It wasn’t that long ago; the mortgage broker industry was predominately represented by the traditional small shop brokerage. In 1992, when I entered the industry, 791 mortgage brokers were registered in the province of Ontario. At that time, brokerages did not require a separate license. In a November 6, 1992 Mortgage Broker Survey, commissioned by the Mortgage Brokers Section of the Ontario Ministry of Financial Institutions, an estimated nine in ten (90%) brokerages had five or fewer people. In fact, half (48%) of the brokerages had only one person. This my friends, was the lay of the land for many years!
Fast forward to today where 1,436 mortgage brokerages are registered in the province of Ontario and the demographics paint a different picture. Yes, the traditional small shop brokerage is still around, in good numbers, including yours truly, but the larger “nationals” and “networks” have taken centre stage. At least, that’s how it seems when it comes to influencing lender policy. Let me come back to that. Unfortunately, I don’t have the hard numbers to officially characterize the industry landscape today. FSCO, the current regulator for the province of Ontario, has neither commissioned any new survey that I am aware of, nor were they able to share this information, when I requested it.
Back to my point earlier, and the reason for this commentary. For the past few years now, there has been a trend with some lenders, not all, who want to cut off business ties with the small shop brokerage. The lender’s position is based solely on brokerages maintaining minimum volume requirements. For example, if the brokerage cannot originate $5M, in new loans, each year, the lender will cut the brokerage off, period! It doesn’t matter how good the loans perform. It doesn’t matter if the brokerage maintains an application-to-funding ratio at or above the lenders’ standard. It is simply a matter of volume. This draconian measure is wrong on so many levels, and as the proprietor of a small shop brokerage myself, I can no longer stay quiet.
For a large national brokerage, this is not a problem. The large number of mortgage agents together will satisfy any number of lenders, and their minimum volume requirements. But for the small shop brokerage, there is not enough business to go around to satisfy multiple lenders. So what should be done? Should lenders be able to get away with this?
Every mortgage broker and mortgage agent working in Ontario, or any other part of the country for that matter, should be just as outraged as myself about this unfair practice. It doesn’t matter what size brokerage you work for now, or may work for in the future. As licensed mortgage professionals, we have all fulfilled the same requirements in order to do business. That doesn’t change because you prefer to work in a smaller office. Where you decide to do business, should have no influence on the number of lenders you have access to. For years, that was the fair practice. What has changed? And what about John Q public? Is the consumer better served by having smaller shop brokerages marginalized? Definitely not! Ask any small shop brokerage about their level of service, supervision, and training. I’m sure they would match it up against any office. But that is not the point. There should be room for everyone to operate in this industry. As a mortgage professional, you should have the opportunity to work wherever you want, and under the same conditions with respect to access to lenders who service the broker channel.
No one would argue against lenders’ controlling their costs. If your benefit to a lender is net negative because your application-to-funding ratio is consistently below the industry standard, and no amount of training has changed that, you deserve to go. If your business is adversely affecting the lender’s delinquency ratio, and they have good reason to suspect fraud, you deserve to go. On the other hand, if any business you originate, performs well, your application-to-funding ratio is good, and no BDM is spending extra time or money on you, then your benefit to that lender is net positive. I would challenge any lender to convince me otherwise. By enforcing minimum volume requirements, mortgage brokers are loosing their ability and willingness to shop around in order to maintain their active status with lenders. This is simply wrong, and undermines the integrity of our professional service.
So what can be done about reversing this ugly trend, and restoring the fair practice that characterized this industry for decades? This is my call to action for every provincial association, including CMBA, to right this ship. Collectively, you represent every mortgage originator who works exclusively in the broker channel across Canada. You have the ear of the lending community, and fundamentally, I can’t think of anything more important you can do for your membership. Finally, at the grass roots level, I encourage every mortgage originator who works in the broker channel, to get busy and make some noise. Let’s unite, and reinforce the ground we all are standing on. Let your respective industry associations know how you feel.
Thanks for your support!