The current state of buydowns

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With rates at record lows, at least a few mortgage brokers are enjoying a break from the cut-throat practice of buying down rates.
“You don’t have to buy down rates (as much) these days because they are so low,” Michael Francis of Centum  National Mortgage Loans told “Buydowns just aren’t an issue right now, especially if the client is loyal.”
In March, when polled for the annual Broker Sentiment poll, industry players were fairly optimistic about buydowns. Some 83 per cent said at the time that they expect to buy down 0-25 per cent of their deals this year.
And it’s a trend that may be even more prevalent in smaller markets.
“I’m not buying down rates right now; it seems to be something that happens more in the larger markets, like Toronto, where there is more competition and online shopping,” Mitch Thibodeau of Verico The Mortgage Professionals told “Here, we find offering good service and education wins us clients based on our knowledge and, as a result, I generally don’t have to buy down rates.”
Thibodeau, who is based in Kingston, Ontario, is wary of the fact that buydowns will become prevalent much more in the near future, and not only when rates rise.
“It may change in the future, though. Online shopping is here to stay, so I feel as time goes on and it becomes easier to shop around for rates, competition will increase and buydowns will become more prevalent.
“People go online and find these no frills offers, but I find that explaining the details on a 2.49 per cent and the fine print is usually enough to win those clients.”
  • Dustan Woodhouse on 2015-07-09 10:59:59 AM

    Callum Ross nailed it at a recent CAAMP event with his line, "you are either in the Price business of the Advice business".

    There will always be DIY solutions that seem less expensive. There will always be comprehensive planners who are worth their weight in Gold.

    Clients and Broker alike:
    Choose your model wisely.

  • Ron Butler on 2015-07-09 11:40:40 AM

    There is another great quote:

    "Decide if you are the value delivery business or the BS shovelling business"

    If you are in the former business the future is bright if you are in the latter you need to buy a bigger shovel.

  • Rich Ulvild on 2015-07-09 3:52:37 PM

    Here is another simple one:

    Rate matters more in the absence of value.

    If we want to commoditize our valuable services to the lowest common denominator (rates) then we can only blame ourselves when our services are no longer required.

    Service, and therefore value, will never go out of style.

  • Ron Butler on 2015-07-09 4:02:52 PM

    Rich, our services will always be required as long as houses need financing, delivery systems may be different. Value is not just rate, it is also the convenience of working online, it is having appraisals paid for, it is having legal costs covered, it is a lot of things.

    Just having a blog and a CRM and calling the client every year to remind them to make prepayment and calling it "mortgage planning" while what it is really going on is asking if the client wants to put in a pool so the broker can refinance the client is hardly a "valuable service"

  • Dustan Woodhouse on 2015-07-09 4:29:08 PM

    Ron, you are not describing the sort of mortgage planning that I engage it at all.

    I sat with clients about 4 weeks ago for 2hrs mapping out some basic options for the refinance of 2 properties so that they might by a 3rd. They went away with the basic foundation of the plan.

    Two weeks ago they returned and we spent another 3 solid hours together sorting out why each of the properties should be in a specific product with a specific lender and the timeline that the first needed to have in order to best set them up for qualifying with yet another specific lender and specific product for the third property.

    They now had their eye on a specific 3rd property and it was unique in such a way that several lenders would not touch it.

    Drawing upon the experience gained in processing 1100+ transactions, and the connections that flowed there of, they have been set up with an accountant that focuses on multiple properties, a lawyer to draw up a joint venture agreement, and are also weighing the pros and cons of purchasing #3 in a Hold Co (as I have done with my own investment properties).

    Sorry Ron, but these folks would never have gotten across the finish line with the beneficial tax structure, legal butt-covering, penalty avoidance, etc. by simply going to a rate site.

    My point is that rate discounters and mortgage planners (to use your term) are in fact pursuing two totally different types of clients.

    Could my clients have found all the data they needed on the internet? Sure, but they would by the end of have spent dozens or more hours that neither of them have to spend, and even then would still not have had the depth of knowledge to cover every base.

    They understand that for the sake of a tenth or two tenths of a percent, they are better off spending those dozens of hours doing what they do for a living.

    This is not a binary topic. Rather it is nuanced and complicated... like many a mortgage application.

  • Rich Ulvild on 2015-07-09 4:48:06 PM

    I am in total agreement with both points Ron.
    I was certainly not targeting any of the "delivery systems".
    My comments were made in general to our entire broker industry and refer to the client/broker relationship.

    If we do not continually strive to add value, education, and service to the client, then the conversation will naturally default to "what is your best rate?" At that point in time, you have lost the loyalty of your client. You are now a commodity.

    None of us want to see that happen. This is a great industry. We just need to keep striving to become better.

  • Ron Butler on 2015-07-09 5:26:12 PM

    Dustan, respectfully, those type of extremely complicated clients represent perhaps 2% of the total mortgage origination space. Credit and Income challenged clients represent another 15% of the space, pure investment clients perhaps another 3%. So 20% or at most 25% of Canadian mortgage origination absolutely REQUIRES the expert service of a mortgage broker as you describe

    Somewhere between 75% and 80% of all Canadian mortgages need plain vanilla great value. The large majority of Canadians own one property and have one mortgage. Lets face the ultimate truth, bank reps and bank branch and credit union employees ALREADY service 60% of Canadian's mortgage needs. That is an undisputed fact. If we want to grow broker share of the space we have to focus on where the volume is and harvesting equity out of two homes to buy a unique property in through a holding company is a great example of Dustan's insight, knowledge, experience and great connections but it is a poor example of a scalable business.

  • Ron Butler on 2015-07-09 5:35:33 PM

    Rich, I agree with most of what you say but I always default to the same point, the consumer gets to decide what value is, the consumer gets to decides if it's education or sales blather and great service is just table stakes today, what mortgage consumer in Canada will put up with average to poor service with all the alternatives available. We don't get to decide the future of our business, the consumer does.

  • Dustan Woodhouse on 2015-07-09 5:41:19 PM

    I love those numbers Ron. I love them.

    They make me love my model and as much as you love yours - which I also love.

    20% of a 1.2 Trillion$ market, which we are agreeing cannot be properly serviced by Banks (the 20%), represents a 240 Billion opportunity for those who pursue my model. A model which I have no interest in scaling.

    240Bm with an average transaction opportunity every three years is 80B per year in volume.

    Efficiently servicing just 0.05% of that market is 40M per annum in volume. A great career. Do that for twenty years, be intelligent with your own income, and you are going to be just fine.

    A staff of 1, or 2, and virtually no overhead.

    In the end though Ron, we both should have pursued investment banking. :)

  • Ron Butler on 2015-07-09 6:02:57 PM

    Just to parse the numbers correctly: $1.2 Trillion is the whole thing but its $220 - $240 Billion a year give or take of new origination, a ton of that is renewals. so let's be generous and say $75 Billion is up for grabs as pure fresh stuff and 20% is $15 Billion which would be ideal for brokers, so sure it's big potential for brokers but $12 Billion of that is credit and income challenged, so about $3 Billion a year that may be perfect for sophisticated clients , which I agree is still a big market.

  • Wayne Campbell, Prince George on 2015-07-10 1:25:38 AM


    If you ever write a book Dustan, please let me know as I will be the first in line to buy it.

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