I think it’s safe to say that summer has finally arrived. I hear the snow melted yesterday in Calgary, and in Vancouver they’re calling for two days of sunshine, in a row. So summer must be around the corner. But you’ll really know when summer is here when Peter Mansbridge begins the National with the following intro; “Greece is on the verge of declaring bankruptcy….the war in Afghanistan rages on … US unemployment rate hits a staggering 14%…But first our top story…Heat Wave Hits Toronto”. And this is the reason why the rest of Canada hates all things Toronto.

Firstly, as Canadian’s we’re fixated on the weather. Have you ever noticed how much time we spend talking about the weather. Yet for some reason the press elevates the weather situation in Toronto. Look, 33 degrees is hot, but when it’s about Toronto, the humidex factor is always added. It’s not enough to say it’s 33 degrees, the reporter has to say “it feels like 46 degrees”. It’s like some kind of bragging right. Here in Toronto we’re equal opportunists. In the winter it’s all about the windchill. When it’s reported that with the windchill it feels like -28 in Toronto, people in Edmonton and Winnipeg roll their eyes and say “bleeping wimps”. When it comes to the weather, Toronto measures itself by how cold or hot it is. The long range forecast for Toronto, I know this because I’m Canadian, calls for a hot and dry summer. So for everyone living outside of Toronto, don’t be surprised if you hear on The National that the Mayor of Toronto, Rob Ford, has called out the military to help us cope with the heat. The military will walk the streets of Toronto with umbrellas to shade us from the sun.

The summer is a great time of the year, but it can pose challenges for business. Firstly, don’t buy into conventional wisdom that business will slow down because it’s summer. Last time I checked bank’s weren’t boarding up branch windows, with a sign posted on the plywood that say’s…”We’ll be back in September”. It’s difficult but you have to remind your staff, and yourself, that it’s business as usual. Secondly, make a commitment to outwork the competition. Most of your competition will check out, mentally or physically. The majority of people will be lured by the distractions that summer brings. When your competition is playing, you have a great opportunity to eat their lunch. Thirdly, accept the fact that your staff wants to enjoy the summer months, but it doesn’t necessarily mean lost productivity. Flexible hours are an option, and you may decide to knock off early on Friday’s. That’s fine as long as everyone is focused throughout the week. The bills got to be paid.

Until next time.

Cheers

As per my previous blog, I will now address the second question I answered as a panelist at the VERICO Business Forum . “What is one thing that a lender can do today to ensure long term sustainability, and what can mortgage brokers do in kind”.

Simply stated there is no one thing that a lender can do today to ensure long term stability. Usually when we’re asked these questions, in a public forum, the answers are sprinkled with ambiguity, and a pinch of fluff. The reality is, if a business is going to be relevant tomorrow it requires careful planning, and a wee bit of luck.

Careful planning requires a full understanding of your customer’s needs.  Sales today is far different than it was years ago.  The customer is far more sophisticated today, as is the sales person.  At Merix we serve two customers, the borrower and the mortgage broker.  For too long in this industry the mortgage broker has been viewed simply as a conduit between the borrower and the lender.  This has to change.  The evolution of this industry requires that we change how we treat our customers, the mortgage broker.

I believe greater transparency is required between the mortgage broker and the lender.  Our dialogue and operating practice has to change.  We will not be able to thrive and grow our business if we continue to work in an environment where one entities profit is another entities loss.  Long term sustainability of our industry requires the broker owner, the mortgage broker and the lender to profit.  If one of these three is left out of the profit equation the industry is doomed for failure or at the very least stagnation.  Therefore, I believe lenders have to become more transparent about their own business.  If every conversation is about more VB (Volume Bonus) or higher finder’s fee, it’s a race to the end.  The challenge we face today is in understanding one another’s business. We’ll never get there unless we present the facts.  The only way we’ll all be able to grow is by giving each other a look behind the curtain.

In terms of what a mortgage broker can do to ensure long-term sustainability?
Be prepared to face two significant challenges, customer retention and increased competition from the bank’s mortgage sale’s force.

