As lenders increase their minimum volume requirements and efficiency ratios, mortgage brokers are pooling their office deals to take advantage of favourable fees and to continue their relationship with preferred lenders. Gina Monaco takes a look at the pros and cons of this growing trend.
The controversy surrounding broker hubs, pooling deals and co-brokering boils down to one thing for brokers – lender access. A lot of agents today are forced to pool or co-broker their deals to get the best rates and service from lenders. Some feel disadvantaged without access to lender status programs. Some agents say it’s eroded their ability to get the best deals for their clients. Others lament the loss of developing a relationship with an underwriter.
As the industry evolves, the broker hub will become more prevalent. New agents who have only worked with pooling and co-brokering accept it as the norm. It’s the agents who have been in the industry for a number of years who bemoan the loss of access. And although the concept of a hub sounds good in theory, its success depends on the system each brokerage has set up.
For lenders, working on deals that are submitted through hubs and pools makes more efficient use of an underwriter’s time. Bank and non-bank lenders who have have tightened up their requirements by introducing funding ratios and volume minimums have done so partially due to the growing number of brokers, approximately 15,000 across the country, who are accessing mortgage funds. Of course, lenders are also trying to find ways to increase efficiencies and maximize profits.
Broker owners and the superbrokers may not like what the lenders are doing but understand the need to strike a balance between what the lenders are asking and the needs of their agents, while at the same time increasing their own efficiencies and bottom lines.
The idea of co-brokering or pooling deals is not new but has become more prevalent. Broker owners are putting systems in place to benefit all parties. While most still use a variation of the standard pooling model, other brokerages have designed centralized hub systems that offer their agents the ability to access underwriting services, lead generation services as well as training programs and other business development programs.
Agents in the trenches
New agent Lisa Perrot of First Foundation in Edmonton Alberta is only familiar with the pooling process. She is not overly concerned with status because the office maintains its volumes and funding ratios. More importantly for her, as a new agent, is the team environment that’s been created in her office. “We have an open concept office where everyone helps each other,” she said. “We believe that if our brokerage does well, then we all do well.”
And although she doesn’t see the bonuses that her broker receives, she does get rewarded in different ways. “Our broker is fair to us and gives back to us in other ways, but he also generates our leads for us.”
For Michael Sjerven of Dominion Lending Centres in Vancouver, also a new agent, broker hubs have become a major issue.
“If you’re on your own today, it’s tough to get lender access,” he said. “So you’re forced to be part of a team to get better rates and service.”
Sjerven much prefers to submit under his own name so he can build a rapport and develop a relationship with the underwriters, which he said is part of the job of being an agent. “In some systems, I might not even get the conditions e-mailed back to me.”
Although he understands the rationale behind the hub concept and how it will help agents who don’t meet minimum requirements demanded by lenders, he doesn’t like the direction the industry is going. “Every lender and every brokerage is set up differently so it’s hard to say what works best and if you cut out too many people the whole process might backfire.”
He doesn’t like the idea he can only use a handful of lenders; and not all brokerages have status with all lenders, which goes to the heart of providing the best service to clients. “This is a good industry and we have a lot of issues to work through to balance off doing the best for our clients and satisfying the demands of the lenders.”
Customer service is and always will be the key to success in the mortgage industry. Some brokers believe that the trend toward broker hubs because of lender requirements will erode their ability to give their clients the best deals.
One of those brokers is Faye Drope of Verico San Dollar Mortgage in Parksville, B.C. who is quite vocal about the importance of customer service. “The general public is being sorely misled and I don’t know what the repercussions would be if they realized the direction we’re going. I believe our industry would change dramatically.”
Funding ratios and volume minimums are nothing new to Drope who has been working in the industry since 1999. “Ever since I started in the industry, lenders have always talked about cutting us off if our funding ratios weren’t high enough – this is nothing new – but it does comes down to choice for our clients,” she said. “I’m not doing the best job for my client if I don’t at least try to get them the best deal, even if that means sending it to a lender who might or might not approve it. You never know! I’ve had approvals that I thought I would never get.”
When she first started working in 1999 there were funding ratio issues. Her deals were co-brokered and she was given a split. “That’s why I left and went to another brokerage.”
She doesn’t know why lenders think this is a good idea. Drope understands that lenders may now be overwhelmed over too much business from a ‘ton of brokers’ but still, she can’t see the benefits for the long run. “Forcing the creation of hubs and pooling is creating an uneven playing field.”
And then there are the ethical questions. In fact, part of the educational requirement for completing an AMP designation is a course in Ethics & Responsibilities. This is a concern for Drope. “Are we going to make the right decision for our clients now that we can only access a few lenders? They (lenders) have created this and we, as an industry, are so divided about it that we let the lenders push us around.”
A Lender’s Perspective
With so many brokers in the market today and with increasing incidents of fraud, lenders are assuming increasing risk so it’s not surprising that many prefer to work with broker hubs and mortgage aggregators.
