Scotiabank is back.
After “intentionally slowing” its mortgage portfolio last year due to funding constraints, Scotiabank has announced to its broker partners that its competitive pricing is back, along with an expanded retail package program.
As Ron Butler of Butler Mortgage described, Scotia’s move on Friday to lower its broker rates, while many other lenders were continuing to raise conventional mortgage rates, “shocked the world.”
The rate drops bring Scotia in line with the best broker rates offered by TD, which has become the “acknowledged market leader” in the broker channel since Scotia stepped back, he said.
“These rates are competitive, but most importantly they bring back a far greater degree of choice for brokers with efficient and effective programs and their speed of underwriting,” Butler added. “This allows brokers to offer even greater choice, which is the single greatest feature of the mortgage brokerage industry.”
Jim Tourloukis, president of Verico Advent Mortgage Services, and one of the industry’s top brokers by volume, told CMT that Scotiabank’s announcement is “huge” for many reasons.
“Clearly, the more lenders we have at our disposal, the more options there are for our clients, which is a win-win for us all,” he said, adding that the competitive rate offering and access to Scotia’s product mix will also be welcomed by brokers and their clients.
“As of today, Scotia is better than their main rivals in our channel by anywhere from 20bps to 30bps,” Tourloukis said. “This is a significant drop from their rates prior to this change.”
Funding imbalances behind Scotia’s decision to step back
Scotiabank’s decision to raise its rates and slow its mortgage portfolio growth was driven by funding imbalances, notably the bank’s over-reliance on wholesale funding to support its loan portfolio and its desire to increase its deposits.
“They were managing a funding problem,” explained Butler. “They said they would work their way through it and eventually they would get to a point where they could be competitive again. And here we are.”
In the bank’s first-quarter earnings call, Dan Rees, head of Canadian Banking at Scotiabank, addressed the bank’s decision to intentionally slow its mortgage portfolio at the time: “Part of the reason for that is liquidity and risk-weighted assets…but also the emphasis on profitable growth through cross-selling and retail,” he said.
“Rapid loan growth, coupled with high-cost funding sources, has adversely impacted profitability,” he continued, adding the bank would be “consistent and deliberate” in its long-term deposit strategies to “continue our journey to reduce our reliance on wholesale funding.”
Expanded retail package offering for brokers
As part of its announcement to its broker partners on Friday, Scotia said it would be expanding its bundled mortgage offering, which up to now had been available to select brokers as part of a pilot program.
Similar to TD Bank’s cash-back incentive for mortgage clients who open a chequing account with the bank, Scotia is offering below-market rates to clients who open a chequing account and one other non-mortgage product, such as a credit card or line of credit.
“It’s effectively the same thing as TD has done very successfully,” Butler said. “They want their borrower to have more than just the mortgage product,” which then allows the bank to cross-sell other options, such as investments, to the client more effectively.
While Scotiabank didn’t provide details in response to questions posed by CMT, it did offer the following statement: “Our mortgage portfolio remains strong and we continue to be committed to delivering advice and solutions that enable our customers to achieve their financial goals,” the bank said.
“We firmly believe that we are able to best serve our customers with a multi-faceted approach to distribution that includes Home Financing Advisors, branches, digital and our mortgage broker channel, Scotia Mortgage Authority,” it added.
More options for brokers and clients
The news of Scotiabank bringing back its usual competitive rates was celebrated by brokers on Twitter (a.k.a., “X”) and in industry Facebook groups.
“I knew this day would come, but I never knew I would be this happy,” wrote one broker.
The elation is for good reason, explains Tourloukis, who said he considers Scotia the best option in the broker channel, pointing to several of its products, including the Scotia Total Equity Plan (STEP) flexible borrowing plan, and its product features, such as the ability to port and increase variable-rate mortgages.
But one of the biggest reasons brokers love to work with Scotia, Tourloukis says, is because it boasts “the best servicing model in our industry.”
“Scotia is one of the most efficient lenders bar none,” he tells CMT. “With few other lenders can you submit a file Monday morning and be file complete that same afternoon. It just does not exist elsewhere.”
Tourloukis also points to Scotia’s “outside the box” programs as being popular among brokers, including its Business for Self, high-net-worth and professional programs, while Butler says the bank is also sometimes a better solution for those who are purchasing rental units.
For all of these reasons, Scotia has earned its reputation as a top lender in the channel, particularly over the past 12 years up until last year, Butler says.
“There were some quarters where it represented 40% of all broker business,” he added.
No reason for brokers to hold a grudge
While there were some hints of frustration among brokers over Scotia’s decision to step back for the better part of a year, Butler says brokers need to understand it was strictly a business decision.
“To hold a grudge because a business partner had a funding imbalance that they needed to correct is literally crazy,” he said.
“Will business flock back to Scotia? Absolutely, there will be a marked increase in their business,” he added. “Will they surpass TD, who stepped in and rescued brokers for the last 12 months…I don’t know.”
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