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Tuesday, July 26th, 2016

Vancouver Mortgage Broker Compensation Cut by First National

Vancouver Mortgage Broker Compensation Cut by First National

Lender margins continue to decrease in today’s marketplace. This is apparent when we look at the actions of large lenders such as First National, which recently reduced commissions.

In the recent change, finder’s fees for brokers were reduced for all terms by 4% to 10%. A popular broker incentive known as the “Wizard Spending Account” has also been taken out to pasture.

According to an e-mail announcement from the company, the changes are attributed to, “an increase in the cost of originating and funding mortgages.”

Scott McKenzie, Residential Mortgages VP also mentioned that,“It’s not a good thing to do,” and that, “We never want to reduce commissions and be the bearer of bad news.”

According to McKenzie, the biggest factor in the reduction of broker compensation, including Vancouver mortgage broker compensation can be attributed to the company receiving a smaller allocation of CMHC bulk insurance. Recently, a greater number of lenders have had to turn to private insurers. Smaller allocations from CMHC have hit everybody because private insurers are considerably more expensive.

McKenzie added, “Five years ago we were able to get a larger allocation in theCanadaMortgage Bond, a rather inexpensive way to fund mortgages.” But now that allocations have been limited, costs have been driven up.

Something known as “pooling” has also contributed to pressure on First National’s margins. “Pooling” is a broker strategy whereby several different brokers submit deals to a lender under the name of a single broker. This is done to reap the benefits of perks related to volume.

An incentive known as the “Wizard Program” was created over 7 years ago to reward brokers with high volumes and create efficiencies. Unfortunately, and according to Mckenzie,  pooling has resulted in a situation where First National now has to deal with 5 or more brokers on a number of different deals, instead of just a single

Vancouver mortgage broker for all of the deals. The result… efficiencies that were created when the program was initiated have been in decline.

First National  also had to pay out more compensation related to the Wizard program than it had expected.

It wouldn’t be a leap to say that the overuse, or misuse of the above-mentioned program by some brokers has negatively affected the compensation benefits of this program for all brokers.

As per McKenzie, pooling can work well as long as it is operated through a “hub”, where the lender only has to deal with a single Vancouver mortgage broker, overall deal quality is high, there is a process for vetting applications and funding ratios are reasonably in line.

For those brokers versed in lender economics, the decrease in compensation is not good news, but it shouldn’t come as unexpected; brokers should be happy that compensation wasn’t cut further.

While this may seem like the beginning of a downward trend when it comes to compensation, the fact is that such a trend has been going on for some time now. It likely won’t end until brokers’ pay is in line with the pay of internal sales forces operating within lenders.

In the wake of such an announcement, it will be interesting to find out whether volumes submitted to First National fall. All factors taken into account,  finder’s fees are still in line with what the competition offers, and the overall cut in Vancouver mortgage broker compensation is relatively small. Due to this, and the fact that First National still provides excellent service, a large drop in volumes is unlikely.

Some lenders other than First National will without a doubt maintain higher levels of compensation, winning some market share from those lowering compensation. Just don’t expect any earth shattering changes.

 

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