RBC confirms broker fears

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It may be the last thing brokers want to hear. Still, comments from RBC head Gord Nixon on the “aggressive” approach of the Big Five confirm what veterans of the rate wars already know.

“We have never been more aggressive,” he said Wednesday, as part of a panel discussion in Washington focused on the financial crisis and its myriad effects on the global economy.  “Our biggest challenge right now is to put credit out. We have balance sheet to go at all levels.”

Brokers and their lenders are engaged in the same struggle as a growing number of Canadians defer home purchases in favour of paying down unprecedented levels of debt. The move has only compounded the more seasonal challenge of maintaining originations as the real estate market goes into hibernation.

Nixon’s comments suggest brokers won’t necessarily be able to count on the traditional cooling-off of competition with bank road reps. Although the Big Five usually use the winter to focus on hawking RRSP investments, this year they’re likely to remain focused on growing mortgage originations in an effort to meet already-reduced targets.

While Nixon didn’t touch on growth in road rep numbers, RBC and it broad-shouldered competitors continue the ramp-up.

His bank, alone, took on 1,000 new sales employees in the last 14 months – a large percentage of them mortgage specialists and five times as many as it took on the previous year. BMO, which left the channel in 2007, added 1,000 frontline workers of its own in the second quarter of fiscal 2011, even as it continues to add to those numbers. The bolstered sales teams have helped drive sales, with the bank bumping up the value of its residential mortgages by $2 billion, year-over-year.

Bank want ads calling for more of those mortgage specialists now crowd online headhunting sites, indicating the Big Five remain focused on an aggressive approach to selling mortgages.

Some brokers have been critical of that strategy, suggesting it may ultimately weaken the Canadian economy if underwriting standards aren’t maintained.

The Office of the Superintendent of Financial Institutions (OSFI) has echoed that warning.

“What we are doing is stepping in to increase the monitoring of that portfolio,” OFSI head Julie Dickson told reporters in September. “I think the concern is that the conditions are such that there would be tremendous pressure on banks to loosen those standards.”

  • @kiltedbroker on 2011-11-18 4:25:46 AM

    Not sure that I am really 'afraid' of RBC, however I would like to point out that recently our office has experienced a higher than normal amount of mortgages that have been declined by the insurers (and our mono-lines) but magically seem to get approved at RBC by their fierce band of Road Warriors.

    When you put 2 and 2 together and it doesn't add up, you have to start questioning a little bit... What is a guy in a Kilt supposed to do? Oh well, loose standards - more like open floodgates - I have said enough.

  • rd on 2011-11-18 4:40:45 AM

    My wife is an underwriter at one of the big 5 and they have slackened off their guidelines when approving files. Here we have a saying if your broker cannot get it done go to RBC

  • David S on 2011-11-18 5:02:30 AM

    Amazing, Banks & government get together to limit LTVR on ratios to 85% as credit is too easy to get. Now the banks not only want more, but relax their standards to get it. It's called having your cake & eating it too I guess.

  • Jason Smale on 2011-11-18 5:03:25 AM

    RBC remains strong in the market, no question.
    I however do not fear them, or their super bloated Mortgage Specialist team. As they continue to grow that market and slack off on underwriting standards they will do their own damage and I for one will be waiting to go in and begin taking clients two by two like Noah's ark!

  • J M. on 2011-11-18 5:06:16 AM

    Yes, Bank's such as BMO and RBC have not even one thought of respect with regards any concern of the outside broker. Their intention is to put you the broker out of business (period) and they will do what ever it takes in their power to take every single bit of business away from anyone, and they are doing it. They will undercut the rate, change the term and even remove any Insurance Premium if they see fit to do so, no mercy for the person who has just spent considerable time and in most cases at their own expense to give their clients the best possible mortgage available out there. That is until the client shows it to either the two banks mentioned above. And as long as their politial friends sit back and say nothing as usual, there will be a lot of very good people joining the already long unemployment lines. Do these banks care, do the politians care, hell no. If you are a broker move your money out of these institutions, close your accounts with them. It may not be much, but it would be a good start and one has to start somewhere, why not here. Got to stand up sometime and the time is now.

  • JM. on 2011-11-18 5:35:49 AM

    In a follow up to my previous comment. I had a client, only wanted the very lowest rate possible no matter what. I got him it along with other most favorable terms and had the commitment signed back to the lender. With in hours the client informs me that BMO has undercut what he got from me and now also on top of that, he was not required to pay any Insurance Premium. Live and learn they say. Now you know people, this is part of the big overall plan for the BMO'S and RBC's of the world. Do you think for a second these actions and and many more to come have not been discussed between these players and others who we are lead to believe are looking after our best interests over a nice expensive dinner somewhere cozy. I guess one can argue that one deserves what one gets, when one simply lays down to be stepped all over with. Long live the power of the Ivory tower. The movie the Twilight zone is over people. Wake up.

  • Lior on 2011-11-18 7:36:58 AM

    I'm not sure if I was ever "afraid" of RBC or BMO or anybody else for that matter. It's not surprising that banks are moving away from the broker channel because they pay their commissioned staff, in most cases, less than what an independent broker would earn, and furthermore the banks are always looking for opportunities to cross-sell their in-house financial products which independent brokers don't do.

