Renewals: A new-to-me approach

An excerpt from Volume 1 of Be The Better Broker.

With ~1.1M privately owned properties in BC, about 50% of which have mortgages on them, there are arguably more than 100,000 renewal transactions up for grabs in my home province each year. This is a significantly larger market than purchase transactions, and one with far less pressure and much longer lead times than most refinance and purchase transactions tend to entail.

Nice work if you can get it.

That for me has been the challenge since day one. The statistics we often hear are that lenders retain ~70% of existing clients at the time of renewal. One popular Broker lender boasts a current renewal retention rate of 91%.

In other words, this is not an easy nut to crack.

As a Broker starting out in 2008, I knew the above numbers, all of them, yet still made initial efforts to win some renewal business as the opportunity arose. However I quickly learned that in the 11th hour, in particular once the payout statement was ordered, lenders would get far more aggressive than the market rates offered in the initial renewal letters sent to their clients. Many clients would wind up sticking with their existing lender at that point. The time, and often the money I had invested in the file, was all for naught.

The real trick was maintaining my cool with the clients’ last minute U-turn and holding the relationship together, hopeful that I would retain the client as a referral source. That is another story altogether, a story of Zen meditation and deep-breathing exercises.

So I shifted gears and changed my approach.

Act 1: The letter

I began writing a letter for my clients outlining the market rates available and assuring them that there would be no costs associated with ‘switching’ their mortgage to another lender. To be fair the author is in a market with an average mortgage transaction of $425,000 which generates (full service) commission enough that even when there are costs, there are no costs to the client.

This letter served as a tool with which the client could short-circuit the entire dance with their lender. Nine times out of ten it did just that, forcing the lender to cut to the floor rate. Once in a while the lender would not match the rate, or would make the process so difficult that the client would return to our office, truly grateful. Either way the letter served as a tool for myself as well. It built trust with what would be potential future clients, if not immediate clients.

Although it may seem like madness to some, the idea of writing a letter and sending clients back to their lenders with it, yet it freed up what would have been several hundred fruitless hours over the past six years and also helped build a strong network of supporting and grateful referral sources and clients alike.  Admittedly without a lot of direct compensation up front.

As I entered my sixth year of brokering, I found myself writing these letters not just for random callers, but increasingly for my very own clients whose mortgage I had placed in 2009. There is a bit more of a sting to giving back a client you worked hard to obtain and to retain for five years. There had to be a better way. With these clients it was also not simply a matter of a short chat and a quick letter dashed off. Instead the expectation on their side was still there for a solid hour or more of catching up, consulting, market review, talk about future goals and strategic mortgage planning.

Catch and release might be fun while fishing, but it is not any way to run a business.

Act 2: Pursuing a bigger slice of the pie, the pie I originally baked

It has become hard to ignore the constant chatter around rate buy-downs, with one lender in particular offering a stellar product recently voted Mortgage of the Year by Canadian Mortgage Trends. Taking a page from that playbook, here is a game plan I am currently in the early stages of working. It is not meant not for the first-time-caller. It is purely intended for existing clients who fit a specific profile largely dictated by the specific lender that supports my ability to offer a rate typically 0.20% below anything the client’s current lender can approach.

Core criteria:

  • Existing client (application already built = time saved)
  • Trust and rapport already established
  • Owner-occupied properties only
  • Maximum two properties on the application
  • Currently with a chartered bank or credit union. (Creates an IRD conversation)
  • No BFS stated income
  • Legals and appraisal NOT guaranteed to be covered (Collateral)

There is a detailed conversation to ensure that this product is the right fit, and thus far my clientele maintains a 90% pro-variable rate selection.

This creates a transaction that typically consumes no more than 90 minutes of our time in the office from start to finish, and not much more of the client’s time either.

With a potential savings of $999.60 per 100K of mortgage balance over the term, it has gone over very well thus far.

The temptation to offer the same thing to said client’s friends, family members, coworkers, etc (should they be referred) is actually quite low, about 40bps too low in fact.

As we all know, starting a file from scratch is significantly more work. There is trust to be built, an application to be built, assisting the client with adapting to your process around documents required and documents to be signed.

It is simply too much to be done for half the commission in the full service manner in which I like to work.   I find that a brand new transaction will typically consume 7hrs of time overall.

Perhaps more importantly the goal with this program is to add value and reward loyal clients for their decision to work with us two, three, four, or five years ago.

Clients come away with a superior rate, unbeatable in fact, and in turn we earn a degree of compensation.  A win/win.

This is one proposal as to how to approach a market segment in which Brokers currently have very little to lose, and so much to gain.

Thank you

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Dustan Woodhouse