TORONTO (Dow Jones)-Unlike in the U.S., the distribution of mortgages in Canada through brokers remains strong, stable and established, according to a Deloitte study released Wednesday.
The report, entitled “Winning Strategies in the Brokered Mortgage Marketplace,” found that the independent mortgage broker channel in Canada will remain a fixture in the distribution landscape and that Canadian mortgage holders will ultimately benefit.
That’s differs from the U.S., where major banks such as JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) no longer sell mortgages through independent mortgage brokers after the implosion of the subprime mortgage market revealed fraud, lax underwriting standards, inaccurate credit ratings, careless securitization and lax regulation.
“Canada could not be more different,” says Rob Galaski, senior manager, corporate strategy practice at Deloitte in Toronto. “In Canada, most of our lenders, particularly the major banks, have exhibited considerably restraint during the credit crisis and were much more conservative.”
“Over the last decade, there’s been a lot of speculation as to whether the brokerage channel is here to stay,” he says. “We’re finding that the broker channel in Canada is extremely stable and definitely a viable channel for all types of lenders, including the major banks. And, that’s a large contrast to what you find in the U.S.”
In Canada, which was largely shielded from the global credit crisis because of stricter mortgage lending rules and more conservative underwriting standards, the big Six banks and mono-line lenders, such as Home Capital Group Inc. (HCG.T), continue to tap the mortgage broker channel to expand their business.
The future for the mortgage broker in Canada “remains positive” although it’s unlikely that brokers will represent the majority of origination volume, the report says.
“The channel will continue to stabilize, settling at approximately one-third of mortgage origination dollar volume,” it says.
In the U.S., the number of mortgage brokerage firms has contracted to 20,000 in 2010 from 54,000 in 2007, the report said. According to the U.S.-based National Association of Mortgage Brokers, in 2006, mortgage brokers originated 65% of U.S. mortgages. They now originate a “previously inconceivable” 15%, the report says.
In Canada, the broker model has evolved from “lenders of last resort” to a legitimate option, the report says.
Mortgage brokers are “so important because they are the primary access point for people who have credit challenges,” says Galaski. “The major banks have strong programs now for new Canadians, for example, but the mortgage-broker channel provides for people with credit challenges, people with a short credit history, and people with income challenges access to lenders who exist outside the mainstream.”
“Having a strong and established broker channel is an excellent thing because it facilitates consumer choice,” he says.
-By Caroline Van Hasselt; Dow Jones Newswires; 416-306-2023; caroline.vanhasselt@dowjones.com
