Doxim’s Loan Origination Solution presents the most cost-effective expansion into the broker channel market and “net new” net interest margin (NIM) for credit unions
The Canadian housing market continues to evolve in 2024, with notable trends including sustained high interest rates, a gradual increase in housing supply, and ongoing affordability challenges in major urban centers. Amidst these macro trends, the mortgage landscape is shifting significantly, with the broker channel playing an increasingly pivotal role. As of 2024, it’s estimated that mortgage brokers originate approximately 40% of all mortgages in Canada, up from 30% just a few years ago.
In this analysis, we’ll explore the current state of the market, the business case for entering the broker channel, and potential financial benefits for credit unions. We will also explore why Doxim’s loan origination solution presents the most cost-effective expansion into the broker channel market for credit unions.
Current State of the Canadian Mortgage Market: A Primer
We believe the time for credit unions to build the mortgage broker business is now, due to the following factors:
Market Size and Growth
As of 2024, the Canadian mortgage market continues to be a significant component of the country’s financial landscape.
The total value of residential mortgage credit outstanding has reached approximately $2.1 trillion, representing a YoY growth of 3.5%.
Market Share Distribution
The mortgage market in Canada is dominated by the “Big Six” banks, which collectively hold about 70% of the market share.
Credit unions currently account for approximately 14% of the market, while other financial institutions and alternative lenders make up the remaining 16%.
Broker Channel Growth
The broker channel has seen significant growth in recent years.
Mortgage brokers now originate about 40% of all mortgages in Canada, up from 30% a few years ago. 3
Consumer Behavior Shifts
Recent survevs indicate that
57% of first-time homebuyers are now using mortgage brokers, up from 43% five years ago.
The Business Case
The Canadian mortgage market is a significant opportunity for credit unions. With outstanding mortgage credit reaching $2.08 trillion as of December 2023 (Bank of Canada), and the broker channel holding a 40% market share, credit unions can tap into a new customer base without extensive branch expansion.
Entering the broker channel can diversify revenue streams and reduce reliance on traditional banking products. This diversification mitigates risks associated with market fluctuations and changing consumer preferences. Credit unions often offer more competitive rates and personalized service than big banks, with mortgage rates averaging 0.25% lower (CMHC), First-Time Homebuyer Survey 2024. Leveraging these strengths can help credit unions gain market share and establish a strong presence in this space.
Credit Unions that place a significant emphasis on broker relationships, cross-selling, and bundled product offerings may see 25% to 30% of new deposit accounts driven through the broker channel. Credit unions often provide brokers with strong incentives to bring in deposit products along with mortgage clients.
Developing the business case and ROI for credit unions broker channel entry is based on six building blocks
To illustrate the potential financial impact, let’s create a simplified model for a mid-sized credit union entering the broker channel:
The only cost drivers for an entry into broker market for credit unions are minimal tech investment into Doxim LOS and marketing initiatives.
Business case building blocks:
Key Assumptions:
- Credit union’s current mortgage portfolio: $500 million
- Annual mortgage origination target through broker channel: Year 1: $50 million, Year 2: $100 million, Year 3: $150 million
- Average mortgage size: $490,000
- Net interest margin: 1.8%
- Deposits growth from new accounts and mortgage transfers. This also leads to an improved liquidity position and a reduction in cost of funding for a CU
This simplified model demonstrates that entering the broker channel could be financially viable for credit unions, with a relatively quick payback period on the initial investment.
Strategy for Implementation:
a) LOS and POS broker integration: Doxim has implemented the most robust broker integration into the Doxim Loan origination system which enables this new line of business.
b) Partnerships: Establish relationships with key mortgage broker networks and individual brokers. Consider offering exclusive products or rates to incentivize partnerships.
c) Training and Education: Invest in training programs for credit union staff to understand the nuances of working with mortgage brokers and managing broker-originated mortgages.
d) Competitive Product Offering: Develop a suite of mortgage products tailored for the broker channel, focusing on competitive rates and flexible terms to attract business.
e) Marketing and Branding: Create a targeted marketing campaign to raise awareness among brokers about the credit union’s entry into this space and its unique value proposition. We will also be sharing all marketing and business development strategies in an upcoming companion piece “Implementing a Broker Channel Strategy: A Practical Guide for Canadian Credit Unions.”
Doxim’s Loan Origination Solution (LOS) and How Credit Unions Benefit
Doxim’s Loan Origination (LOS) and its new Filogix integration empower credit unions to efficiently enter the mortgage broker channel and driving potential net new-NIM growth. Key benefits for credit unions are:
- Easy, turn-key access to the broker channel POS network using Doxim’s LOS
- On-boarding of additional customers and new revenue streams
- Smooth integration of data from broker channel POS submission to Doxim LOS (no manual entry of data for financial institutions)
- Geographic distribution limits (e.g., only receiving deals from the province(s) of choice)
Credit Unions and the Broker Channel: A Promising Path for Diversification
Entering the broker channel presents a significant opportunity for Canadian credit unions to expand their mortgage business, diversify revenue streams, and enhance their market presence. While there are challenges to overcome, including technology investments and establishing broker relationships, the potential benefits make this a compelling strategic move.
For a detailed guide on how to implement this strategy, including insights on loan origination software, broker relationship development, and marketing strategies, please refer to Doxim’s upcoming companion piece: “Implementing a Broker Channel Strategy: A Practical Guide for Canadian Credit Unions.”
As with any major strategic initiative, it’s crucial for credit unions to conduct thorough market research, assess their individual circumstances, and carefully consider the risks and rewards before making the leap into the broker channel space. However, for those willing to invest the time and resources, the broker channel offers a promising path for growth and diversification in the Canadian mortgage market and Doxim LOS presents the most cost-effective path to enabling a new additional revenue stream.
