winning strategies in the brokered mortgage marketplace ·...

Winning strategies in the brokered mortgage marketplace

ContentsIntroduction...............................................................................................................1

What.characterizes.the.mortgage.broker.channel.in.Canada?.....................................7

What.defines.a.winning.broker.channel.strategy.today?...........................................10

Conclusion...............................................................................................................20

Although.mortgage.distribution.in.Canada.is.

undergoing.another.paradigm.shift,.this.does.

not.spell.the.end.of.the.Canadian.mortgage.

brokerage.channel..Contrary.to.the.U.S..market,.

the.Canadian.broker.channel.is.strong,.stable.

and.established..In.2009,.brokers.represented.

38%.of.total.originations,.including.44%.of..

first-time.home.buyers..While.medium-term.

growth.prospects.are.expected.to.be.modest,.

the.broker.channel.remains.a.fixture.in.the.

Canadian.mortgage.distribution.landscape.–..

and.a.meaningful.source.of.origination.volume..

for.lenders.

Winning.strategies.in.the.brokered.mortgage.marketplace. 1

2. Winning.strategies.in.the.brokered.mortgage.marketplace

Evolution of Canadian mortgage lendingThe.Canadian.lender.distribution.model.has.undergone.several.changes.over.the.last.two.decades..In.the.1990s,.mortgage.brokers.numbered.in.the.hundreds.and.were.a.last.resort.for.borrowers.unable.to.obtain.a.mortgage.directly.from.a.bank.or.credit.union..Borrowers.had.limited.choice.when.it.came.to.sales.channels:.the.prospect.of.bank.staff.meeting.with.consumers.in.their.homes.outside.conventional.hours.was.highly.uncommon,.and.the.role..of.the.internet.in.retail.banking.was.in.its.infancy..

Over.the.last.decade,.an.increasing.number.of.viable.options.for.borrowers.have.surfaced..In.addition.to.branch-based.lenders,.borrowers.can.now.consult.with.the.banks’.own.mobile.mortgage.specialists.as.well.as.independent.brokers.–.while.also.conducting.their.own.research.online..In.this.changing.and.information-abundant.environment,.the.mortgage.brokerage.channel.

has.emerged.as.a.legitimate.competitor..Share.of.origination.transactions.increased.from.26%.in.2003.to.38%.in.2009,.as.mortgage.brokers.made.particular.inroads.with.first.time.home.buyers.and.young.Canadians..Overall,.this.channel.has.evolved.from.a.fragmented.“lender.of.last.resort”.network.to.a.legitimate.option.for.prime.customers..Notably,.brokers.sourced.nearly.50%.of.their.2009.volume.from.those.three.Big.6.banks1.still.actively.participating.in.the.channel..

Remote.options.such.as.online.and.telephone.banking.have.also.emerged.as.alternative.channels.for.obtaining.mortgages..Although.in.the.early.stages.of.adoption,..they.signify.an.important.trend.for.individuals.interested..in.self-service.

1..Filogix.Lender.Insights.Q4.2009

2003 2005 2007 2009

30%

44%

38%

31%

25%

12%

26%

22%

15%

9%

First-time purchasersRepeat purchasersRenewersAll purchasersRefinancers

Origination transaction volume

Exhibit 1. The broker channel is a stable and established presence in the Canadian mortgage distribution landscape

Source:.Mortgage.Consumer.Survey.2009,.CMHC


In.recent.years,.increased.competition,.heightened.compliance.requirements.and.rising.technology.costs.have.pushed.the.broker.market.to.consolidation..In.2005,.almost.70%.of.Canadian.brokers.were.employed.by.one.of.five.broker.houses2..Today,.this.figure.tops.85%.if.we.include.new.mid-tier.networks..Change.has.also.occurred.on.the.manufacturing.side.of.the.business:.some.major.lenders.have.exited.the.broker.channel.altogether.(both.BMO.and.HSBC.did.so.in.recent.years)..Many.have.opted.to.compete.directly.with.brokers.by.investing.in.their.own.mobile.mortgage.sales.forces.(MMSF)..Today.there.are.now.more.than.2,800.mobile.mortgage.sales.agents.in.Canada..Looking.forward,.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.

Broker – channel economics When.viewed.as.a.stand-alone.transaction,.a.branch-originated.mortgage.is.the.most.profitable;.while.broker.and.MMSF.mortgages.are.less.profitable.but.broadly.comparable.to.each.other..However,.alternative.channels.offer.other.benefits.to.lenders:.the.broker.channel.provides.an.opportunity.to.reach.net.new.customers,.and.MMSF.provides.a.bank.with.an.agile.and.controlled.medium.to.expand.its.physical.distribution.coverage...

The.mechanics.of.the.broker.and.MMSF.channels.are.similar:.both.require.a.credit.adjudication.structure.and.a.team.of.either.regional.managers.or.business.development.managers,.and.both.generally.base.compensation.on.a.percentage.of.loan.value..Excluding.the.impact.of.cross.sell,.the.broker.channel.is.similar.in.profitability.to.the.MMSF.and.in.some.instances.may.be.more.profitable..This.depends.on.two.key.differentiators.between.the.two.channels.–.compensation.costs.and.overhead.costs..

2..Taddingstone.Mortgage.Brokerage.Report.-.2005

Share of mortgage market (stock) by origination point Market share trends

14%

23%

2%

60%

Bank (branch or MSF) Mortgage brokerCredit union or insurance company Other

Bank branch Steadily decreasing trend

Bank mobile sales force Steadily increasing trend

Mortgage broker Modestly increasing trend

To date Decreasing Future Decreasing

To date Increasing Future Increasing

To date Increasing Future Flat

Source:.Canadian.Bank.Primer,.July.28,.2009,.RBC.Capital.Markets,.CMHC.Consumer.Survey.Report

Exhibit 2. Mortgage brokers are emerging as winners in a changing and increasingly competitive distribution landscape


The.MMSF.channel.is.staffed.by.tied.sales.agents.who.are.employees.of.the.bank.and.are.primarily.or.entirely.paid.through.variable.compensation..This.compensation.will.typically.distinguish.between.self-sourced.and.referred.leads..The.lending.institution.incurs.other.overhead.expenses.for.this.channel,.such.as.management.and.office.costs..Brokers,.on.the.other.hand,.are.compensated.via.finder’s.fees,.volume.bonuses.and.in.some.cases.through.trailer.and.efficiency.bonuses..They.are.able.to.command.premium.compensation.as.they.generate.their.own.leads,.pursue.sales.and.deliver.net.new.clients.to.the.lender.institution..In.addition,.compensation.may.be.directed.to.the.broker.house.rather.than.the.broker.agent,.and.distributed.to.agents.via.an.internal.payment.grid..Varying.methods.of.remuneration.are.set.by.the.lender,.which.impact.the.total.compensation.to.the.broker.channel..Overall,.overhead.costs.are.greater.for.the.MMSF.channel,.but.compensation.costs.tend.to.be.significantly.higher.in.the.broker.channel.–.resulting.in.similar.levels.of.total.profitability..

