On May 7, Australian mortgage brokers who possessed three or four stars in the National Australia Bank's (NAB) broker rating system got some good news. This select set of brokers would be granted access to higher LTV loans from NAB Broker than non-status brokers - up to 90 per cent for those with three stars and 95 per cent for those with four stars - as well as online access to its NAB and Homeside customer information via the bank's Internet platform.
"During these economically turbulent times and the tightening credit environment, it is more important than ever to look after our trusted broker partners and offer additional benefits to empower them to deliver a quality service to their clients," said NAB Broker general manager Matt Lawler in a statement, adding, "We want to enable our broker partners to have the same access and capability as the bankers within our branches."
Talk about fringe benefits. In Canada, a few lenders have moved in a direction similar to NAB's star-rating system, allowing their top-performing brokers perks like better rates and faster service.
Further to that, some companies have closed off lending to all but a limited list of brokers who have a proven track record of showing them the money (and the high closing ratios).
While this preferential treatment can be seen as risk management or "filtering out" from a lender perspective, some industry players view it as creating a possible roadblock to broker objectivity when dealing with clients.
Richard Samuels, broker and president of the Scarborough-based independent brokerage Obsidian Mortgages, calls preferred lists and programs the "country club style" of lenders dealing with brokers. He says his main concern with these types of programs is that brokers might feel like they're trapped when it comes to recommending products to clients.
"Performance should merit some recognition on behalf of the lenders, but at the end of the day, the main concern is to make sure that we as brokers and agents are offering the proper products for consumers - and that shouldn't be based on what the lenders are going to give us," he says.
A notable trend among broker benefit programs is that they often cut the brokerage or broker firm out of the picture and focus solely on the individual. As NAB Broker summed up what it was looking for when it introduced the star-rating program back in November, "This initiative supports our vision of partnering with brokers who lead quality practices and are dedicated to submitting quality business."
Let's take a closer look at what's happening in Canada, particularly on that individual focus basis. In March, HSBC announced it was withdrawing from the broker channel and working only with a preferred list of brokers to make its operations "as efficient as possible."
"Brokers on the preferred list are those with whom we have a long history of successful dealings. In order to remain a preferred broker, one simply has to continue providing quality applicants, maintain a minimum volume level and follow our established process for submitting applications," HSBC wrote in a statement to CMP, in which they also said they would not be accepting applications to the preferred broker list at this time.
Macquarie Financial moved in a similar direction last fall when the credit crunch hit hardest. The company introduced a Top 100 Brokers program that provides special pricing for those who reach its $15 million annual volume commitment. Along with volume bonuses and rate benefits, these brokers receive other exclusive extras like dedicated underwriting services and advance notice of new products.
"We partner with people who we value and who in turn value us and our proposition," Macquarie said in a statement submitted to CMP. "In working only with select brokers, it enables us to focus on providing both preferred rates and privileged access. We work directly with our Top 100 brokers to help them win and retain business through a series of benefits that go beyond a simple rate discount."
One more loyalty package that rolled out earlier this year was ResMor Trust's Broker Achievement Program, which provides four status levels for individual brokers: standard, premier, elite and super elite, with benefits that increase with status. Super elite brokers, for example, must fund 50 deals with the lender per year with a minimum of $10 million in volume. Their reward? A possible 130 basis point incentive and a rate discount of up to 10 basis points on five-year, fixed rate products.
Creating incentives for loyalty purposes is a simple and commonly used concept. With extra incentives for brokers who send more business to certain lenders, the thinking goes that these brokers will become loyal originators for said lenders.
Samuels says he understands why lenders have put certain restrictions for benefits in place as a sort of screening method to weed out less responsible or less productive brokers. However, he also points out lenders like HSBC may be at risk of introducing too many limits that could eventually work against them.
"This is an open market and your high performer today could be someone totally different tomorrow," says Samuels. "Lenders should be careful that they're not, in the long term, going to discredit those great performers of the future by just dealing with a certain group. Cutting off a portion of brokers to serve the portion you feel is performing best might not help you meet your bottom line."
And perhaps that is the view of a lender like B2B Trust, which recently eliminated its less formalized broker benefit program to work with all brokers on a case-by-case basis. According to the company's public relations firm, Veritas
Communications, the bank does not have a tiered benefit program or exclusive broker list and has instead shifted to a more "service-oriented and relationship-focused" business partnership with brokers. (The company works with 1,700 brokers across Canada.)
Laurie Furness, a mortgage consultant with Mortgage Centre Canada in Oakville, Ont., says the trend of lenders focusing on higher performing brokers has been going on for some time. As a broker who funds many of her deals with Scotia Mortgage Authority (and appears in the company's print ads), she says she gets slightly better rates on products and more dedicated service. But she doesn't see the extent of the NAB Broker benefits like higher LTVs happening in Canada.
"I don't think anyone's going to change LTVs, but what they might do is give certain brokers a more reasonable answer on a grey area deal," she says.
In the end, it's up to the individual broker to decide if being part of a preferred program or list is something he or she wants to actively pursue or simply take as an added bonus for providing deals to a lender he or she already works with on a regular basis. The important thing to remember, however, is that the customer has a right to know about broker perks.
In Ontario, for example, new FSCO regulations require brokers to disclose lender benefits to clients, letting them know about volume bonuses, giveaways and other privileges. Other provinces like Manitoba are also moving in this direction.
But this is all rather irrelevant if you share Samuels' view that broker success doesn't come down to the fringe benefits lenders may or may not provide if you get on their good sides.
"Ultimately, it's a service-oriented business and it's the customer service that allows you to stay in business - nothing more, nothing less," he says.