For Todd Poberznick, Vice-President, Production at Bridgewater Bank it comes down to the need for greater diligence toward compliance and accountability among lenders with the recognition that brokers need access to products when volume minimums aren’t there.
“We like the idea of holding one person or the aggregator accountable for the submissions, whether through a broker hub or deals pooled under one name,” Poberznick says. “That way we are better protected and have more confidence that deals submitted have already been checked, are in compliance and are packaged properly.”
On the other hand, he says, lenders have tried to make the process fair and profitable for everyone. It doesn’t make sense for underwriters to work on so many deals that don’t even meet a lender’s minimum requirements.
Bridgewater Bank is working to bridge this gap by launching a broker compensation program that’s at the low end of the qualification threshold for brokers and allows brokers to qualify every six months. In some cases, individual brokers may still need the benefits of a pool to qualify but the recognition of the challenges for brokers is built in to the model.
“Lenders want to see volume and many brokers weren’t able to achieve those numbers so we had to come up with other ways to help them get there. At the same time we don’t want to turn business away,” Poberznick says.
For those agents who like a certain product offered by a particular lender and who doesn’t have the volume, using an aggregator or a hub makes sense.
“We deal with a lot of individual brokers still and, in all fairness, I know that the submissions I get from them are good quality, and I’ll probably get eight out of the ten deals closed, so those brokers get a good turnaround time,” he says. “That’s the machine running effectively, but not everyone can give us that.
Poberznick believes the hub concept can work as long as it’s managed properly. “There’s more accountability because we know who we’re dealing with. There is less overhead cost for us and brokers, working through their hub will do more volume and be able to access the best rates and service.”
Also at issue is the turnaround in the numbers of brokers themselves. Often underwriters will spend time with an agent only to have that person leave the industry or not comply with lenders’ volume or funding stipulations and that’s not a win/win situation.
There has been a push in recent years to make the industry more professional with more government regulations and mandatory provincial licensing. As well, professional accreditation like the AMP designation is encouraged.
“There are a fair amount of brokers out there – some make it and some don’t,” Poberznick says. “As time goes on and lenders search for maximum efficiency, brokers will have to find a way to fit the mold or will move on.”
The word on hubs
There is no standard design for broker hubs, each brokerage does something a bit different. Many offices still co-broker with an agent. Other offices pool their deals under a broker’s name. The most innovation is coming from large brokerages, but even those hub designs are unique to each other. Two of them, TMG, The Mortgage Group Canada Inc. and Centum have designed models that accomplish a number of tasks.
At TMG the Deal Centre is intended to help agents grow their business along with training programs for new agents, through a mentored submission process and will also assist with alternative lending solutions.
“Our brokerage uses various tools designed to make it easier for (new) agents to learn about business and become more successful,” says Mark Kerzner, President and COO of TMG. “Because we have status with a number of lenders, agents and their customers have access by submitting through our deal centre.”
The submission process at TMG is designed to walk the agent through it, step-by-step. When the files are ready, the agent is taught how to submit the deal, packaged properly, and in compliance, to the lender through the deal centre. The agent is then guided along through underwriter conditions and subsequent approvals or declines. There is also a built-in admin follow-up option that any broker can select, meaning if an agent is on vacation when the deal is still with the lender, it will be looked after by someone in the office.
“We help out with alternative lending sources for agents who don’t have the experience or the networks to work with private lenders,” Kerzner says. “We also employ experienced underwriters who provide oversight on each deal.”
Over at Centum Financial Group, the system is a web-based platform that offers a “true” hub environment. Called the Centum Equity Builder, the platform was developed to create an environment for agents that would meet all their needs for growing a business. It even allows for 3rd party vendors like Assurant Life of Canada to access the broker channel
“Assurant has been wanting into the broker industry for years but has been locked out because they move data electronically over the web,” says Bill Jamieson, President at Centum. “We also have an area where an agent can look at every lender on one spreadsheet to review their rates and products, which is updated as lenders update their information”
Using the underwriting service at Centum also means that agents get higher compensation. The brokerage meets volume requirement and funding ratios so they have status, which is passed to the individual agent.
Other resources on the Centum hub include a unique series of Webinars for agent training as well as a lead generation module, including SEO optimization for agent websites.
“Our hub has been in place for over a year now and it’s working great. It fills a need for both lenders and brokers,” Jamieson says. “Our lenders love it and our brokers are on board with it. I believe the future of the industry is in using web-based platforms and it is the next level for the industry.”
Pros for Broker Hubs
Deals properly packaged
Time saver for agents who don’t have to deal with underwriter conditions
Lender is assured of compliance
Agents get access to lenders through their status brokers
Better rates, service and volume bonus
Cons for Broker Hubs
Reduced or no personal access to lenders and underwriters
Some brokerages not passing on volume benefits and rewards
Can be miscommunication
Brokerages may fewer lenders to work with