Customer.retention.is.another.key.driver.of.profitability..Renewal.business.represents.a.low-cost.revenue.stream,..as.sales.costs.and.processing.costs.such.as.adjudication.

Exhibit 3. Lenders can profit by deepening customer relationships irrespective of the origination channel

“Stand-alone” Customer RelationshipDeep Customer Relationship

Number of Products Mortgage.Only Mortgage.+.1.product Mortgage.+.>1.products

Cross-sell Profitability Lift N/A 10%.-.12% >.20%.

Source:.Deloitte.Research.&.Analysis..Note:.Mortgage.profitability.refers.to.NPV.and.is.based.on.an.average.mortgage.size.of.$200,000...Profitability.lift.represents.the.weighted.average.probability.of.a.blend.of.products.likely.to.be.cross.sold.

Exhibit 4. Typical compensation structures in both broker and MMSF channels have fixed and variable components

Broker MMSF

Base Commission 80.bps.–.100.bps 40.-.60.bps

Volume Bonus VariableOffered.as.%.of.origination.volume

Fixed.Amount.Varies.based.on.Volume.Tier.Reached

Source:.Deloitte.Research;.Note:.Broker.Base.Commissions.refer.to.standard.five.year.fixed.rate.product.

Exhibit 5. Broker compensation tends to be higher than MMSF as brokers are expected to identify, pursue and close their own sales. However, brokers share their compensation with the broker house.

Total compensation costs as a share of origination volume

65-75

80-90

115-125

Bps

Branch

MMSF

Broker

Source:.Deloitte.Analysis


and.origination.are.incurred.upfront..With.minimal.ongoing.servicing.costs,.and.revenues.earned.every.year,.the.profitability.of.the.mortgage.improves.significantly..over.its.lifetime..

There.is.a.generally.accepted.but.erroneous.belief.that.the.retention.of.broker-originated.mortgages.is.significantly.lower.than.retention.of.mortgages.which.originate.through.the.branch.and.mobile.channels..In.fact,.renewal.retention.of.mortgages.is.generally.high.across.all.channels,.with.an.industry.average.of.88%..Retention.is.more.likely.to.be.affected.by.the.interest.rate.environment,.quality.of.customer.onboarding.and.follow.up.processes.rather.than.by.the.channel.of.origination..

If.a.broker.channel.lender.regards.broker.business.as.a.tertiary.source.of.volume,.it.is.likely.to.receive.less.attention.and.retention.rates.may.suffer..If,.however,.the.lender.implements.standard.and.consistent.processes.for.customer.onboarding,.the.broker.channel.can.provide.an.economically.viable.source.of.largely.net.new.customers.to.the.institution..Further,.if.the.broker-originated.customer.is.actively.franchised.then.their.lifetime.profitability.can.be.increased.through.improved.renewal.retention..

Renewal retention rates

Broker

MMSF

Branch

50% 60% 70% 80% 90% 100%

Source:.Deloitte.Research.and.Analysis

Exhibit 6. The profitability of a mortgage that renews with a lender through year 10 is far greater than that of the same mortgage at the end of year 5.

Note:.Mortgage.profitability.calculation.assumes.a.broker.originated.5.year.fixed.rate.mortgage.of.$250,000.at.time.zero,.paid.down.at.an.annual.rate.of.10%.


Mortgage profitability

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Year 10Year 5Year 1Year 0

$13,200

$9,000

$2,200

$3,300 $3,470$4,200

$5,050

Total revenue Total cost


IRD ImpactIn.response.to.consumer.group.concerns.that.mortgage.prepayment.penalties.are.complicated.and.lack.disclosure,.the.federal.government.intends.to.standardize.their.calculation.and.disclosure..The.typical.prepayment.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”.or.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..If.new.government.regulations.remove.the.IRD.penalty.as.a.barrier.to.switching,.greater.mortgage.portfolio.“churn”.is.likely.to.result.in.periods.of.declining.interest.rates..

In.the.absence.of.stiff.prepayment.penalties,.lenders.seeking.to.minimize.churn.should.consider:.

•. deeply.franchising.the.customer.through.active..cross-selling

•. appropriately.aligning.the.compensation.of.hunter-oriented.sales.forces.(brokers.and.MMSF).to.discourage.churn

•. identifying.at-risk.client.groups,.such.as.broker-originated.clients,.and.defining.specific.retention.strategies.such.as.an.active.onboarding.and.franchising.program.to.defend.against.churn.

The broker industry – global trendsRecent.market.events.have.impacted.the.mortgage.landscape.globally;.however,.the.broker.industry.has.evolved.differently.across.various.geographies..The.U.S..and.Australia.present.two.contrasting.examples:

•. .Broker-originated.mortgages.have.stabilized

•. .Since.2007,.upfront.commissions.decreased..10-15.bps.to.55-80.bps,.while.trailing.commissions.decreased.5-10.bps.to.15-20.bps

•. .Escalating.trailers.and.commission.claw.backs.are.common.industry.practice

•. .Banks.are.moving.toward.a.single.processing.platform.for.broker.and.non-broker.business.to.cut.costs.and.improve.efficiency

•. .Brokers.are.considering.charging.clients.a.service.fee

•. .40%.of.refinanced.loans.occur.through.a.broker

•. .Brokers.have.refocused.on.higher-value,.complex.borrowers.(the.average.origination.value.through.a.broker.is.$70K.AUD.higher.than.that.of.a.bank)

0%

10%

20%

30%

40%

50%

60%

Jan ‘06 Jul ‘06 Jan ‘07 Jul ‘07 Jan ‘08 Jul ‘08

Australia

Broker channel as a percent of originations

% Broker originations by top 5 banks (2008)

SGC 42%

ANZ 41%

WBC 32%

CBA 30%

NAB 29%

•. .Broker-originated.mortgages.have.experienced.significant.decline.year-over-year.and.this.is.expected.to.continue.through.2010

•. .The.number.of.broker.firms.in.the.U.S..has.contracted.from.54,000.in.2007.to.20,000.in.2010

•. .There.has.been.downward.pressure.on.commissions.and.movement.away.from.trailers

•. Client.broker.fees.tend.to.be.between.0–1%

•. .Major.initiatives.are.underway.to.upgrade.mortgage.platforms.to.enable.end-to-end.fulfillment

United States

Broker channel as a percent of originations

0%

20%

40%

60%

80%

2010200920082007

Exhibit 7. The broker industry – global trends

“…if the broker-originated customer

is actively franchised then their lifetime

profitability can be increased through

improved renewal retention . ”



Five.core.themes.have.emerged.in.the.mortgage.broker.channel.in.Canada:

1. Threat of substitution – MMSFWhile.brokers.have.previously.been.regarded.as.the.low-rate/better.customer.service.alternative.(particularly.among.non-branch/monoline.lenders),.the.emergence.of.MMSF.is.challenging.this.perception..Independence.from.manufacturing.may.continue.to.allow.brokers.to.offer.neutral.advice,.but.MMSF.are.now.making.major.inroads.due.to.convenience.and.customer.service..Armed.with.differentiated.products,.the.competitive.threat.of.the.MMSF.channel.is.pressuring.the.majority.of.remaining.independent.brokers.to.consolidate.or.raise.their.game..

