Platitudes about hard work and dedication often get tossed around when discussing the challenges facing the mortgage industry. But the reality, according to John Bargis, founder of Mortgage Edge, is that the current regulations will constrict the industry and force out a large number of brokers.
“The industry will shrink, that’s for certain,” Bargis says. “Essentially, people who remain in the industry have to reinvent themselves. The highly spiked punch bowl the industry has had the privilege of drinking from for the last 15 years is now gone. Really, what you’re going to see is an exodus of a lot of people who didn’t take the time to understand the industry, who were just order-takers – those who don’t properly understand how to put together a file and how to work with lenders. Lenders are going to increase their expectations of mortgage brokers and agents in the sense that they will require a lot more due diligence – which, frankly, is a wonderful idea.”
It’s a sobering assessment, but one brokers would be wise to heed, given Bargis’ experience. He got his start in the industry at a time when it was much smaller than it is today – and he left behind a cushy banking career that he’d held for more than eight years to do so.
“I honestly wasn’t the bureaucratic type – I didn’t like the set hours, the structure, and I had that sales mentality and entrepreneurial spirit,” Bargis says. “Although I did well in the banking industry, the entrepreneurial spirit kept calling. At the suggestion of my wife, I looked into becoming a mortgage broker.
“I didn’t know much about it; I thought it was an industry that offered financing options of last resort,” he continues. “I quickly realized it was an industry that offered choice to customers. It wasn’t as well known back then as it is today. I think we were generating 2.5% to 3.5% of all mortgage origination at the time. Things have changed, and it has evolved since then.”
As a fledgling broker, Bargis quickly became the top-producing agent in his office.
“I rolled up my sleeves, sat down, called all my contacts and started to generate business,” he recalls. “I called on family and friends, all my spheres of influence. The real estate curve was on a 90-degree angle downward, so really what I had to do, as a former institutional employee, I had to start understanding what an equity transaction was; I had to understand how to put together private transactions. I had to understand how to work for a deal as opposed to just following guidelines. The basket and the range was much larger in the broker industry. From the agency perspective, I was extremely productive.”
Bargis stayed with his original brokerage until 1995, when he decided to strike out on his own. In 2000, along with a group of other influential industry players, he started Invis. At that time, he was recognized by MPC (then called CIMBL) as the highest-grossing broker in the country – doing $155 million in volume over 500 transactions.
He helped manage Invis – and chair CIMBL – before once again striking out on his own. In 2003, he founded Mortgage Edge, an independent brokerage that does upwards of $1 billion in volume per year.
But Bargis wasn’t content to merely manage a brokerage. In 2014, he helped start the Coalition of Independent Mortgage Brokers of Canada. “The coalition is a cooperative of 30 brokerages across the country,” he says. “We do over $5.5 billion a year. The idea behind that is to bring some really prominent people who understand the industry together to try to provide better quality to the lender partners by essentially putting together a group of people who know how to manage their business as entrepreneurs and don’t let their business manage them. We’re looking for that entrepreneurial spirit where they want to manage their business long-term and grow.”
A major reason behind the coalition, Bargis says, is that it gives independent brokers the power of numbers and gives them an in with many lenders they normally wouldn’t have access to, or that would require the backing of a national network due to the volume bonuses afforded to larger entities.
“It’s actually the best revenue model on the street,” he says. “Technically, you earn everything you make except one basis point. You don’t pay on anything we don’t bring to the table.”
Expect a culling
Going forward, Bargis says he expects the industry to shrink by 30%, and agents and brokers who don’t adapt to the new reality of higher expectations will be weeded out.
“There’s going to be some serious reflection required,” he says. “I think anybody who doesn’t have the entrepreneurial thought process and spirit, [who doesn’t] have the ability to understand the direction of the industry and what the expectations are, you’re not going to survive.
“You need to be with a house that actually has some solid management behind it,” he adds, “and really understands the business and trains well – one that spends lots of time training and has some serious lender reach. When I say ‘house,’ I don’t mean the network – I’m talking about [brokerages]. Even the network guys are split into franchises.”
Bargis believes networks will become less important in the future and that more brokers will choose to go independent.
“You’re going to see the smart ones moving toward independence,” he says. “I don’t think there’s going to be room for the larger network models, if you will. The volume is going to decrease drastically, and it’s really about the brokerage, not the network. What does the network really do for you? It’s the brokerage you’re with that makes the difference.
“There’s this misconception out there that there’s management at the top of the networks,” he adds. “The reality is the management happens at the franchise level, at the independent level.
If the franchise isn’t getting a whole lot of value from the network itself and their revenues are decreasing and they can’t provide value to employees, what do you have?”
It’s clear when speaking with Bargis that he loves the industry he works in. He mentions the people he has met and, of course, the clients he has helped get into the housing market. But that doesn’t mean it’s all sunshine and rainbows.
“I think it lacks a good structure,” he says. expectations that agents and brokers do their due diligence and actually play the role of that professional when they’re dealing with consumers. We’re very well paid for what we do, and we have to step up.”
Bargis also expects another round of mortgage rule changes this fall, which will have a major impact on the industry, just like the sweeping changes of years past.
“By virtue of the fact the rule changes are taking place, a number of borrowers aren’t going to have the ability to borrow like they were in the past, whether it be for a purchase or a refinance,” he says. “The idea was to do exactly that: to curb borrowing. The industry will pull back. I’ve got some friends in the real estate market; they’re worried. And frankly, they should be. I wouldn’t have made the changes that abrupt … but it is what it is, and we have to deal with it.”