As I constantly study trends in the industry, I like to pass on the really informative ones. Following is a very recent article by Deloitte, I find it informative, but I disagree with the number of households that will be using Mortgage Brokers – I will always maintain the importance of the relationship that is developed between the consumer and the talented Mortgage Professional. For over twenty years I have insisted on providing solid advice, preparation and complete disclosure at all times, ensuring a stress free experience..Unlike the U.S. mortgage broker market, brokers will remain a fixture in the Canadian mortgage distribution landscape, and Canadian mortgage holders will ultimately benefit as a result, says a new report by Deloitte.
“The Canadian mortgage industry is undergoing another significant paradigm shift,” says Todd Roberts, consulting partner and leader of the corporate strategy practice for Deloitte. “In the face of significant industry developments such as the recent credit crisis, industry consolidation and price competition, many banks and non-bank lenders are starting to seriously evaluate the economics involved in pursuing the mortgage brokerage channel. As more and more of these lenders enter this business, Canadian mortgage consumers will ultimately benefit in the form of increased choice of products, value-added advice and more convenient services.”
The future for the mortgage broker channel in Canada remains positive, although the scenario anticipated five years ago where mortgage brokers were expected to represent the majority of origination volume is unlikely, says Deloitte. The channel will continue to stabilize, settling at approximately one-third of mortgage origination dollar volume, it says.
In response to consumer group concerns that mortgage prepayment penalties are complicated and lack disclosure, the federal government has stated its intention to standardize its calculation and disclosure. The typical repayment penalty is either three months’ interest or the difference between the existing rate and the rate the lender could charge in the current environment – known as the interest rate differential (IRD). In a rapidly falling rate environment, the IRD method provides the lender with greater compensation for the foregone interest revenue, but it is typically more expensive for borrowers who plan to discharge their mortgages.
“If new government regulations remove the IRD penalty as a barrier to switching, more consumers will likely switch mortgages in periods of declining interest rates,” says Roberts. “In the absence of stiff payment penalties, lenders will therefore seek to minimize lost customers by building strong relationships through active cross-selling and retention strategies for at-risk groups.”
According to Deloitte, emerging trends that are expected to shape the Canadian mortgage industry and ultimately impact Canadian mortgage holders include:
1. The balance of power will shift from financial institutions to mortgage-seeking Canadians. As the mortgage lending landscape continues to shift, Canadians will have access to a wider range of options when selecting a mortgage. This has increased competition among lenders (bank branches, mobile mortgage specialists, independent mortgage brokers, and online sources) which in turn will result in more customer-friendly service, increased product offerings and convenience for Canadians seeking a mortgage.
2. Online and telephone banking will continue emerging as viable channels. Remote self-service options such as online and telephone banking are emerging as popular alternative channels for obtaining mortgages. Given the new level of sophistication telephone banking has recently achieved, Canadians no longer need to leave home to obtain a mortgage because some lenders are allowing borrowers to complete their mortgage applications using a voice signature. In addition, online features such as calculators, planning tools and live chat options with lenders are giving Canadians access to more information than ever. Although these channels are not new, they are in the early stages of adoption and signify an important trend for Canadians interested in the self-service option.
3. Mortgage brokers will evolve from “rate shoppers”’ to “advisors” in order to survive. Given that Canadians now have increased access to mortgage rate information, mortgage brokers as “rate shoppers” is quickly becoming irrelevant. As such, the “mortgage broker as advisor” value proposition will be the most successful approach for this channel. To succeed in today’s hypercompetitive marketplace, mortgage brokers will start to offer value-added advice to Canadian mortgage holders similar to the way investment brokers have evolved from transactional to advice-based roles.
4. Major banks will continue to compete for broker business. Major banks will continue to invest heavily in proprietary distribution to compete directly with the mortgage broker channel, and to a growing extent, each other. In particular, the emergence of bank mobile mortgage sales forces (MMSF) is challenging the perception of brokers as the low-rate/better customer service alternative (particularly among non-branch/monoline lenders). As a result, bank MMSF are making major inroads due to convenience and customer service. Armed with differentiated products, more than 2,800 mobile mortgage sales agents are operating in Canada today. The evolution of MMSF and the role major banks choose to play in the broker channel will have significant implications for the future of broker originated lending in Canada. If banks choose to stay in the broker channel, Canadians will have more choice and competitive pricing. Brokers will also need to raise their game and increase their level of client service sophistication. However, if banks withdraw from the channel, it will dramatically restrict the supply of mortgages in the broker channel.
5. Investments in technology will benefit consumers in terms of speed and convenience in obtaining a mortgage. As more lenders make technological advances, quick turnaround and visibility on deal status will improve, ultimately benefiting consumers. Improvements to workflow management tools streamline back-office operations, facilitate accurate and timely front-end communication with consumers, and allow lenders to proactively handle exceptions and reduce turnaround times. For example, if a borrower wants to know whether they can increase their mortgage to win a bidding war, the lender can now evaluate the risk and provide them with an answer within four to six hours – compared to the several days it used to take using a manual process.
6. The super-broker networks will continue to consolidate. In recent years, increased competition, heightened compliance requirements and rising technology costs have pushed the broker market to consolidate, with smaller shops merging into super-broker networks. In 2005, almost 70 per cent of Canadian brokers were employed by one of five broker houses. Today, this figure tops 85 per cent as new mid-tier networks have emerged. As a result, the quality of the remaining firms is much higher (for example, more consistent training for brokers, better technological enablement, greater negotiating power with large lenders on behalf of consumers for better products and rates).
7. Niche lenders with specialized product offerings will emerge via the broker channel. As the participation of new lending institutions in the mortgage broker channel continues to evolve, niche lenders with specialized products will emerge via the broker channel. In doing so, they will provide new options to groups of Canadians who previously had few mortgage options available to them due to their financial circumstances (for example, new immigrants, the self-employed and individuals with credit challenges).
Rick Moran, AMP, OMB#M08001997