2. Price competitionThe.credit.crisis.materially.impacted.the.nature.of.price.competition.on.the.Canadian.mortgage.market,.as.the.historical.price.advantage.associated.with.the.broker.channel.declined.significantly..A.number.of.factors.led.to.the.current.price.competition.structure:

•. Central.banks.set.and.maintained.interest.rates..at.extremely.low.levels.

•. A.market.downturn.drove.a.flight.to.safety..among.investors,.leaving.deposit-takers.flush.with.available.funds.

•. Securitization.markets.essentially.dried.up.for..non-prime.mortgages,.forcing.the.exit.of.a.number..of.off-balance.sheet.lenders.

•. Prohibitive.counterparty.pricing.and.stringent.Canada.Mortgage.Bond.program-approved.lender.requirements.led.institutions.to.apply.for.bank.status.in.order.to.access.capital.markets..

Combined,.these.factors.have.left.larger.deposit-taking.lenders.with.the.ability.to.fund.from.a.large.deposit.base.and.better.equipped.to.aggressively.compete.on.price..Further,.they.have.been.willing.to.do.so.in.proprietary.channels.such.as.branches.and.through.MMSF,.negatively.impacting.the.price.advantage.historically.observed.in.the.broker.channel..

These.factors.have.also.impacted.certain.monoline.lenders.who.lack.complimentary.sources.of.funding..Despite.their.advantages,.major.banks.are.carefully.monitoring.their.level.of.participation.in.the.broker.channel..This.was.very.evident.in.2009-2010.as.adjudication.grids.were.tightened.and.supply.to.the.channel.was.selectively.restricted..

3. Value-added serviceBrokers.and.broker.houses.are.increasingly.focused.on.differentiating.their.practices..At.the.agent.level,.this.may.mean.becoming.an.expert.in.a.specific.underserved.niche,.or.providing.advice.on.a.broad.shelf.of.products.as.an.impartial.third.party..At.the.house.level,.it.may.mean.establishing.the.brand.as.distinct.in.the.marketplace..One.example.is.Verico’s.positioning.as.the.“high-end”.mortgage.broker;.another.is.Multi-Pret’s.regional.focus.on.the.Quebec.market..

As.the.lending.and.broker.industries.evolve,.broker.strategies.are.also.changing..To.achieve.the.level.of.customer.satisfaction.required.for.referrals,.brokers.are.differentiating.themselves.by.carefully.selecting.products.that.fit.their.customers’.needs..Brokers.are.also.competing.for.attention.from.lenders.who.have.increasingly.stringent.demands..To.provide.them.with.distinct.and.higher.value.offerings,.some.mortgage.firms.have.developed.a.full-service.broker.model.that.includes.marketing.support,.training.programs.and.payroll.and.compliance.services..Some.have.also.developed.internal.submission.desks.that.pre-screen.applications.based.on.a.lender’s.adjudication.requirements..Deals.are.reviewed.by.underwriting.managers.who.determine.whether.they.will.proceed.to.the.lender..The.submission.desk.establishes.an.arrangement.with.the.lender.to.supply.a.given.amount.of.dollar.volume,.reducing.the.power.of.individual.brokers.

This.broader.scope.of.brokerage.operations.creates.a.trade-off.for.lenders..While.generating.an.efficient.source.of.volume,.the.enhanced.service.offering.also.increases.the.cost.of.dealing.with.the.broker.channel..

What characterizes the mortgage broker channel in Canada?


4. Broker benchmarking and evaluation High.instances.of.“rate.shopping”.and.the.cost.associated.with.adjudicating.unfunded.deals.are.changing.the.way.lenders.benchmark.and.evaluate.brokers..Today,.they.are.more.selective.about.how.they.do.business,.basing.assessments.not.only.on.minimum.origination.volume.but.also.on.funding.ratios.

5. Changing supply landscapeConsolidation.of.broker.houses.and.an.evolving.roster..of.broker.channel.lenders.have.changed.the.supply.landscape..Boutique.brokerages.are.being.pushed.into.larger.broker.houses.by.lender.volume.requirements.and..by.the.profitability.strain.resulting.from.competitive.pressures.to.absorb.the.costs.of.underwriting.managers,.

CRM.technologies.and.compliance..Also.impacting.the.supply.has.been.the.departure.of.select.banks.and.a.number.of.non-bank.lenders..In.the.wake.of.the.credit.crisis,.old.players.have.adapted.their.approach.and.new.entrants.have.joined.the.channel..For.example,.XCEED.will.re-emerge.as.XCEED.Bank,.now.able.to.fund.a.portion.of.their.lending.on-balance.sheet.and.sell.directly.into.CMB.pools..Specialty.lenders.such.as.Greyhorse.also.intend.to.seek.deposit-taker.status.and.serve.niche.markets.such.as.Alt-A.borrowers..In.May.2010,.ICICI.Bank.announced.its.entrance.into.the.broker.channel..All.this.activity.implies.that.while.the.landscape.of.lenders.is.shifting,.the.broker.channel.remains.a.viable.alternative.to.branch.and..mobile.sales..

