Counsel Corporation has seen its stock price double in less than a year – success that could be worth some attention by mortgage brokers, who are more focused on new volume than renewals.
Counsel Corporation has seen its stock price double in less than a year – success that could be worth some attention by mortgage brokers, who are more focused on new volume than renewals.
“If you use an intermediary, like insurance brokers or investment banking for example, you don’t end up paying them over and over and over,” says Fred Westra, an analyst at Industrial Alliance Securities, told MortgageBrokerNews.ca. “Some of the larger, more sophisticated brokerage houses do step up on renewals, but for the most part, brokers are focused on new volume.”
Westra sees Counsel’s dramatic mortgage volume growth representing an enormous, latent source of future profitability – and that is because mortgage lenders aren’t required to pay broker fees upon renewal, generating rich profit margins on the rollovers.
“What is compelling for me is that this is on business that’s already written, without any expansion in spreads, without any growth,” Westra told the Globe and Mail.
Estimates place last year’s business – once it comes up for renewal in four years – could generate some $50 million in pretax earnings, which would far outstrip the $18.5 million for all of 2012.
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But that is slowly changing, Westra points out, as the broker industry is slowly turning its attention to cultivating opportunities in the renewal business though greater participation and changing broker compensation including trailers.
“Five years ago there was maybe 5 per cent of the overall business going to renewals for mortgage brokers,” he says, “but now that is around 15 per cent. The broker channel is still a very fragmented industry – but some business can be recuperated upon maturity should borrowers new seek options.”
Counsel’s growth has been accelerated by CIBC’s departure from the mortgage channel by closing down FirstLine last year and the recent sale of The Mortgage Centre to Dominion Lending Centres.
In addition, additional market share has come in the form of broker defections from ING following the acquisition of that popular lender by Scotiabank.
Counsel’s investors had been complaining about a clear corporate direction, spurring management to announce their intentions to sell most of its holdings and focus on the mortgage operation, Street Capital Financial Corp.
Counsel has also applied for a licence to become a bank, having already received Canada Mortgage and Housing Corp. approval to securitize mortgages.
“That is one of the reasons for their success,” says Westra. “They have always rated well on service surveys with mortgage brokers, and are extremely competitive the channel.”
Counsel had $6-billion worth of mortgage financings last year, or about 3 per cent of the market.
Counsel typically doesn’t hold the mortgages it obtains from brokers, but offers them for a fee to other institutions, such as pension funds and life insurers.
Counsel should be looking to lever relationships with customers by offering other services like credit cards and non-prime mortgages if it does reach bank status.