    But on the competition level, Canada's mortgage market continues to grow magnificently to the point where it's now worth about a trillion dollars. With that huge of a market, surely there's enough room for everybody to compete. But let there be no doubt that the sales reality is very different from 10 or 20 years ago. Just like other business sectors, the business has become more commoditized and price driven. But there are still opportunities in other segments of the mortgage market. The thing about competing with the banks is that they're very big which means personalized service is non-existent when you have to serve tens of millions of customers. And they're also quite limited with the amount of risk they will take.

    @kiltedbroker: could it be that their internal sales force is sending these clients to AMS who then source it out to self-insured lenders? This is a subject that has been discussed quite a bit including last month's issue of IMBA's magazine where unlicensed bank employees are essentially "brokering" mortgages?

  • Jim on 2011-11-18 9:12:57 AM

    Last time I checked we live in a capitalist society. Business is business. If BMO and RBC want to givde it away to garner more market share, it is their decision. Quite frankly, they are smart to do this. They not only get more market share, but they squeeze out us brokers. Good for them - bad for us.
    Also, how is this different from National Bank and TD paying realtors 50bps as a finder fee just for a name.
    Let's face it boys and girls, our days are numbered. It was fun while it lasted.
    For those of you that will be looking for a job, I hear RBC is hiring mortgage reps.

  • John Dearin on 2011-11-18 10:19:15 PM

    We are our own worst enemies. Thank god I have another business away from this brokering business that provides a decent income to me and will for my main agents down the road.
    We have as a group put Scotia Bank #1 in the broker lending arena (they have road warriors out competing with us. The local one here is sending business to her buddy in a different brokerage) and National Bank #6 (they are paying real estate agents 50bps not to refer to us.) Meanwhile the guys that don't compete on the street with us (Street Capital, Home Trust, ING, Merix) are at the bottom of the referral list. For whatever reason, we are our own worst enemies. RBC and the boys are only speeding up the process. We are not far away from only getting the scraps on B and C deals. When that happens, look in the mirror to find who is to blame.

  • @GTAMortgageNews on 2011-11-19 2:22:31 AM

    Lior and @KiltedBroker,

    It is no secret that AMS is doing huge volumes of RBC turndown business. Anecdotally I have heard that some of the VP's at RBC are upset that there are Mortgage Reps making more money than they are as a result of how much volume they get. A BDM I know went to work for AMS and RBC decided to add a handful of new AMS specialists to his territory to water down his commissions. He consequently went back to his former job at a fraction of the pay.

    While RBC's A business is getting all the publicity I think how they have incorporated their alternative lending into the picture is just as important for Brokers to understand.

  • James Shinners on 2011-11-19 5:10:11 AM

    In the long run, loose underwriting will come back to bite the banks. Then they will fire all their road reps and blame them for the delinquency problems.
    As brokers, we also need to grow our numbers so that we too will become "too big to fail".

  • Ron Butler on 2011-11-19 5:52:22 AM

    I actually don't think RBC ever thinks about brokers as competition.

    Last time I looked RBC was the number one bank in Canada.

    Last time I looked RBC were a VERY profitable company.

    I have been listening to brokers say "RBC is going down" for 14 years. RBC is still here in a big way.

    We need to get off this "unfairness" kick. Business is not "fair". We need to market more intelligently, push our available lenders for better rates, plan carefully for increased competition and share proven ways of reaching more customers. Crying about competition is very counter productive.

  • Emad Ibrahim on 2011-11-18 11:31:29 PM

    I just scored 2 clients out from RBC to another lender and was able to get them a better rate and terms. There is another client that was declined from RBC due to credit issues and employment and I was able to offer them a mortgage. That said, I do not think that either RBC or BMO with all their changes will be able to win these kind of clients.
    I believe the difference is that they only have one strategy and one guidelines but for us( brokers ) we have so many different strategies and guidelines and if the person sitting at the other end of the phone at a lender does not understand or did not accept your explanations, there is another one who will.
    So I do not know why we should worry.

  • Angela Wong-Liao, Invis Inc on 2011-11-18 7:56:56 AM

    In my opinion, nobody can say they are too big to fail, should any corporations keep on cutting their profits to increase market share, there is a time limit. To loosen their underwriting guidelines for market share is another dead end approach, just look at the bankers south of the border, Citi Bank, Wells Fargo Bank,Bank of America, Morgan Chase Bank etc, the big recession in 2008 was a result of loose lending,the American banks and investment firms were focusing on MARKET SHARE and GREED. I remember I met with a Citi Bank manager in early 2000 when I was still working for a Canadian Chartered Bank, this man was simply so arrogant and obnoxious to us, the Canadian bankers and look at where they are now. With reference to the Four-way test of the things we think, say or do, the code of ethic from Rotary International.
    1.Is it the TRUTH
    2.Is it FAIR to all concerned
    3.Will it build GOOD WILL and BETTER FRIENDSHIPS
    4.Will it be BENEFICIAL to all concerned
    I urge RBC and BMO to reconsider their current aggressive strategies.

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