Exhibit 8. Lenders are employing both the “carrot” and the “stick” approaches

Driver Tactics Desired impact Example

Application quality & funding

Efficiency bonus

Commission claw back

•. .Minimize.the.cost.of.adjudicating.deals.that.are.not.accepted/funded

•. .Free.up.capacity.and.increase.profit•. .Align.the.broker’s.compensation.

with.the.risk.of.default

•. .A.number.of.Canadian.lenders.pay.5.to..10.bps.on.total.production.if.its.funding.ratio.is.>65%

•. .Australia’s.big.5.banks.employ.100%.claw.backs.on.delinquent.loans.within.the.first.12.months

Margin management

Rate buy downs

Yield spread pricing

•. .Brokers.self-select.the.deals.on.which.they.will.offer.the.most.competitive.price.and.share.the.foregone.margin.with.the.lender..on.“rate.buy.downs”

•. .Some.U.S..lenders.provide.brokers.with.a.minimum.rate.where.they.will.take.a.deal.and.the.broker.can.earn.additional.compensation.based.on.the.spread.between.that.rate.and.the.booked.rate

Retention and renewal

Straight line or escalating trailer compensation

•. .Reduction.in.mid-term.chum.and.customer.poaching.at.renewal.and.increase.in.broker.relationship.“stickiness”

•. .In.Australia,.NAB.and.Bankwest.use.and.escalating.trailer.structure.where.the.trailer.increases.over.the.life.of.the.loan.Typical.structure.is.a.trail.of.15.bps.in.year.one.to.a.max.of.30.bps.in.years.5.and.beyond

Relationship profitability

Volume and funding ratio hurdle rates

Performance based SLAs

•. .Reduce.the.number.of.brokers.dealt.with.and.limit.interactions.to.the.subset.of.brokers.with.which.the.lender.can.deal.profitably

•. .Several.Canadian.lenders.mandate.minimum.volume.and.funding.thresholds.as.a.condition.to.receive.top.rates.and.service..Those.not.at.the.standard.are.deprioritizedand.in.some.cases,.eliminated

Source:.Deloitte.Research

What defines a winning broker channel strategy today?

Bank.and.non-bank.lenders.are.competing.heavily.on.price.in.the.context.of.extraordinarily.low.market.interest.rates;.they.may.also.employ.compensation.adjustment.for.short-term.gains..While.broker.compensation.hikes.may.encourage.agents.to.direct.incremental.volume.to.a.particular.lender,.compensation.alone.is.not.likely.to.drive.sustainable.volume.lift..In.fact,.competing.exclusively.on.price.and.compensation.will.negatively.impact.the.business.over.the.longer.term..

The.complex.nature.of.today’s.broker.space.compels..lenders.to.develop.sustainable.strategies.to.win.and.maintain.market.share..While.countless.approaches.can.be.employed,.lenders.should.balance.meeting.broker.and.customer.needs.and.taking.advantage.of.market.trends.with.profitability..While.there.is.no.“one-size.fits.all”.winning.broker.channel.strategy.for.lenders,.the.following.five key actions.are.more.likely.to.result.in.long-term.success:

1.. Ensure.the.appropriate.product.shelf...

2.. Make.strategic.investments.in.Underwriters.(UW).and.Business.Development.Managers.(BDM).to.ensure.quality.coverage...

3.. Make.strategic.investments.in.technology..

4.. Identify,.target,.and.exploit.key.relationships.at.the.agent.and.brokerage.level..

5.. Maximize.the.opportunity.to.franchise.clients.

The complex nature of today’s broker space compels lenders to develop sustainable strategies to win and maintain market share.



Ensure the appropriate product shelfLenders.must.consider.their.desired.market.positioning.and.operational.constraints.when.determining.the.appropriate.breadth.and.nature.of.their.product.shelf..These.two.basic.models.should.be.considered:

•. Product-centric:.Market.position.is.determined.by..the.breadth.or.focus.of.the.product.shelf

•. Segment-centric:.Market.position.is.determined.by.the.needs.of.the.target.credit.segment;.other.decisions.are.based.on.becoming.the.best.at.serving.this.chosen.segment

Product-centricThe.product-centric.model.refers.to.choosing.the.optimal.product.suite.based.on.the.operational.constraints,.treasury.needs,.and.abilities.of.a.given.lender..Operationally,.a.broad.and.complete.shelf.is.a.natural.fit.with.full-service.banks..Those.participating.in.the.mortgage.broker.channel.are.already.offering.the.full.menu.of.mortgage.products.through.other.distribution.channels..Offering.a.complete.shelf.of.products.can.solidify.relationships.with.brokers.and.help.increase.the.total.share.of.their.volume.

There.are,.however,.three.key.risks.associated.with.the.“one-stop.shop”.model:

•. The.lender.becomes.a.natural.comparator.for.price.and.features.versus.specialized.lenders;.this.“contingency.lender”.position.can.result.in.increased.

Exhibit 9. Lenders that choose the product-centric model will focus on differentiating product features

Hybrid mortgages Cash back programs HELOCsPrincipal repayment options

Hybrid.mortgages.enable.customers.to.benefit.from..the.stability.of.a.fixed.payment.schedule.and..take.advantage.of.the.low.interest.rate.environment

Cash.back.programs.provide.customers.with.cash.for.legal.fees.and.home.purchases.after.their.mortgage.downpayment

Mortgage.plans.–..secured.with.at.least..20%.equity.in.the.home,..the.customer.decides.when/how.to.use.credit

Payment.options.such.as.paying.up.to.25%.of.the.original.principal.and.offer..25%.increase.in.payment


3..Scotia.Capital.–.Canadian.Non-bank.Mortgage.Lenders.June.2008

costs.of.adjudicating.unfunded.applications..•. Maintaining.a.presence.in.all.areas.may.dilute.the.

value.of.a.particular.area.of.expertise..•. A.broker.channel.offer.that.mirrors.rather.than.

complements.offers.in.other.proprietary.channels.is.likely.to.create.some.cannibalization.

While.a.focused.shelf.is.a.natural.fit.with.a.monoline.lender,.a.full-service.lender.can.just.as.easily.offer.the.broker.channel.a.lean.shelf.focusing.on.specific.products..

Segment-centricThe.segment-centric.model.is.a.natural.fit.with.the.operational.constraints.faced.by.the.monoline.or.broker-channel.focused.lender..The.key.benefit.of.this.strategy.is.the.ability.to.develop.expertise.in.a.particular.area.of.the.market.and.potentially.own.that.specific.segment..The.lender.will.also.develop.adjudication.and.operational.expertise.in.the.focus.area..The.major.bank.branch.and.MMSF.channels.have.clearly.staked.claim.to.the.Prime-A.credit.segment,.while.almost.a.dozen.firms.have.retreated.or.exited.entirely.from.the.non-prime.market.since.August.2007..This.has.created.an.environment.where.greater.opportunities.exist.for.the.lender.willing.to.seek.business.outside.the.standard.prime.credit.box..

The.non-prime.market.is.an.underserved.segment.estimated.at.10%.of.the.mortgage.market3..The.collapse.of.non-prime.securitization.markets.wreaked.havoc.with.the.funding.models.of.several.monoline.lenders,.resulting.


in.their.exit.from.the.non-prime.segment..Major.banks.are.already.“cream.skimming”.the.non-prime.market.through.“new.to.Canada”.and.self-employed.segment.strategies,.but.the.majority.of.the.estimated.$900MM.to.$1B.non-prime.market.is.underserved.by.all.channels..Industry.research.suggests.that.the.impact.of.reduced.competition.in.the.non-prime.sector.will.create.an.estimated.$4.7billion.funding.gap.over.the.next.five.years4..

