January marked the end of an extremely trying year for the mortgage industry, so when we conducted our first annual Broker Sentiment Poll, the expectations were that a lot of negativity would come through in the results. We were more than happy to see that the responses couldn't have been further from our original expectations.
Perhaps some of the best statistics that came in were concerned with business growth and development. For instance, 43% of respondents planned to increase their marketing budgets in 2009, and 45% planned to keep them the same. Another 35% said they would even be hiring new staff this year, and for the 65% who said they wouldn't be hiring, only 6% said they would be reducing.
It would be safe to assume then that a majority of brokers/agents out there feel that while business is by no means near its peak, it's also not as bad as mainstream media portrays it to be day in and day out.
Source of business
Considering that a majority of respondents indicated in the optional comments section of the poll that existing clients would be the way to go in 2009, and that even referrals should be treated as extensions of those existing clients, it was odd to see that 64% predicted that more than 50% of their business would come from new clients.
Of course, a lot of the respondents who favoured new clients were also relatively new to the industry, as building a client database to actually maintain generally takes a lot of time. Or does it?
Susan Lee-Rodrigues, a mortgage specialist with the Mortgage Professionals in Toronto, Ontario, has been in the industry for five years and already her business is 100% database-driven. "I thought it would take five years to hear back from people once I set them up," she says. "Instead I started hearing back from them within a few years. I guess you give them so much, as far as rates, products and options, and they appreciate that."
The key, she says, it to establish strong relationships that are comparable to a friendship, as opposed to a strictly business one. One way she does this is to educate her clients.
"The more knowledge you empower them with, as far as rates, products, long- and short term plans, the more they appreciate it and trust you," she says, comparing the experience to dealing with a mechanic. "They could just fix your car and give you the bill, or they could tell you exactly what was wrong with it, how to maintain it properly and just generally educate you. When they do that you're more likely to go back to them."
A not-so-surprising find is that a majority of brokers/agents plan for their business to come from the residential side of things. In fact, 85%, to be exact, see more than half of their business coming from the residential sector, while the next most popular was commercial, with only 6% seeing more than half coming from it. The main reason for this, as one respondent offered in the comments section, was that "you have to master one lending field, as dabbling in both reduces the professionalism of the mortgage broker."
Dylan Gallagher, a broker and founder at Bridge Capital, in Calgary, Alberta, was fully aware of this when he planned his business model, which places four commercial brokers in the same office as three residential ones.
He credits the lack of brokers in the joint commercial/residential space to the fact that there just isn't a lot of training available for commercial mortgages.
"Even though commercial and residential are in the same space, they are so different," he says, pointing to something as basic as understanding the way money comes from lenders. "The biggest challenge is knowing who has the money and who's lending. Once you understand that it's easy to pick up the phone."
Understanding the complexities, Gallagher's office works with competitors as co-brokers on commercial deals, so that when another broker is faced with a commercial deal and doesn't understand the best way to fund it, they can still service their client and not have to send them away. The cost is an 80/20 split for Bridge Capital.
Gallagher's suggestion is for brokers who don't understand the commercial market - which he says is 10 times the work but also 10 times the profit - to surround themselves with other brokers who do. And for the ones who do understand the commercial market enough and want to deal with both, fortunately the two work well together.
"Since commercial deals take a lot more time, a broker could do a handful of residential loans in order to cover the overhead while they develop their commercial portfolio," he says, suggesting that if your client base is made up of borrowers who have commercial backgrounds, it would definitely be worth looking in to. However, if it's primarily first-time homebuyers you're better off sticking to finding a few more of those rather than dealing with a commercial mortgage.
Dick LeBlanc, an Invis mortgage consultant in Moncton, New Brunswick, does about three or four commercial loans a year, on top of having a commercial specialist in his office. He also supplements his business selling life, disability and critical illness insurance through one of three providers he regularly deals with.
And while he admits each deal doesn't pay a lot, dealing with a select group of companies ensures that he's comfortable with the products, and that over time the financial gains do add up. "It's paid in monthly installments for the period of the plan, so once you sell enough that monthly payment ends up being a healthy supplemental income," he says.
Richard Samuels, a broker at Obsidian Mortgages in Scarborough, Ontario, thinks the mortgage broker is in "a perfect opportunity to discuss real life planning with clients", so it's not a bad idea to focus on more than just one product.
"Financial planners are great referrals for brokers, sure, but in reality the brokers are in a better position to talk to their clients about this - they're committing them to a 15-to-35 year loan," he says.
