Whose Loan Is It Anyway?
When the market shifted, brokers needed to as well. Where do those loans go now?
Hi, this is Benjamin here. I’m the Founder of Dabble Capital Advisory and we work intimately with MICs, private lenders, and institutional investors like hedge funds and asset managers to bring more capital to the private space.
Prior to entering this field, however, I was a mortgage broker for the better part of a decade. So everything we publish in the DabbleCap Newsletter will often provide a unique edge for brokers. I’ll spare you the long biography, but there are three things I want to point to first.
I had help - It is a GIGANTIC privilege coming into the mortgage industry getting to work on a $100m+ family book with every kind of client and deal complication imaginable. This fast-tracked my underwriting, exposure, and deal sophistication. I did NOT get here by myself.
I had good timing - Back then, you could get a broker license in two years. So by my third year in the industry I was already a broker of record and building out new endeavours in an industry that, until that point, had been pretty stale. It was easier to spread your wings back then.
I was a horrible student/employee - Don’t get me wrong, I got decent grades and I finished my work, but a constant need to ask “why” would often piss off teachers, parents, and bosses alike. This “challenge the status quo” mindset is truly an inconvenience at times. But more on that later.
Let’s start with B-20. I cannot stress this enough (see what I did there?), it was a bigger bombshell than most of us imagined. B-20 regulations and stress testing made it infinitely more complicated to get the same deal done with the same lender immediately.
And yet, mortgage volumes didn’t really change. Why not? Because brokers simply moved borrowers down the credit curve accordingly. Well, we meant to.
In theory, it was going to be easy. Send your A- clients down to B (CMLS down to Aveo), move your B clients down to B- (Home Trust), and dump everyone else onto the few MICs you’d met at a conference.
**It’s worth noting that I’m describing the climate back in 2017 when there was exactly one MIC that attended CAAMP/MPC nationally and MICs were largely regarded as LOLRs (Lenders of Last Resort) in their local markets.**
A huge shout out goes to Fisgard for being the only MIC at the time that was recognized just as much at a Montreal conference as a Vancouver conference and for being well ahead of the curve in terms of broker business development.
In theory, everything above sounded great. But in practice, we saw brokers struggle to place deals, pricing was entirely off mark-to-market, and even lenders themselves struggled to adjust to a changing order.
Take a look at household debts going back to 1990. Regulatory changes in 2017 didn’t really change demand. In fact, it wasn’t until we had a global pandemic and economic meltdown that the trend kinda sorta changed.
So mortgage brokers had the same sized pie, twice as much work to do at the top of the credit curve, and a deluge of new agents joining on a daily basis competing for that same sized pie. It became glaringly obvious that the lower rungs of the credit curve were going to be our saving grace, but even the MICs themselves had issues. The two largest were:
MICs had a PR issue Barely anyone could name more than a handful of MICs, let alone what they specialized in. So deal submissions were a shotgun approach with next to no loyalty.
A windfall of business was coming Many MICs weren’t liquid enough to seize the opportunity. The amount of retooling and capital injection required to grow 50-100% would soon become a “golden handcuffs” situation for many of them.
So I did what any rebellious, young (read: naive) mortgage broker with hundreds of millions of dollars worth of deals at stake would do. I quit the family brokerage and started focusing solely on non-prime mortgage lending. I had a lot at stake, I had timing on my side, and I was going to piss a lot of people off. But I wanted get ahead of the tsunami we all felt was coming but couldn’t yet describe.
By June of 2018, I knew of only two MICs by name. So I began calling every MIC in the country - roughly two hundred at the time. I recorded their Offering Memorandum (OM) wherever possible, learned their niche underwriting, learned what was keeping them up at night, and focused on where we could provide liquidity.
I wagered that if I could learn their business model intimately, it would provide an edge that would make me the most “plugged-in” mortgage broker in the non-prime space.
Little did I know that it would transform into a complete career pivot. And for the last seven years, I have focused exclusively on the capital markets side of non-prime lending. I’ve helped funds rebalance their portfolios, raise hundreds of millions of dollars, build out marketing and sales teams, and most importantly, better connect with brokers.
I still operate as a mortgage broker today with my family and Mortgage Architects - A Better Way. If you’d like to learn why it’s a superior brokerage model in my opinion, you can always reach out for a coffee or phone call. But what I want you take from this article is that brokers still have a unique edge in this marketplace the saying “riches are in the niches” still applies.
The banks continue to de-risk and push clients down the curve. The alt lenders have survived B-20 and the market corrections in 2022/23. We’ve seen incredible cooperation and organization with MPC, CAMLA, BCMMA, ONMICA, CMBA, and so on. This market is GROWING. Exponentially.
If you’ve been brokering for more than a decade, you’ll know what the glory days used to look like. They’re coming back in the form of the alt space. And if you’re newer in the space, buckle up. I invite you to follow along. The “private” space isn’t just your neighbour lending a small second anymore. You’ll learn more through this newsletter than your licensing exam.
Sincerely,
Benjamin
**This newsletter segment is under the “For Brokers” section of the Dabble Capital Advisory Newsletter. If you are looking for different information on the mortgage market, be sure to subscribe to the right channel - For Borrowers, For Lenders, or For Investors. We’re building a community at DabbleCap and we invite you to learn and contribute.**