The.segment-centric.model.is.the.only.viable.way.to.participate.in.the.non-prime.segment,.as.success.requires.knowledge.of.specific.real.estate.markets.and.specialized.skills.in.credit.adjudication..In.a.generalist.model,.it.would.become.too.difficult.to.accurately.mitigate.the.increased.risks.associated.with.the.non-prime.segment..

In.selecting.from.the.product-.and.segment-centric.models,.lenders.should.take.into.consideration.how.product.categories.have.evolved..Competitive.considerations.are.pushing.the.broker.value.proposition.from.“rate.finder”.to.advisor..With.this.shift.comes.the.opportunity.for.the.broker.to.broaden.the.shelf.to.include.non-mortgage.products.such.as.creditor.insurance,.payment.cards.and.deposit.products..From.the.lender’s.perspective,.the.economics.of.brokers.selling.additional.products.at.the.time.of.mortgage.origination.can.be.compelling.–.especially.if.the.lender.lacks.a.proprietary.sales.force.through.which.cross-sell.and.franchising.can..be.driven.

Major.banks.also.offer.sophisticated.product.designs,.including.the.single-charge.HELOC.(Home.Equity.Line.of.Credit),.as.a.substitute.for.traditional.mortgages.as.well.as.unsecured.credit.lines;.personal.term.loans;.credit.cards,.and.in.some.cases.the.transactional.bank.account..The.revolving.nature.of.these.products.favours.institutions.with.a.delivery.channel.infrastructure.that.enables.instant.access.to.funds..The.need.for.online.banking,.ATM.network.or.point.of.sale.effectively.prohibits.monoline.lenders.from.bringing.HELOC.products.to.market..Overall,.HELOC.products.do.not.feature.prominently.in.the.broker.channel.for.the.following.reasons:

•. Some.full-service.banks.with.sophisticated.HELOC.offers.either.do.not.participate.in.the.brokerage.channel.or.limit.their.shelf.to.exclude.HELOCs..

•. HELOC.characteristics.are.not.consistent.with.the.economics.of.broker.compensation..

•. HELOCs.tend.to.be.“stickier”.than.traditional.mortgages,.and.represent.a.hurdle.to.moving.customers.from.lender.to.lender.

When.evaluating.the.product.shelf,.lenders.must.balance.providing.brokers.with.the.tools.to.win.and.managing.their.own.channel.conflicts.and.operating.constraints..Winning.in.the.broker.channel.requires.identifying.how.to.meet.broker.needs.profitably.within.the.constraints.of.their.chosen.operating.model.

4..Scotia.Capital.–.Canadian.Non-bank.Mortgage.Lenders.June.2008

Exhibit 10. Creditor insurance represents a very profitable avenue for cross selling efforts

2%

6%

17%

Term deposit

Core banking

Creditor insurance

profit lift



Make strategic investments to ensure quality coverage (UW and BDM) Underwriters.(UW).and.Business.Development.Managers.(BDM).serve.as.the.face.of.the.lender.for.brokers..These.individuals.are.the.brokers’.point.of.contact,.and.relationships.with.them.are.likely.to.play.a.role.when.directing.mortgage.volume..In.fact,.24%.of.brokers.in.2009.considered.BDM.support.to.be.the.most.important.criteria.in.selecting.a.lender5..According.to.one.broker,.“The.BDM.is.key.to.helping.brokers,.particularly.in.a.changing.environment..The.BDM’s.knowledge.is.critical.especially.regarding.what.products.are.available..Good.BDMs.give.different.options.instead.of.saying.no.”.The.UW.relationship.is.also.seen.as.crucial,.particularly.when.quick.turnaround.is.required..On.the.whole,.brokers.commonly.cite.the.importance.of.empowered,.knowledgeable.staff.who.understand.the.business..The.relationship.between.brokers.and.the.UWs.and.BDMs.becomes.particularly.important.when.quick.turnaround.is.required,.rate.reductions.are.requested,.or.special.circumstances.exist.

Lenders.must.ensure.they.have.adequate.UW.and.BDM.coverage.to.provide.brokers.with.timely.and.personalized.service..Some.lenders.have.distinct.UW.and.BDM.roles;.others.use.a.hybrid.model.where.one.individual.pursues.

Distinct BDM Role Hybrid BDM Role

Role BDM.responsibilities.only,.including.broker..support,.training.and.sales.pursuit

BDM.responsibilities.in.addition..to.deal.processing.and..underwriting.duties

Coverage Ranges.from.lean.support.structure.to.deeper.coverage.to.pursue.sales

Deeper.coverage.as.hybrid.role.has.multiple.responsibilities

Coverage Ratio 150.–.250.Brokers./.BDM 40-80.Brokers./.BDM

Exhibit 11. Lenders have differing service structures ranging from distinct UW and BDM roles to hybrid positions


5..CMP.Brokers.on.Lenders.Survey.2009

sales,.supports.brokers.and.underwrites.deals..Many.provide.brokers.with.dedicated.underwriters,.particularly.if.the.broker.is.a.top-tier.player..BDMs.should.have.the.capacity.to.pursue.the.sales.opportunities.that.will.allow.them.to.grow.their.broker.portfolio.while.providing.adequate.support.and.training.to.existing.brokers..In.order.to.give.each.responsibility.adequate.attention,.BDMs.should.have.a.manageable.book.of.brokers..On.average,.they.should.not.be.managing.more.than.150.brokers,.though.some.lenders.may.choose.to.have.far.more.concentrated.BDM/broker.relationships..UW.coverage.should.be.adequate.to.ensure.service.level.agreements.are.met,.including.during.peak.volume..

Geographical.considerations.should.also.be.taken.into.account.when.planning.UW/BDM.deployment.to.ensure.that.high.volume.and.high.growth.areas.are.adequately.covered..BDMs.should.be.recruited.for.their.sales.and.networking.abilities,.and.also.for.their.skills.in.providing.support,.coaching.and.training.to.brokers..Those.who..have.served.as.underwriters.have.a.deep.understanding.of.the.business;.this.experience,.combined.with.other.qualities,.often.makes.them.most.successful.in.the.BDM.role..


6..Brokers.on.Lenders.Survey.2009,.CMP.Magazine

The.close.relationships.between.leading.UWs.and.BDMs.and.brokers.can.be.a.source.of.valuable.insights.for.lenders.seeking.to.improve.their.competitive.positions..The.UW.and.BDM.are.a.lender’s.direct.links.to.the.broker.community,.and.an.opportunity.for.establishing.strong.bonds.which.promotes.continued.business..Alternatively,.poor.BDM.and.UW.training,.inadequate.access.and.a.lack.of.support.are.likely.to.cause.brokers.to.take.their.business.elsewhere..It.should.be.noted.that.attention.to.coverage.and.staffing.will.have.limited.impact.if.not.paired.with.clear.messaging.to.brokers.about.who.owns.their.relationship.and.their.deal..

