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Are Mortgage Managers Now Obsolete?

The Structure Of The Finance Industry Has Changed

Feb 4, 2009 Craig Pickering

Mortgage managers in the finance industry are facing elimination because of the turmoil in the industry. Is there still a place for them?

With the extreme changes to the finance industry over the past year, many people are asking “What will be the next big change?”

The number of mortgage managers nationally has significantly decreased, and with all players in the channel to market (lenders, wholesale funders, banks and mortgage managers) suffering margin squeeze, there is bound to be further rationalization.

The major banks have cut commissions and now offer cheaper rates on their own products than those available through the broker channel. By doing so they have made their intentions very clear – minimize the amount of business that originates from brokers and therefore reduce the cost of delivering their product to the end customer.

Where To From Here For Mortgage Managers?

Some funders have expanded their business models, such as Challenger, which now owns a significant portion of the aggregator space (www.asx.com.au). There is no doubt that wholesale funders generally are looking for ways to reduce their costs.

In the past non-bank lenders (such as Challenger) preferred to deal with mortgage managers rather than brokers, because it is far less expensive to manage 200 mortgage managers than it is to look after thousands of brokers. However margins are tighter now, so will this change?

Economic Reality in the Finance Industry

There is no doubt that the current wholesale funders would prefer to continue to utilize mortgage managers, however economic reality may force their hand.

The market channel currently involves the wholesale funder obtaining funds and adding their margin, which they then pass on to the mortgage manager who adds their margin, and finally the broker earns a margin (commission), which they either set themselves or have set for them.

Add into this mix referral fees to accountants, financial planners, incentive schemes and so on and there are many fingers in a rather small pie.

So far, the remaining mortgage managers have survived by reducing their margins and through rationalization. Brokers have also had their margins cut and wholesale funders are making a lot less than they were 18 months ago (Australian Broker Magazine).

The result can be seen in mortgage managers offering higher commissions than the banks, thereby making less money.

Will Mortgage Managers Survive?

So many have left the industry that one could be mistaken for coming to this conclusion, however many of them were brokers as well as mortgage managers (a conflict of interests in the opinion of many) and have simply gone back to being a broker.

Removing these hybrid businesses from the equation provides a growth opportunity for those businesses that specialize in only mortgage management. This will, in turn, increase their importance to the market channel in much the same way that the current exodus of smaller, underperforming brokers will leave those left standing stronger and more influential in the future.

In these market conditions quality always rises to the top. With less money being earned by the mortgage industry overall, it will be those businesses with efficient processes, excellent service and solid business relationships that will flourish. Put simply, their earnings will grow because their market share will increase at a greater rate than their margins have decreased.

And yes, the best mortgage managers will succeed.

The copyright of the article Are Mortgage Managers Now Obsolete? in Business Management is owned by Craig Pickering. Permission to republish Are Mortgage Managers Now Obsolete? in print or online must be granted by the author in writing.

Structure of the Finance Industry