Customer retention is the nasty little issue that no one wants to discuss in an open and honest way.  So I’ll give it a shot. There’s isn’t a lender out there who doesn‘t believe that once a broker accepts the finder’s fee and VB, the customer belongs to the financial institution.  Mortgage brokers believe the lender is renting the customer for five years. I can assure you that every lender you deal with, including MERIX, is allocating more resources to customer retention.  Every lender will fight tooth and nail to retain the customer, and so far lenders have been very successful. For illustration please note the most recent CMHC survey relative to customer retention. The banks are winning the customer retention game, and they plan on keeping it that way.

The second significant issue mortgage brokers will have to confront is increased competition from bank’s mortgage sales force.  You’re probably familiar with the two banks that dominate the space today, but I can assure you that all the banks are either investing in that channel today or they’re about to do so.  I mean all of them.  The banks learned from the broker channel.  Subject matter expertise, and a focus on service, is a formula that works.  Imitation is the highest form of flattery, so mortgage brokers be flattered.  That being said, the banks are coming, and they have deep pockets.

Until next time,

Cheers

“…it’s all fun and games until someone loses an eye…”
-Mom

I recently had an opportunity to participate in a lender panel discussion. I would like to thank Colin Dreyer and John Kelly of VERICO for graciously inviting me to participate, (VERICO Business Forum in Las Vegas) and for providing and open forum to discuss industry issues. I was struck by the candor of all the panelist’s but I guess I shouldn’t be surprised because leadership requires facing difficult questions, and having an answer. The panel was made up of industry leaders and kudos go out to Moe Forget, Tim Mezik, Jim Smith, Paul Grewal, Hali Standlund, Ron Swift and Mark Squire. Ducking difficult questions and preparing sanitized responses is the easy way out, and no one on the panel took the safe route.

I enjoyed listening to the responses of the other panelist’s. For example, Tim Mezik, Ron Swift and Jim Smith were asked if there respective institutions would ever consider offering trailer fees as a form of compensation. Tim Mezik, and Ron Swift responded respectively by saying maybe and possibly. Jim Smith, in no uncertain terms, said “no”. His position is understandable when you consider that banks are in the customer acquisition business. Therefore, they do not see the need to perpetually pay for a customer that they have already purchased. On the other hand, we at MERIX have a different philosophical viewpoint. We try to balance the need of our enterprise, combined with the needs of our suppliers, the mortgage broker. I believe there is room for both models, and choice in the market place is critical.

I was asked two specific questions about our industry. Firstly, do I believe there’s a level playing field today. Secondly, what is one thing that a lender can do today to ensure long term sustainability, and what can mortgage brokers do in kind.

With respect to a level playing field, do I believe that it actually exists?  Today I can state unequivocally the answer is “no”. Anyone who would suggest otherwise would at the very least be disingenuous. At the very worst they would be insulting everyone’s intelligence. Here are some examples of why a level playing field does not exist today:

• IFRS accounting rules are being implemented this year. Without getting into the specifics, the amount of capital which has to be set aside relative to the funding of mortgages is increasing. Let me ask you this simple question, which entity do you believe is in a better position to deal with capital issues, a bank or a mono-line? Answer, big advantage for the oligopoly.

• Resource allocation, including marketing budgets, is another huge advantage that banks have over mono-lines. These expenses are factored into the entire bank’s expense line. Therefore, their marketing budgets, and their cost to schmooze brokers, is pocket change for them.

• The CMB allocation is another huge factor in the bank’s favour. Why? Because the banks have access to a balance sheet as well as the CMB. The mono-line’s today are faced with a finite number relative to volumes. The banks on the other hand can fund as much as they have an appetite for. They may be satisfied to fund a finite dollar amount due to margins and market share, but that’s their choice, and they can make that choice based on their business needs. Today, the mono-lines do not have that luxury.

All this being I said, I say the following: boohoo…

I don’t expect anyone to shed any crocodile tears for the mono-lines. That’s life, that’s business. As matter of fact many of the challenges we face today are no different than what we at MERIX faced when we launched our business close to seven years ago. We are the guppies swimming amongst the whales, and that hasn’t changed since day one. Frankly, I don’t mind that one bit. All it means is that we have to work harder, be smarter and fight tooth and nail for every market share percentage point. This is the classic story of David and Goliath. It’s not easy going to a gun fight with slingshot and a rock, but it’s the terms of battle we embrace. As my mother would want to say, “it’s all fun and games until someone loses an eye”. We at MERIX plan on having 20/20 vision for a long time to come.

I’ll address the second question in Thursday’s blog.

Until next time.

Cheers