Critical Components of a Web Portal

Loan.status.and.identification

Status.of.loan.conditions

Documentation.and.receipt.confirmation

Download.documents

Additional.information.–..FAQ,.Product.and.RSM.contact.information

Best in Class Components of a Web Portal

Ability.to.contact.underwriter

Rewards.status

Commission.details

Automatic.adjudication

Exhibit 12. Technology improvements can enable efficient broker servicing. While certain aspects of broker portals are critical, some lenders further enhance their offering for a Best in Class service.


The close relationships between leading UWs and BDMs and brokers can be a source of valuable insights for lenders seeking to improve their competitive positions.

Make strategic investments in technologyAs.more.lenders.make.technological.advances,.quick.turnaround.and.visibility.on.deal.status.is.increasingly.a.broker.expectation..An.investment.in.this.area.is.beneficial.for.both.the.lender.and.the.broker.as.it.will.improve.efficiencies,.reduce.costs.and.enhance.relationship.management..Solutions.may.encompass.end-to-end.improvements.or.specific.changes.best.suited.to.a.lender’s.scale.and.capabilities.

A.critical.component.of.the.lender-broker.deal.process.is.the.workflow..Workflow.management.tools.streamline.back-office.operations.and.facilitate.accurate.and.timely.front-end.communication.with.brokers..They.allow.the.lender.to.proactively.handle.exceptions.and.reduce.turnaround.times,.shifting.the.broker’s.focus.from.administrative.inquiries.to.business.development..Workflow.improvements.not.only.result.in.cost.savings.and.improved.capacity.for.the.lender,.they.are.popular.with.brokers..Commenting.on.First.National’s.guarantee.that.90%.of.applications.will.receive.a.response.within.four.hours,.one.broker.stated,.“No.matter.whether.the.market.is.crazy.busy.or.not,.First.National.Financial’s.turnaround.time.is.excellent.compared.to.all.other.lenders..Turnaround.time.is.of.the.utmost.importance.in.our.business.6”.


When.paired.with.client.self-service.options.such.as.broker.web-portals,.workflow.management.tools.can.create.incremental.efficiency.for.lenders..Portals.empower.brokers.to.independently.access.accurate.and.timely.information,.resulting.in.reduced.call.volumes.and.inquiries.and.generally.alleviating.administrative.duties.for.the.lender..In.addition.to.improving.UW.and.BDM.capacity,.websites.and.portals.provide.brokers.with.visibility.to.the.deal.process.and.status.as.well.as.a.sense.of.control..

Online.channels.may.be.used.as.tools.for.managing.incentives.and/or.loyalty.programs..A.portal.allows.brokers.to.track.their.personal.statistics.with.a.lender,.such.as.number.of.deals.funded,.commissions.received,.and.rewards.for.which.they.are.eligible..In.fact,.web.portals.enhanced.with.reward.and.loyalty.point.capabilities.can.be.used.as.a.means.of.encouraging.brokers.to.monitor.and.increase.their.sales.

Technology.can.also.be.used.to.enable.auto-adjudication,.which.increases.efficiency.and.can.improve.funding.ratios..This.capability.is.already.used.in.bank.branches.and.can.easily.be.extended.to.brokers..Auto-adjudication.stems.the.flow.of.applications.unlikely.to.be.funded,.reducing.adjudication.costs.per.funded.mortgage.and.enabling.brokers.to.identify.key.conditions.and.deal.requirements.early.in.the.process..Auto-adjudication.also.allows.the.lender.to.proactively.manage.deal.quality.and.reduce.back-and-forth.between.brokers.and.client-facing.staff,.resulting.in.more.deals.being.funded.at.a.lower.cost.

Identify, target, and exploit key relationships at the agent and brokerage levelIntensifying.consolidation.and.competition.within.the.brokerage.community.has.resulted.in.a.significant.concentration.of.mortgage.sales.among.a.small.number.of.agents.and.brokerage.houses..It.has.been.estimated.that.as.many.as.90%.of.broker.sales.are.completed.through.only.10%.of.agents7,.while.over.two-thirds.of.agents.belong.to.one.of.five.brokerage.houses.across.the.country..With.such.a.skewed.distribution.of.sales,.lenders.should.consider.focusing.a.disproportionate.amount.of.their.resources.and.efforts.on.building.preferred.relationships.with.their.top.performing.agents.and.brokerages..

To.focus.on.the.most.beneficial.relationships,.the.lender.must.define.the.appropriate.metrics.(what.and.who.to.measure);.track.and.measure.these.metrics.on.an.ongoing.basis;.and.enforce.metric.thresholds.and.standards..To.measure.performance.properly,.tracking,.adjudication.and.administration.systems.must.be.aligned.so.that.each.unique.loan.can.be.followed.from.application.through.funding.

In.determining.“what.to.measure,”.lenders.should.consider.both.total.funded.volume.and.funding.efficiency..While.the.industry.standard.has.been.to.benchmark.broker.agent.and.house.supporters.based.on.total.funded.volume,.this.alone.does.not.accurately.reveal.the.most.profitable.relationships..Efficiency,.as.measured.by.the.ratio.of.funded.deals.to.total.applications,.allows.lenders.to.expand.the.criteria.for.targeting.key.relationships..With.costs.approaching.$100.to.adjudicate.a.single.mortgage8,.lenders.must.become.increasingly.focused.on.efficiency.and.target.their.funding.ratios.in.the.55%.and.65%.range.

When.deciding.“who.to.measure,”.the.lender.focuses.on.key.broker.agents.or.broker.houses..Broker.agent.segmentation.is.arguably.a.more.complex.process.than.house-level.segmentation,.which.likely.involves.negotiation.of.a.service.level.agreement.(SLA).with.the.broker.house..Defining.house-level.SLAs.assumes.that.the.broker.house.can.prevent.agent.autonomy,.an.assumption.that.has.been.refuted.in.the.broker-dealer.models.of.the.Canadian.wealth.management.industry..Agent-level.segmentation.assumes.both.a.given.degree.of.autonomy.for.the.agent.from.the.house.and.a.comfort.level.with.concentrating.a.significant.portion.of.the.business.with.a.single.lender.

