Broker and Realtor ReferralsVee Ramburn, Broker Relationship Manager, DUCA Financial

CUPA 2013

AGENDA

• Macro outlook of the industry (focus on brokers)

• Different types of lenders and brokers

• Micro analysis of your credit union dealing with brokers

• How to get started, creating a broker strategy

• How to differentiate yourself from competition

• Common broker questions

Dealing with realtors/brokers

What comes to mind when you think about dealing with brokers and realtors?

Some interesting broker stats

• Brokers account for approximately 25% of funded mortgages in Canada in the USA it accounts for 75%

• 51% of broker mortgage clients are satisfied vs 43% for lender direct

• Age breakdown of broker originated deals in Canada:

• 29% between 18-34

• 24% between 35-54

• 21% 55+

Why deal with brokers/realtors?

• What is the average age of your credit union’s membership?

• Where are you currently generating your mortgage volumes?

• Is there a need to grow membership between ages 18-55

• Do you have excess liquidity?

Industry Broker Lenders

• Balance Sheet Lenders

• Monoline Broker Lenders

• Private Lenders

Two types of mortgage lending:

• A business

• B business

Common Lender Names

Balance Sheet Lenders

• Bank lenders: TD, Scotia Bank, National Bank

• Credit Union lenders: Meridian, Alterna, FOCU, DUCA, IC Savings

Monoline Broker Lenders

• Merix/Paradigm

• Home Trust (B lending)

• Equitable Trust (B lending)

• MCAP

• Canadiana (formerly Macquarie)

• Street Capital

• First National

Trends in Broker Community

• Similar to credit union system we are seeing mergers in the broker industry

• Broker houses believe in economies of scale…the larger they become, the more efficient they will be, gives the broker strong bargaining position with national lenders (white label product)

• Some recent mergers:

• Dominion Lending Centre and Mortgage Centre

• Invis and Mortgage Intelligence

Popular Broker Houses

• Dominion Lending Centres

• Verico

• Invis

• Centum

• Mortgage Architects

***hundreds of independents in ON***

Brokers/Agents

• Brokers and agents are regulated by the FSCO, and maintain license with 20 CE credits per year

• FSCO constantly changing mandates to become agent, making it tougher, more emphasis on long term professionals

• Can also become members of CAAMP (AMP designation) and/or IMBA

• Have to be an agent for 2 years working under broker/owner

• Split finders fee with the broker/owner

Brokers/Agents

• Brokers can pay a franchise fee to large broker house and split finders fee, lot more support (compliance/marketing)

• Agents then report to directly to the broker who takes a split of their finders fee

• Broker – less focus on mortgage lending and more focus on running business and managing sales people

• Can be independent – lot more stress, 100% responsible for running all facets of the business

Where to start?

• Create a broker strategy and do SWOT analysis with senior leadership

• Thoroughly review your current underwriting guidelines

• Set service standards for turnaround time

• Ensure you have the infrastructure in place to handle additional business

• Network, talk to other credit unions who are already dealing with brokers

• Talk to third party providers

• Host a broker roundtable at your head office

Things to create

• Create a broker contract, to be signed by broker/owner or individual with signing authority who can legally bind brokerage

• Create specific broker marketing material, brokers love one page product sheet of what your credit union can and cannot do, focus on your unique lending attributes

• Create broker specific presentation, and role play it

• Create rate sheet detailing commissions to be paid

• Create email list, to give brokers updates on rates/products

• Have branch broker meeting pitch created

Broker Contract

• Detailing the consideration of the contract

• Clauses for termination of the contract

• Clauses for no payment of finders fees

• Privacy

• Broker agents (agents working for the brokerage are bound by the contract)

• Ownership

• Licensing (http://www.fsco.gov.on.ca/mbsweblist/agents)

Broker Presentation

Does not have to be on powerpoint, keep it simple

Highlights:

• Your credit union’s history and strengths

• Showcase what makes you DIFFERENT (alternative lender, NOT the bank)

• Little hierarchy, ability to run deal by senior leaders in timely manner

• Ask them what is currently frustrating them

• What are you working on right now, ask agents to run deals by you, tell them you will stick around to talk about their deals

Branch Meeting

• Clients are coming into the credit union viewing this as a commodity transaction, here for their mortgage only

• Have one opportunity to sell them on the virtues of your credit union

• Branch staff should give themselves the time go through the docs, and look for opportunities

• Have their credit union pitch well rehearsed

• SELL creditor insurance

• Don’t view this as a service meeting this is a SALES meeting, you want this member to become full service

• Show INTEREST in their business

Who are you going to target

Biggest question facing a credit union, “who do I reach out to?”

