Lenders fight to increase broker commissions

Lenders fight to increase broker commissions

Lenders fight to increase broker commissions Competition down under has encouraged lenders in Australia to increase commissions for brokers to record-highs, but don’t expect the trend to come to Canada, say brokers.

“I don’t anticipate commissions will go up; they will likely remain flat,” Ferd Gatt of Dominion Lending Centres told MortgageBrokerNews.ca when asked whether Canada will experience a similar trend. “Competition is very volatile and we’ve seen fee reductions just to remain competitive.”

In what may seem like an impossible phenomenon to Canadian brokers, Australian lenders are aggressively competing by one-upping one another on commission.

Australia’s central bank, The RBA, wrote in its most recent Financial Stability Review that lenders are competing more aggressively for broker business by hiking commissions. The bank believes this could lead to an erosion of lending standards.

“Industry estimate indicate that 40-50 per cent of new housing loans are now sold through mortgage brokers,” the report states. “The more banks use brokers, the greater is the risk that a misaligned broker incentive structure would generate significant amounts of lending that is outside their risk tolerance or is other inappropriate.”

The fact that brokers account for such a large chunk of originations in Australia is a major contributor for the increase in commissions.

However, compare that to Canadian origination numbers – 31 per cent according to CAAMP’s most recent tally – and there is less incentive for lenders to aggressively compete for broker business.

If brokers were to win back some of that market share, they may be in a more realistic position to expect lenders to hike compensation. And winning that market share should be one focus on industry associations, according to many brokers.

As it stands, however, many brokers have to cut into their own commissions just to stay competitive.

“Larger volume brokers can more easily afford reduced compensation, as is quite clearly shown via the rate discounting that some volume producers use as a cornerstone for their business,” Dustan Woodhouse of Dominion Lending Centres Canadian Mortgage Experts told MortgageBrokerNews.ca.

Still, brokers can at least expect compensation to remain steady, according to Woodhouse.

“In an industry in which 65 per cent of brokers process less than ten transactions per year, and the median number of files processed is 24 the risk to lenders initiating a compensation cut is significant,” he said. “This swath of brokers represents a notable volume of production and for them a commission cut would have a material impact on the individual Brokers ability to remain viable.”