Bringing the banker home
Brokers are grabbing a big chunk of the Quebec Mortgage market

When the mortgage on Suzanne Petitclerc's Dorval home came up for renewal recently, she did what most people do: she called her bank. But the clerk who responded wasn't able to answer even basic questions, and the branch's mortgage specialist was unavailable.

Flustered, the bank clerk did something her manager probably would not have approved of. "She told me to call a mortgage broker, that I would get answers much faster," said Petitclerc. "I was surprised, since I have been with the bank for years, and was always well treated."

Petitclerc is not alone in turning to a broker to handle her mortgage. The industry is exploding. Last year, one out of four Canadian residential mortgages originated with a mortgage broker, representing $20 billion, out of an annual $80 billion market, according to Canadian Institute of Mortgage Brokers andz Lenders estimates. It's a huge market share increase, up from 14 per cent just two years ago.

"The broker I used - Multi-Prêts Hypothèques gave me excellent service," said Petitclerc. "The agent came to my home, took the time to sit down, and go through the steps one at a time. Their comprehension was excellent."

But service isn't the only reason people are turning to mortgage brokers. "Our published rates are between one and 1.1 per cent lower than those of the major chartered banks," said Pierre Fournier, president of Multi-Prêts Hypothèques. "That can add up to a lot of money during the course of a mortgage."

For example Petitclerc, renewed her $85,000 mortgage at an interest rate of 5.5 per cent, which at the time was just a little more than one percent below major banks' published rates. According to Cécile Lacoste, the broker who handled her transaction, Petitclerc, will save close to $4,700 in interest payments during her five-year mortgage. Since mortgages are often renewed several times, the ultimate savings could be much higher.

Those kinds of savings aren't going unnoticed. Multi-Prates Hypothèques' business has skyrocketed lately. The company will book $1.85 billion in mortgages this year, up 40 per cent from the $1.31 billion booked in 2000. And it's probably going to get better still.

According to CIMBL estimates, the Canadian industry's market share will probably jump to 50%, by 2005, and eventually level off at around the 70 per cent level that U.S. brokers occupy.

That's good news for Fournier, because although the company is by far the largest mortgage broker in the province, the Quebec market - where brokers still have only a 14 per cent share - is expected to grow even faster. And Multi-Prates Hypothèques is in a good position to pick a big chunk of the increase.

Mortgage brokers have been around for about a quarter century. But until recently they were relegated to the secondary mortgage market, which consists of higher risk lending, mostly to people who were refused mortgages by the banks. The brokers would accumulate portfolios of these loans and pawn them off to trust companies.

But what is really giving the industry its recent boost, is the cooperation of several chartered banks, which are giving finders fees to the brokers for bringing them clients.

But how do the brokers get access to better rates than the clients would by handling their mortgage themselves? "We will do about $1.4 billion in Quebec business this year," said Fournier. "When we go to the bank, we bring a lot of buying power, and this flows directly to the customer."

It's an arrangement that works well for both parties. With the heightened competition of recent years, many banks are closing branches and have less access to retail customers than in years past. Worse, with the advent of electronic and Internet banking, the personal relationships clients once had with their banks are eroding. As a result, customer acquisitions costs are growing by leaps and bounds.

So for many banks, the business brokers bring them is like found money. And if bank employees are turning away mortgage customers like Petitclerc, they are going to have to make up the difference somewhere.



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