The next decade is going to see an evolution in how Canadians obtain mortgages. These shifts will transform the experience for both the mortgage professional and, more importantly, the borrower.
I wrote an article about technology in the mortgage industry, explaining how technology will ease the average borrower’s ability to gather required information, submit applications and be more empowered through the entire process – all from the convenience of their own home or mobile device.
The next few years will also bring huge shifts for the mortgage professional industry. I predict a decrease in the number of true mortgage professionals who are experts in their sector. The 80/20 rule will become more like a 90/10 rule – 90% of the business will be done by 10% of mortgage professionals.
Here’s where things are now and down below is what I foresee …
The State of the Mortgage Industry Now
A mortgage borrower can go to three sources to get their mortgage: account managers at banks, mortgage specialists at banks, and Mortgage Brokers.
*I am using bank as a catch-all for financial institutions, including credit unions and trust companies
**Financial planners are not included because they represent such a small slice of the pie and refer files to mortgage specialists.
Account Managers and Employees at the Bank
Employees, particularly account managers, are a bank’s frontline team for mortgages. These salaried employees get incentives if they hit sales targets, but they are, by definition, jacks-of-all-trades. They help with a client’s routine banking needs, open investment accounts, provide general advice and also write mortgages.
Because mortgages are complex, account managers are encouraged (and often required) to send their mortgage applications to a mortgage specialist. This is good policy, because it is best to have an expert eye review something as significant as an average family’s most significant investment – and the average bank’s bread-and-butter. Also, because there have rightly been at least many (one expert told me there was a total of 168) new rules since the 2008 financial crisis, it has become increasingly difficult to “dabble” in mortgages.
Given these developments, a consumer would be wise to trust the most important financial transaction in their life to a professional who has expertise in a single field, rather than a generalist who is doing mortgages off the side of their desk.
Mortgage Specialists at the Bank
Of course, every bank employs a network of mortgage specialists, with each bank investing varying amounts of resources into training. Still, a mortgage specialist is just that: a bank employee who specializes in mortgages.
Most banks’ mortgage specialists are commission-based and can make a good living from their work. But remember: Bank specialists work for the bank – not for you. (They also don’t require a license or any accreditation to write up your mortgage application.)
Mortgage Brokers are independent professionals whose unique responsibility is finding the ideal financial solution for each client – not whatever rate or product their bank is pushing on any given day.
Check out my video about how a mortgage broker can help pick the best mortgage, using an example we can all relate to!
A Mortgage Broker is a professional who has successfully completed an educational process, passed an exam, and undergone comprehensive assessments, including biannual criminal background checks. Additionally, continuing education is required to ensure that Mortgage Brokers remain informed of the latest developments in this ever-changing industry. Mortgage professionals at the banks, however well-intentioned or however closely they follow the business pages, have no such requirements.
It is commonly said that a Mortgage Broker “shops around” for the best rate. This is partly true, but there’s more. Brokers know the rates and conditions of every lender. What we do with that information is tailor each client’s need with rate and product choices, allowing them, with their Mortgage Broker’s guidance, to make the most informed, appropriate decision for what best suits them as they consider the most important financial decision of their life.
For example, a Mortgage Broker might recommend a more flexible mortgage product with a slightly higher-than-base rate versus a lower-rate with restrictions. This is crucial because, again, everyone’s case is unique. Circumstances change. Relocation is sometimes unavoidable. (Take a look at my comprehensive analysis of mortgage options and restrictions.)
Even better: for most mortgages, a Mortgage Broker’s service is provided at no cost to the borrower! Mortgage Brokers earn their keep from the lender that finances the borrower’s mortgage.
As an aside, Canada Mortgage and Housing Corporation (CMHC) studies have confirmed that borrowers who choose Mortgage Brokers get better rates than those who rely solely on the folks at their bank.
So, Where is the Mortgage Industry Headed?
In my article technology in the mortgage industry, I note that prospective borrowers still require (and prefer) personalized service. The most important investment in a family’s life deserves hands-on human expertise. Algorithms and web apps don’t cut it. (At least they don’t cut it yet – and, given the technology so far, will not for quite some time.)
