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. Here’s where things are now and what I foresee.
The mortgage industry
A borrower can go to three sources to get their mortgage: account managers at banks, mortgage specialists at banks and mortgage brokers. (I use “bank” as a catchall 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.)
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 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.
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 licence 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.
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.
For example, a 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.
Even better: for most mortgages, a mortgage broker’s service is provided at no cost to the borrower. Brokers earn their keep from the lender that finances the borrower’s mortgage.
Where is industry headed?
Account managers at banks 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 and 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 specialists 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.
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 is 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 created economies of scale, processing documentation and applications more efficiently than ever. For instance, my team and I have automated the process of 70-plus 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, but it means that our clients receive the service they want, tailor-fit to their specific needs.
My prediction for mortgage brokers is that there will be a culling of the herd, just like with mortgage specialists. A 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 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, and the specialists and brokers who “dabble” or aren’t 100% committed to improving their craft will get left in the dust.
Eitan Pinsky is principal of Pinsky Mortgages, a Vancouver-based mortgage broker.