• Talk to your high ratio insurance account managers

• Go to the CMP top 75 broker list

• Top brokers are always looking for alternative lending

• Asking for small % of their total business can be a little easier

• Check your local papers

• Broker community is tight, ask a broker who they feel could gain from using your credit union as a lender

• Provide a good service, word of mouth will spread

Where can you find success

• What can your credit union offer that is unique

• Local area expertise of a credit union vs the central underwriting office based out of one location

• SERVICE: provide the same level of service to your brokers as you do your members

• Know your underwriting policies, be confident

• Brokers will always appreciate an honest answer

• Be willing to be creative

• Finance risk with surcharges on rates, more profitable for your credit union

Niches

• High Ratio Programs

• New to Canada

• Purchase Plus Improvements

• Collateral

• Work/live

• Land

• Hobby farms

• Rental properties

• Construction financing

• Storybook lending

What can you anticipate

• Your credit union will attract good brokers, but unfortunately will also attract bad brokers (you will be tested)

• Anticipate a lot of “amazing” deals

• You will see fraudulent deals, be very thorough with every application

• Some applications will be declines from other FIs, and insurers

• Will see some quick close deals

• Lower funding ratio on broker deals vs direct deals

• Some brokers will give very little docs and ask for everything to be conditioned

Difference between member and broker deal

Member Deal

• Much easier to judge character

• The relationship is direct with borrowers

• Ability to contact the borrower directly

• Usually have all docs up front

• No surprises, typically less need for amendments

Broker Deal

• Character is a challenge to decipher

• The relationship is with broker, until borrower signs and becomes member

• Have to contact the broker

• Challenge to get all docs up front

• Unfortunately there are surprises, higher probability for amendments

How to deal with this

• Be very firm, do not get bullied…remember who is in charge

• Do not be afraid to tell broker to resubmit properly packaged deal

• Ask for most of your documents upfront

• Remind broker of your underwriting policies

• If declining a deal, be very direct as to why your credit union will not be proceeding (support the decline)

• Preferably over the phone, not voice mail or email

How to deal with this

• Ask if deal has been declined by other FI or insurer

• If it is not adding up…ask for more supporting docs

• Create a “do not use list” don’t be afraid to cut a broker off

• Create a “watch list”, these broker deals will need to have ALL docs upfront to issue commitment, NO conditions

• Talk to other credit unions dealing with brokers

• ALWAYS BE HONEST!

Dealing with Fraud

• If fraudulent…DO NOT insinuate the broker is committing fraud

• Ask the broker how they got the deal

• When discussing the deal, use the word “questionable”

• Cancel the deal immediately, and report to your credit manager

• Discuss next steps: watch list or do not use list

• If high ratio approved, inform insurer of your concerns

• Join CAAMP fraud committee

• You can only disclose the borrower name, subject property

Common Fraud Trends

• Income misrepresentation

• LOE

• T4

• NOA

• Paystub

• Downpayment misrepresentation

• Online statements

• Term deposit certificates

First time broker

Give them one last opportunity to disclose information on the file that was submitted. Make

broker understand the consequences of lack of full disclosure.

Common Broker Questions

• How do I submit my deal?

• Do you guys pay finders fee and do you pay volume bonuses?

• Can I charge my client a broker fee?

• Can I use my own appraiser?

• Do you insure conventional deals?

• Do you have a sliding scale?

• Do you have a funding ratio requirement?

More Common Questions

• Do you underwrite the deal, or is it done at head office?

• Do you use all three insurers/which programs do you subscribe to?

• Will the branch offer a better rate than what you are giving me?

• Do you do stated income? What are your BFS guidelines?

• Do you do commercial?

• What’s your policy on rentals?

• Where can you lend?

More Common Questions

• Do you offer preapprovals?

• What are your maximum and minimum loan amounts?

• Do you pay on HELOCs?

• Policy on work/live properties

• What documents do you require upfront to issue commitment?

• What is your turnaround time?

• Do you have a minimum volume requirement?

Difference dealing with realtors

Two types of realtors you will be dealing with:

• Biggest concern is what they will be paid on the deal

• Most concerned about getting deal approved, to waive condition of financing

Dealing with Realtors

PROS

• Cost effective way to gain mortgage volumes

• Can be very loyal, if you are able to provide very quick turnaround time

• Good for branding if you can provide rate sheets for open houses

CONS

• Most realtors know very little about mortgage lending

• Can tend to be very pushy to get approval to waive COF on little supporting docs

• Most clients of realtors already dealing with broker or MPS

Long Term Plan

What’s the strategy:

• Do you shorten the number of brokers you deal with

• Do you sign up with Filogix (broker submission system)

• Do you need to hire additional staff to handle extra volume

• What’s the success of cross sell penetration at branch level with broker generated deals?

Useful Links/Follow on Twitter

www.mortgagebrokernews.ca

www.caamp.org

www.imba.ca

www.canadianmortgagetrends.ca

www.fsco.gov.on.ca

www.philadelphiaflyers.com

RECAP

• Different types of lenders and brokers

• How to create a strategy

• What to anticipate

• Common questions from brokers

Thank you!

Questions?