Continued use of volume requirements may undercut efforts to grow efficiency ratios while threatening broker independence, said IMBA’s new president.
“There are lenders that are taking the brokering out of brokering,” Albert Collu told MortgageBrokerNews.ca after touching on the subject at last week’s meeting of the Independent Mortgage Brokers Association of Ontario. “By continuing to use volume requirements, instead of just going with efficiency ratios, lenders are inadvertently reducing the willingness of brokers to hunt around for the best mortgage for clients in order to fulfill minimum volume requirements with a given lender and maintain status.”
He’s voicing the concern as lenders streamline the number of brokers they work with by adopting efficiency ratios – the percentage of applications that convert to a funded mortgage. That metric for evaluating broker performance is a good thing, said Collu, who supports the shift as the best way of encouraging brokers to improve their stewardship and to ensure deals align with lender profiles.
“What used to happen is that brokers would just throw deals at lenders without knowing the lender’s products or the client’s situation,” he said. “When you enforce efficiency ratios, it works for everyone – brokers and lenders.”
Maintaining those ratios at or above 65 per cent not only wins brokers compensation incentives and access to preferred interest rates, but increasingly dictates whether they have access to the lender at all. Collu, president of Argentum Mortgage and Finance, joins the growing number of industry players who want lenders to reduce their emphasis on volume requirements in favour of conversion ratios. Insisting upon both could disqualify productive brokers hamstrung by their market’s size or modest home values.
“If the average broker is doing $4 million in deals annually,” said Collu, “how realistic is it to ask them to send you $10 million?”
A growing number of small brokerages are now channeling deals for a particular lender through one broker in an effort meet minimum volume requirements. It ensures access for all the brokerage’s clients, but means only one member of the team has official status.
Logistics aside, said Collu, smaller players pressured to meet those volume minimums may find themselves tethered to one or two lenders instead of canvassing the entire field of lenders for the best fit on a client-by-client basis. It’s what Collu means by “taking the brokering out of brokering.”
Still, lenders are increasingly sensitive to the challenges facing brokers in smaller markets as they improve their efficiency ratios but struggle to meet volume requirements.
“I have status with more than six lenders,” Abby Colwell, a broker with Mortgage Brokers City in Saint John, told MortgageBrokerNews.ca. “What I have found is that some are willing to consider volume based on the number of deals instead of the dollar amount because of the lower home values in this market. They’re still using efficiency ratios as well, which is very important.”