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Clients win as mortgage brokers take on banks
Tony Humble
Financial Post
Monday, November 20, 2006
Do you remember the days long, long ago when the mortgage broker was considered the "lender of last resort"? He was the guy -- there were very few women in the business in the 1980s -- you crept up a rear staircase to see when you were turned down by the bank for a mortgage.
You had to pay a sizeable fee to this gentleman to arrange a mortgage with a lender you'd never heard of, but at least you got your house.
Times have changed. Earlier this week, the Canadian Institute of Mortgage Brokers and Lenders (CIMBL), the mortgage industry's "trade association," hosted its 11th annual convention in Montreal. Twenty-two hundred CIMBL members, the majority of them mortgage brokers, packed the convention, featuring Tony Robbins as a headline speaker.
It was a good show, but as a long-time mortgage-industry participant I was struck most by the appearance of Finance Minister Jim Flaherty, who talked about how the profession has matured. He congratulated CIMBL for its recent development of the "Accredited Mortgage Professional" (AMP) designation and for its significant and growing role in helping to house Canadians efficiently and cost-effectively.
After Flaherty's speech, I spoke with incoming CIMBL chairman Paul Grewal, also president of FirstLine Mortgages. The next step is for CIMBL to become a full-fledged association in May, the "Canadian Association of Accredited Mortgage Professionals".
Grewal's message to Canadians is that "mortgage brokerage is posed to make the leap from a trade to a profession, because the industry has become so complex it really needs a professional to interpret and apply the options to individual cases."
Amortizations of 30, 35 and now 40 years are complemented by multi-part mortgages with re-advanceable credit lines, plus mix-and-match fixed terms of different duration.
Meanwhile, many of the major banks continue to complicate the scene even more by playing the age-old "posted rate" game whereby they will send renewal statements with rates well above those available from a broker, and hope that the borrower doesn't notice.
For those that do notice (most people these days) and go to a broker or competitor to get a better deal, the current bank will suddenly "discover" that they can, in fact, do much better. Often the hapless renewer will find out that their first-time buyer niece or nephew recently walked into their uncle's own bank and got the very best rate with no questions asked.
Today's Accredited Mortgage Professional's task is to cut through the maze, call lenders' bluff and set customers up with the perfect deals they would never have found otherwise.
As a broker back in the early '90s, I remember the trickle of curious borrowers being mildly startled at the options and rates available once they took a stroll across the street (remember, there was no Internet in those days) to see if there could be any authenticity to the mortgage rate, which looked more like a GIC rate, posted in the broker's window.
In those days, bankers were equally startled to discover that their "posted" rates were being questioned. Often they didn't react quickly enough. The new breed of broker, armed with low-rate mortgages funded by mortgage-backed securities, often won the deal.
Today it's an all-out war, with banks using multiple channels, for example buying small lenders with more flexible lending policies and setting up "alternative" lending guidelines to try to win back the market share lost over the past decade to the more agile and now highly trained professional broker. Brokers now control 30% of all new mortgages. The age-old weapons the banks have employed to keep the broker in check have been the bank's strong brand, and the ability to undercut any broker rate on a deal-by-deal basis.
Despite the unfairness of this process, where a broker will often do all the work to qualify a new client, only to have a major institution drop more than a percentage point below its first quote, it is a Darwinian struggle that leaves the customer in control -- the best possible outcome for the economy.
Judging from the raw display of professional determination exhibited at the CIMBL conference, the major banks will have a major fight on their hands.
thumble@smfc.com
- Tony Humble is a financial consultant, angel investor and chief executive of SMF Corp. He was the mortgage columnist for the Financial Post from 1991 to 1999.
Source: http://www.canada.com/nationalpost/financialpost/story.html?id=c02e9a38-b398-48ee-92f1-93836f996c3e |
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