Mortgage Blog

Canadian Mortgage Trends: The Dangers of Consolidation

By November 25, 2014March 12th, 2019No Comments

If you look up “mortgage broker” in your part of Canada, you might think that there is an entire galaxy of choices out there, which each star representing an independent agent who will go after the best deal for you when you are ready to buy your home. However, a Canada mortgage Trend found that almost 70 percent of all of the mortgage agents in Canada work for one of ten broker networks or brokerages. There are still some independent choices out there, but the number of those choices is dwindling with each year.

One reason for this is the tightening of margins. A lot of independent brokers just lack the support or the purchasing power in order to get the margins to make the business worthwhile. The bigger networks and brokerages have the buying power and the important relationships to get better deals. This is the motivation between John Bargis’ latest idea. Bargis owns Mortgage Edge and has put together the “Coalition of Independent Mortgage Brokers of Canada,” or CIMBC. At its essence, this is a club that builds volume in order to make the numbers more attractive for brokers who want to remain independent.

This might sound like just another network to make the interactions among the various brokerages in Canada even more tenuous. However, Bargis has gathered $3 billion from such investors as Oriana Financial, Mortgage Edge and Monster Mortgage, a sum that will contribute some significant heft when it comes to building values for people who want to remain independent rather than having to join one of the big firms. For broker-owners, his goal is extra income, including rebates from lenders, an element that has led to some controversy.

A lot of broker-agents do not know this, but there are quite a few suppliers and lenders that give incentives and rebates to the top franchisers, networks and brokerages. In Bargis’ system, these rebates go all the way back the broker-owners themselves. This ranges from zero to several basis points; the difference depends on the supplier. For a team doing $200 million in business, this could lead into revenue increases around $30,000 or so. In addition, this coalition does not plan to charge any membership fees, which means that there are no fees for advertising and franchising and no commission split. The management of CIMBC might take out one basis point for funding, plus some of the revenue from ancillary products.

This low expense structure and the rebate plan are likely to anger the management at the primary competitors to CIMBC. The fact that CIMBC has little branding, a skeleton staff and infrastructure, and minimal technology as well. However, the broker firms that CIMBC has chosen to target already have those elements in-house, which means that they may not need that larger support from without.

Lenders are positive on the whole, according to Bargis, because having another organization out there is good for the real estate business. Some lenders were concerned that a handful of organizations were commanding more of the market share and starting to put their terms down on suppliers and lenders.

So what’s the implication of all this for potential homeowners? When there is competition, the consumer usually ends up winning. The regulations that the Canadian government has put in place apply to all mortgage brokers, so it is not like adding a new company will give borrowers (or lenders) an end run around the rules that are in place. However, with more broker organizations out there, lenders can offer different deals to different brokers on the basis of their relationship. If more independent mortgage broker-owners can get access to these better deals from lenders, that means that there will be more beneficial mortgages out there for potential homeowners to obtain. There’s no reason why the best mortgage rates should go to people who use a handful of brokerages or lenders.

With mortgage rates remaining historically low in Canada, there is no time like the present to buy your first home. If you have questions about the process, contact Amansad Financial. We structure a variety of mortgages, and our process ensures we package and present each application appropriately for each situation.

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