That said, he still believes you should become a "master of mortgages" before you branch out, and that sometimes the best way to truly help a client is to form synergies or alliances with other experts, rather than "wearing all those belts at once".
When asked what percentage of their loans they would fund through banks versus private lenders, 62% said they would fund more than half of their loans privately. The reasons varied, but a majority felt that the market for brokers was heading towards private lending, not only because bank guidelines are becoming tighter, but because they felt that private lenders were improving their alt-A and prime offerings.
LeBlanc said he preferred to fund his loans privately because there is a lack of pressure to take on additional products, as most private lenders are strictly mortgage-based.
"When you deal with the major traditional banks they try to get your client to take a lot of added services, plus try to lock in the customer by offering them matching rates," he adds. That said, a lot of customers actually prefer to go with traditional banks, citing reasons like comfort and familiarity, says LeBlanc.
Samuels at Obsidian Mortgages has been in the industry since 1998, and has noticed that in the last two or three years he didn't have to deal with private lenders, whereas now private lending is coming to the forefront again.
"This is especially true when you look at the A minuses and the B's, unless you're getting 100% A business," he says.
Samuels actually constructs plans with his clients and lenders together, so when it comes time for renewal, everyone knows that there is a clear exit strategy in place.
"When you're dealing with privates that you know they have no problem turning over the customer at renewal time," he says, adding that "dealing with the big banks is an easy process, but now they're becoming more competitive for renewals."
Technology and marketing
It's good to see that only 12% of respondents indicated they would be reducing their marketing budget, as studies have shown that cutting back on marketing in tough times does more harm than good in the end. In fact, the ones who increase their marketing during a slowdown are likely to capture more market share in the long run.
Some more surprising results came when respondents were asked about Customer Relationship Management software (CRM). While 19% said they don't use one, five per cent had yet to find an effective CRM. Others weren't even sure what it was, which highlights one of the major problems with CRMs - the initiative often fail because it is limited to plugging in software, rather than providing a proper context for the software, allowing brokers/agents to learn from it.
Fadia Abboud, who worked for a national brokerage managing its CRM for five years, started her own company, CRM … la Carte, around a year ago. She says the most effective type of CRM is something that does everything automatically for you, whether it's sending out thank you cards once the deal is completed, or updating the client when his or her mortgage term is coming to a close.
Abboud suggests some simple, practical and cost effective things, like sending out thank you cards and a subscription to a magazine (something appropriate like Canadian Real Estate would do) when someone signs a deal. Beyond that they could receive things like anniversary cards, renewal cards, and even things like holiday and birthday cards - anything to keep you on the top of your client's mind, she says.
"As brokers get too busy things like this fall between the cracks," she says. "It's important to have something that is completely automatic, and at the very least, sends out a thank you card and a yearly followup," she says.
Another alarming statistic was that 16% of respondents didn't have a website with even basic information like their contact info on it. This isn't surprising to Lee-Rodrigues, who not only is without a website, but once went a year-and-a-half without business cards. Fortunately for her, 100% of her business is referrals and repeats, butregardless, it would still be useful to have some sort of website.
"Obviously it helps to have a basic online profile and professional web presence so your clients can find you," says Robert McLister, whose website, Canadianmortagetrends.com received over 100,000 page views for the month of January. "However, unless you're going to add a real good reason for people to show up at your site, don't waste time trying to get in Google's top 10 search results for the keyword "mortgage broker."
McLister's site, which updates clients on a daily basis with relevant industry news and analysis, generates 50% of his mortgage business, but a high maintenance site like his, while an inexpensive way to promote your business, is not for the faint-hearted.
"The news research, writing, interviewing, editing, and publishing is a full-time job," he says, adding that a simple task like updating the Canadian mortgage jobs page takes several hours a week.
Knowing this, he's created a "mortgage news box" which allows brokers to display constantly updated mortgage news on their website with little effort - an added value to your site that could give clients a reason to check it regularly.
While a website doesn't have to be regularly updated like McLister's, and people like Lee- Rodrigues do well without any website at all, as clients are more computer literate today than ever before, a website is a relatively inexpensive way to add validity to your business. And if nothing else, it ensures that when people do "Google" your name, at least they'll get your phone contact information.
While it was impossible to include absolutely all of the invaluable feedback we received from our Broker Sentiment Poll, the wealth of information is sure to come up in future CMP stories. But perhaps the most positive result of the entire poll came when we asked respondents whether they thought they would be leaving the brokering industry in the next 12 months. An overwhelming 95% said 'no'.