Broker.agent.segmentation.is.intended.to.isolate.the.minority.of.agents.producing.the.majority.of.industry.volume,.and.should.reward.those.agents.with.whom.the.lender.can.deal.profitably..Broker-agents.are.grouped.into.tiers.based.on.specified.and.clearly.communicated.thresholds..Those.meeting.the.highest.benchmarks.receive.a.differentiated.level.of.service.and.increased.compensation;.while.agents.not.meeting.the.benchmark.may.choose.to.adjust.performance,.or.will.likely.cease.dealing.with.the.lender..Such.a.method.allows.lenders.to.focus.their.efforts.more.efficiently,.rewarding.the.right.people.while.curtailing.relationships.with.the.

7..Canadianmortgagetrends.com8..Deloitte.Research.


Lender

Lender – broker house

contract

Broker house

Rate

Rate.discounts.to.match.prices.with.the.branch.and.MMSF,.exclusively.for.top.broker.houses

Triage

Broker.houses.could.establish.a.“triage.desk”.to.pre-adjudicate.deals.prior.to.submission.to..the.lender

Increased volume and quality compensation

Offer.incremental.compensation.on.deal.quality.and.volume.thresholds.over.a.given.period.of.time

Volume and quality guarantee

All.key.broker.houses.obligated.to.meet.volume.thresholds.and.maintain.average.deal.quality.(e.g.,.funding.ratio.of.50%)

Sourced leads

Redirect.sales.leads.to.select.broker.houses.that.have.been.generated.within.the.Mobile.channel.and.not.pursued.due.to.capacity.constraints

Broker training

Broker.houses.are.required.to.train.their.brokers.on.the.lender’s.product.suite.and.appropriate.deal.quality.pre-screening

Differentiated service

Offer.improved.SLAs.on.turn.around.time.in.addition.to.prioritized.BDM.and.underwriter.support

Earlier in-pipe visibility

Brokers.to.provide.information.on.potential.upcoming.deals.to.the.lender’s.underwriting.team

Dedicated service Provide.dedicated.underwriting.teams.for.the.selected.broker.house

Book cross-sell

Brokers.to.provide.mortgage.customer.information.as.a.cross-sell.opportunity.for.the.lender..The.lender.would.not.promote.morgages.to.these.individuals

Exhibit 13. A mutually beneficial arrangement between the lender and broker house will likely address several key areas


underperformers..After.using.performance.metrics.to.identify.top.brokers,.lenders.may.choose.to.further.cultivate.them.through.superior.service,.preferred.rates.and.dedicated.relationships.with.underwriters..

Broker-house.segmentation.is.intended.to.efficiently.align.the.lender’s.interests.with.a.large.number.of.brokers.that.are.attached.to.a.particular.broker.house..As.broker.consolidation.increases.and.more.individual.brokers.join.super.brokers,.lenders.can.benefit.through.this.type.of.collaboration..In.the.Canadian.market,.it.means.developing.SLAs.with.one.or.more.of.the.five.broker.house.networks.which.employ.two.thirds.of.all.brokers..By.establishing.contractual.agreements.with.them,.lenders.can.negotiate.

volume.and.quality.guarantees,.thereby.securing.or.increasing.their.market.share..

A.mutually.beneficial.SLA.will.likely.address.several.key.areas..The.lender.offer.pivots.on.two.points:.enhancing.the.competitiveness.of.the.broker’s.offer.and.compensation..Preferential.pricing.on.broadly.available.products.in.the.channel;.directing.leads.towards.the.partner.broker.house;.dedicating.teams.to.servicing.the.needs.of.brokers,.and.committing.to.expediting.loan.application.turnaround.time.will.enhance.the.broker’s.competitiveness..The.lender.must.also.be.prepared.to.pay.incremental.compensation.in.exchange.for.commitments.to.specified.volume.and.efficiency.levels.


In.exchange,.the.broker.delivers.a.specified.level.of.volume.at.an.acceptable.funding.ratio..The.lender.should.drive.for.a.larger.presence.inside.the.broker.house.with.the.goals.of.minimizing.the.submission.of.offside.applications.and.expediting.the.application.process..This.should.include.a.dedicated.desk.that.represents.lender’s.interests.and.helps.brokers.with.application.processes.and.underwriting.standards,.as.well.as.a.commitment.from.the.house.to.train.brokers.

Maximize the opportunity to franchise clientsThe.extent.to.which.clients.can.be.franchised.depends.on.the.role.of.the.broker.channel.within.the.enterprise-level.strategy. .A.multi-channel,.full-service.bank.will.take.a.different.approach.to.client.franchising.than.a.monoline.or.non-branch.lender. .The.former.sees.the.broker.channel.as.a.source.of.supplemental.volume,.while.the.latter.is.reliant.on.the.broker.channel.for.originations. .

Lenders.with.a.full-service.branch.network.can.use.several.tactics.for.deepening.their.relationship.with.broker-originated.customers..These.may.include.customer.welcoming.and.onboarding.programs;.offering.a.diverse.and.complimentary.product.suite.that.satisfy.customers’.complete.needs;.and.instituting.branch.close.for.a.face-to-face.opportunity.with.the.customer..It.is.incumbent.upon.the.lender.to.ensure.that.these.and.other.customer.franchising.efforts.are.well.planned.and.effectively.executed..In.all.cases,.clearly.articulating.that.ownership.of.the.customer.relationship.rests.with.the.branch.will.help.to.manage.broker.expectations..While.the.goal.is.to.maximize.customer.franchising,.potential.lenders.must.also.balance.broker.needs.to.avoid.alienating.their.sales.channel..

The.benefits.of.building.deep.customer.relationships..(refer.to.Exhibit.3).include.improved.profitability.and.customer.retention.–.which.begins.with.customer.satisfaction..Industry.research.shows.that.on.average,..88%.of.all.mortgages.renewed.or.refinanced.in.Canada.are.done.through.the.existing.lender..However,.these.retention.rates.tend.to.be.lower.for.broker-originated.mortgages,.ranging.from.70%.to.80%..To.encourage.retention,.lender.employees.must.be.incented.to.take.responsibility.for.the.customer.relationship.at.the.earliest.stage..With.the.improved.use.of.CRM.technology.by.broker.houses,.it.is.likely.that.the.broker.will.actively.pursue.the.client.at.renewal.if.the.lender.does.not..

For.lenders.that.rely.on.the.broker.channel,.the.challenge.is.to.maximize.the.customer.franchising.opportunity.without.undermining.the.broker’s.role..Clearly.defining.whether.the.customer.relationship.is.“owned”.by.the.lender.or.the.broker.is.crucial;.this.choice.will.dictate.the.tactics.employed.to.franchise.customers..For.example,.if.the.lender’s.value.proposition.focuses.on.“broker.as.customer”.(e.g.,.Macquarie.Financial.or.MCAP),.the.broker.then.owns.the.customer.relationship..In.this.situation,.lenders.wanting.to.maximize.renewal.retention.or.exploit.cross.sell.potential.will.need.to.provide.strong.incentives.for.brokers..

