted so long.
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