There wasn’t much in the way of “news” over the past while, so I decided to write about some trends that are happening now, and speculate about what might be coming down the road. Then head office sent this piece out (below) and I thought it was a great attachment to what I was going to send.
At our recent Atlantic CAAMP Conference, there was lots of talk about efficiencies, funding ratios and lenders looking beyond just volume to make decisions, and there were discussions about supporting “broker lenders” and how to stem the tide of early payouts.
As the recession moves along, lenders are taking a very serious look at how business comes in the door – do lenders want $5M funded from someone with a 20% funding ratio or $2M from someone with an 80% funding ratio? This is a tough decision, but when you factor in every element in the equation – cost of funds, overhead, technology, systems, salaries, commissions, chance of early payout, replacing lost volume in the CMB pool, etc. – the answer most times is that efficiencies are the answer, not just volume. Let’s make this clear, all lenders want volume too, but not volume for volume sake.
When we talk about supporting broker lenders (such as MERIX), we are talking about more than just trying to steal market share. Two years ago in Australia, when the credit crunch happened and asset backed commercial paper (ABCP) markets dried up, the broker lenders in Australia lost the bulk of their funding source (they had no CMB pool as we do in Canada) and most of them shut down. That left only bank lenders there and they almost immediately cut commissions by 40 BPS. That pushed thousands of brokers out of the business. By supporting your broker lenders in Canada, we can avoid letting this happen. In any market, decreased competition leads to less choice for you. Less commission and poorer service are not what we want in this business going forward.
The last thing to cover is the talk about “early payouts” and how this affects the industry. As an originator, you want to own your client, service them indefinitely, do their next mortgage for them, and get paid to do it. As lenders, we want to get a client and keep a client, with some lenders wanting to pay as little as possible to keep the client. So how do these two opposing views get together? There was a panel discussion at CAAMP that asked the question, but came up with very opposing answers. Is the answer having lenders “lock in” their clients so that you can’t refi them and move them elsewhere mid-term? No. Is the answer having originators move their clients to another lender just so they can get paid again, and more? No. As I listened to this panel discussion, I realized that the MERIX Xtended (and even our Basic) Compensation Models were the answer. Paying you beyond the first day of the mortgage, giving you a reason to let that client renew with MERIX by way of trailer fees, and paying you again on a refinance while still keeping your trailer fees in place, now that’s the answer!
To wrap up, let’s look at where the industry is going. Individual incentives in place of volume bonus is a trend we are seeing, and one that likely will continue. Some lenders will leave the industry, some will come in. The trend in subprime business is that it will be funded by “balance sheets” and not by ABCP. This is proving true with VFC (backed by TD Bank money) coming into the market and Xceed announcing that they applied for bank status so that they can raise money through investments, the same way Home Trust does. We will see the numbers of brokers go down overall (but mainly due to “bad” brokers leaving the business). We are also going to see more evolution in the business, and perhaps some revolution too – stay tuned.
CMHC Reports Lender Retention is on the Rise!
But you already knew that, right? How many of you have lost customers to the existing Lender at renewal? The same Lender you referred them to 5 years ago? And how much were you compensated for this?
Good Day Approved Originators!
The 2009 CMHC Consumer Survey was released yesterday and we wanted to share one statistic in particular:
The number of people up for renewal who stayed with their existing lender increased to 90%. That compares to 83% in 2007.
This is a good and bad news story.
The bad news for originators is that decisions you made 5 years ago may be negatively impacting what you are earning today. How much time are you wasting on the 90%? Shouldn’t you be focusing on the other 10%?
The good news is that 5 years ago you didn’t have the options available to you that you have today. And MERIX can help you with this increased retention problem.
Merix:
A) Pays you when the mortgage renews, and for the life of the mortgage
B) Doesn’t believe any party owns the customer. Instead, we support and enhance the relationship between originators and their customers.
C) Always has competitive rates and products. And MERIX customers receive our low published rates at renewal – no need to haggle.
D) Provides incredible long term compensation packages for your book of business