Branchless.organizations.lack.a.face-to-face.opportunity.with.the.borrower.–.the.broker.is.their.messenger..Accordingly,.their.best.chance.for.renewal.retention.success.is.to.align.themselves.with.brokers..By.enabling.and.incenting.brokers.to.cross-sell.on.their.behalf.and.offering.a.complimentary.suite.of.products,.non-branch.lenders.can.franchise.the.borrower..Lenders.whose.limited.suite.


Exhibit 14. The strategies and motivations of bank lenders vary from those of monoline lenders; each lender will need to customize their approach when working in the broker channel.

Bank Lender Monoline Lender

Strategy •. .The.lender.manages.the.customer.relationship

•. .Some.lenders.promote.in-branch.close.to.be.closer.to.the.customer.at.the.outset

•. .Lenders.align.with.brokers,.enabling.them.to.own.the.customer.relationship.

•. .“Broker.as.Customer”.strategy,.where.the.broker.owns.the.borrower.relationship

Customer Retention Meth-ods

•. .Customer.onboarding.programs.are.designed.to.welcome.customers.and.answer.outstanding.questions

•. .Cross-sell.of.other.products.is.pursued.to.deepen.the.customer.relationship

•. .Customer.contact.programs.keep.the.lender.connected.to.the.borrower.-.including.a.touch-point.well.before.the.customer’s.renewal.deadline.

•. .Brokers.are.empowered.to.cross-sell.lender.products

•. .Broker.incentive.structure.is.designed.to.encourage.agents.to.cross-sell.and.retain.the.borrower.with.the.lender

•. .Broker.incentives.may.include.trailer.fees.and.renewal.bonus

Lender Examples •. Scotiabank,.TD,.CIBC •. MCAP,.FirstNational,.Macquarie

Source: Deloitte Research

of.complimentary.products.make.it.impossible.to.franchise.customers.themselves.should.consider.a.different.tactic,.such.as.a.broker.payment.plans.which.discourage.midterm.churn.and.provide.incentives.for.renewal.retention..

Once.the.borrower.is.“hooked,”.the.job.is.not.over.for.either.branch.or.monoline.lenders..They.should.reach.out.to.customers.periodically.via.a.defined.contact.strategy.to.ensure.customer.satisfaction.and.in.the.case.of.bank.lenders.deepen.the.relationship.via.cross-sell..As.borrowers.approach.renewal.dates,.the.lender.must.be.proactive.

in.contacting.the.borrower.or.the.broker.may.preempt.them.with.promises.of.lower.rates..A.defined.process.for.renewal.retention.will.aid.in.the.retention.of.borrowers.beyond.five.years..


The.broker.channel.is.a.fixture.on.the.Canadian.mortgage.distribution.landscape..The.future.for.this.channel.remains.positive,.although.the.scenario.predicted.five.years.ago.where.brokers.were.expected.to.represent.the.majority.of.origination.volume.is.unlikely..The.channel.will.continue.to.stabilize,.settling.at.approximately.one.third.of.mortgage.origination.dollar.volume..

Going.forward,.the.following.factors.are.expected.to.shape.the.broker.channel:.

•. As.the.participation.of.lending.institutions.in.the.broker.channel.continues.to.evolve,.windows.of.opportunity.may.be.created.for.numerous.smaller.organizations.to.enter.or.re-enter.the.channel.

•. The.major.banks.will.continue.to.invest.heavily.in.proprietary.distribution.to.compete.directly.with.the.mortgage.brokerage.channel,.and.to.a.growing.extent,.each.other..The.full.impact.of.the.MMSF.channel.is.yet.to.be.felt,.with.some.sales.forces.maturing.and.others.expanding..

•. There.will.be.continued.consolidation.of.smaller.shops.into.the.super-broker.networks..

•. Brokers.will.need.to.evolve.from.‘rate.shoppers’.to.advisors.offering.value-added.benefits.to.succeed.in.a.hypercompetitive.marketplace..

•. The.“broker.as.advisor”.value.proposition.will.be.the.most.successful.approach.for.this.channel..

The.implications.for.lenders.are.clear:.to.benefit.from.participation.in.the.broker.channel,.they.must.be.prepared.to.compete.for.broker.business..By.determining.the.appropriate.product.shelf;.making.strategic.investments.in.quality.coverage.and.technology;.organizing.to.identify.and.exploit.profitable.relationships;.and.maximizing.franchising.opportunities,.any.lender.in.the.broker.channel.can.be.positioned.to.win.

Conclusion

The implications for lenders are clear: to benefit from participation in the broker channel, they must be prepared to compete for broker business.

Sources•. CMHC.Consumer.Survey.Report•. Filogix•. Canadian.Bank.Primer,.July.28,.2009,..

RBC.Capital.Markets•. J.P..Morgan,.Fujitsu.Consulting,.Australian.Mortgage.

Industry.–.volume.8,.“The.Global.Credit.Crunch.–.Episode.II.–.The.Empire.Bites.Back”,.Asia.Pacific.Equity.Research,.05.November.2008

•. “The.Broker.Brand”,.Jack.Milligan,.Mortgage.Banking,.December.2009

•. CMP.Brokers.on.Bank.Lenders.Survey,.2008•. CMP.Brokers.on.Lenders.Survey,.2009•. The.Mortgage.Broker.Report,.The.Taddingstone.

Consulting.Group,.2005

ContactsTo.learn.more.how.Deloitte.can.help.your.business.succeed,.please.contact.your.Deloitte.advisor.

Rob [email protected]

Adelaide [email protected]

Todd [email protected]

or.visit.www.deloitte.ca

www.deloitte.caDeloitte,.one.of.Canada’s.leading.professional.services.firms,.provides.audit,.tax,.consulting,.and.financial.advisory.services.through.more.than.7,700.people.in.58.offices..Deloitte.operates.in.Québec.as.Samson.Bélair/Deloitte.&.Touche.s.e.n.c.r.l..Deloitte.&.Touche.LLP,.an.Ontario.Limited.Liability.Partnership,.is.the.Canadian.member.firm.of.Deloitte.Touche.Tohmatsu.Limited.

Deloitte.refers.to.one.or.more.of.Deloitte.Touche.Tohmatsu.Limited,.a.UK.private.company.limited.by.guarantee,.and.its.network.of.member.firms,.each.of.which.is.a.legally.separate.and.independent.entity..Please.see.www.deloitte.com/about.for.a.detailed.description.of.the.legal.structure.of.Deloitte.Touche.Tohmatsu.Limited.and.its.member.firms.

©.Deloitte.&.Touche.LLP.and.affiliated.entities..Designed.and.produced.by.National.Design.Studio,.Canada.10-2131

winning strategies in the brokered mortgage marketplace ·...

Documents