So, we’re still left with real live people helping a borrower with their mortgage application.
Account Managers and Employees at the Bank
Account managers will continue to write mortgage applications because this remains an efficient use of the bank’s resources. The banks have been building increasingly sophisticated mortgage application platforms for their mortgage specialists and account managers to use. These easy-to-use apps are straightforward and allow their employees to quickly and efficiently pull together all of the necessary information to verify credit data, employment, assess risk and review the property, all at the click of a few buttons.
The banks built these systems so that employees with less expertise (and lower salaries) can replicate or reduce the work of more highly trained professional staff. And, since mortgage specialist are largely commission-based, it seems to me that banks will increasingly depend on salaried individuals who read from their computer screen while dealing with mortgage-seekers.
The obvious issue with an account manager reading off a screen is that at any point in time where real advice is required, the bank employee will not have the training or experience to provide it. Take for instance the question I get constantly: “I’ve got some money… how do I pay off my mortgage faster.” The answer to this should actually be a question right to back to the client in the form of: “Well Mr. Client, why are you interested in paying off your mortgage faster? Are you trying to increase your overall net worth by reducing your interest payments? If yes, we may want to look at your taxable earnings and your RSP contributions in order to lower and defer taxes. Would you like to explore that option as well?”
Mortgage Specialists at the Bank
Bank specialists are still being hired and supported. But there is a great deal of turnover due, in part, to many of the good mortgage specialists abandoning the banks.
Part of the reason is that some banks have been quietly but systematically reducing supports for their mortgage specialists. They may be paying specialists less money for the same work or curtailing their scope. A few years ago, RBC mortgage specialists were prevented from helping their existing clients who wanted help with their existing mortgages; only branch account managers could do this work – so these clients had to be referred off. The relationship had to be severed.
Additionally, Mortgage Brokers routinely earn three times as much per file than mortgage specialists at a bank, so the best in the field tend to leave the banks to succeed as independent brokers.
(As an aside, the bank does have some positive attractions for employees: bank specialists get benefits, RSP matching, bank branch support and, especially for newer mortgage professionals, the value of brand recognition. And, especially for older professionals that I’ve talked to, a healthy pension! Leave the pension, for those who are on defined benefits (ask me if you’re interested to know what this means) is a non-starter.
There is, of course, still currently a place for bank specialists. The best of them can and do give the best service possible to their clients.
My prediction for mortgage specialists: I suspect that the mortgage specialist role will be curtailed until only a few high producers remain. Banks will probably continue to make it easier for mortgage specialists to do their jobs, allowing them to take on more files and the best will grow and the worst will drop off.
Don’t misunderstand me! There is a place for technology, obviously, in the process. In fact, Mortgage Brokers, by necessity are entrepreneurial and resourceful and have adapted technologies much faster than the big banks and other financial institutions. Mortgage Brokers have created economies of scale, processing documentation and applications more efficiently than ever.
For instance, my team and I have automated the process of 70+ internal steps per client throughout the mortgage process, streamlining everything for ourselves so that our clients can benefit from the most comprehensive and individualized experience we can offer. This involved a lot of time up-front, for sure. But what it means is that our clients receive the service and personalized consideration they want, need and deserve – every. single. time.
And they get the best result, tailor-fit to their specific needs, thanks to a dedicated team that combines the advantages of technology with the irreplaceable flexibility of human interaction and understanding.
My prediction for Mortgage Brokers is that there will be a culling of the herd, just like with mortgage specialists. A Mortgage Broker, and any consultant in this day and age, needs to innovate and use the newest technologies to stay relevant in the eyes of borrowers. Not just that, the Brokers themselves need to also know each lender’s products and how to get files approved.
Superb knowledge, a fast and efficient process, AND amazing customer service will become the bare minimum in the future; borrowers will get used to it and require it, and the Mortgage Brokers who “dabble” or aren’t 100% committed to improving their craft will get left in the dust.
If you are in the market for a mortgage, make the choice that gives you the most informed choice. Call a Mortgage Broker. We hope you’ll choose Pinsky Mortgages.