A sign of things to come

A sign of things to come

Matrix Mortgage Global CEO and Canadian broker Shawn Allen smashed the $380m mark by turning massive changes in the mortgage market – including regulatory reforms and market crashes – into a wealth of opportunities. Can he see into our future?

Shawn Allen is not your average broker. He opened the doors of his company, Matrix Mortgage Global, during the GFC; grew his business to specialise in alternative financing; and now spends about $1m a year on marketing and advertising.

In the last financial year, his company settled $389m, a figure that is unfathomable for most brokers.

So, why haven’t you ever heard of him before?

Allen is the CEO of a firm based in Toronto, Canada, but the broking magnate is coming to Australia on 5 June to be a keynote speaker at MPA’s second annual Broker Business Exchange. While in Sydney, he’ll be talking to Aussie brokers and hosting a masterclass on how he grew his business into the staggering success story it is today during periods of turbulent change and regulatory reform in the North American housing market – including the 2008 market crash.

Just as the severity of the US housing downturn was beginning to reverberate around the world, Allen – who became a broker in 2013 following a bad experience with one while buying his first home at 24 – decided to open Matrix Mortgage Global. The ripple effects were felt particularly acutely by the US’s closest ally and neighbour, Canada.

“Within a few short months, many lenders with huge market shares had closed their doors completely, and the money dried up,” Allen tells MPA.

Nevertheless, Allen had “an unshakeable belief” that he would succeed. He cleverly steered his company through the GFC by setting his sights on becoming the top alternative lending brokerage in the business.

“[The market crash] brought forth a clarity of vision in terms of maintaining resilience amid market peaks and valleys. You need to have control of the client, or the money, but preferably both,” Allen says.

That year, he homed in on alternative mortgage lending practices and formed partnerships with private investors and lesser-known lenders. He forged connections with that specific customer base by investing in early advertising efforts, something most brokers usually balk at.

“Building this framework for resiliency in the market and maintaining integrity in our solutions-based lending practices has always been our mission,” he says.

Allen learned how to adapt, be proactive and embrace change, skills that have served him well as the market has evolved over the last decade.

When house prices started to swell in the key urban areas of Toronto and Vancouver, the Canadian government took critical action to blast some of the heat out of the real estate market. It intervened in 2016, and again in 2017, tightening guidelines around how lenders qualified borrowers.

The changes included a 15% foreign-buyers’ tax in the two provinces where those cities are situated (with some regional governments following suit); a legislated ‘stress test’ that required borrowers to qualify at two points above prime rate for income-to-debt servicing ratios; and more stringent credit and down payment requirements.

These changes, combined with investor speculation that the market was due for a correction, led to across-the-board decreases in maximum loan-to-value amounts and a dramatic slowdown in foreign buyers. It felt like almost overnight home values had dropped by up to 20% in some jurisdictions, Allen said.

Similar to the one-size-fits-all macroprudential changes that APRA introduced in Australia to control interest-only and investor lending, these sweeping reforms in Canada made it harder for borrowers in rural and suburban areas to break into the housing market and refinance.

“The regulatory changes sent some brokers’ businesses to a screeching halt as their once A-clients were now barely qualifying with the B-lenders. Suddenly the private mortgage market share surged from 3% in 2015 to 8% in 2018, accounting for 20% of the refinance market in some urban areas,” Allen says.

Fortunately for Matrix Mortgage Global, which had already diversified its approach by focusing on existing homeowners and equity lending, the changes worked in its favour.

“Our focus on alternative lending meant record-breaking sales for us and a significant increase in business. Our business went up as many brokers scrambled to find new lenders, new ways of underwriting, and new client expectations to manage. For us, this was all business as usual.”

As volume grew, however, Allen faced some other challenges. He had to quickly scale up his brokerage’s infrastructure to meet the increasing demand, while becoming more effective at tracking leads and improving conversion rates. This involved training staff on underwriting and transforming the company culture to focus more heavily on documentation and protocol, among other changes.

Change never comes easy, but Allen has come to understand and accept the period of trial and error that comes with putting new measures in place. And regardless of how difficult it may be, it’s always worth giving it a go.

In 2017, while the government was scrutinising lending policy, Matrix Mortgage Global expanded its operations Canada-wide. Once leads started flowing in from British Columbia and Alberta, his team had to familiarise themselves with the lending guidelines in those provinces. Canadian brokers are regulated at the provincial level, rather than federally.

“Local brokers were initially outperforming us, and our conversion rates were not as good for those areas, but our experience and effort to make connections and gain a deeper understanding of new markets has begun to level that out,” Allen says.

In the last 11 years, Matrix Mortgage Global has been through many ups and downs, but thanks to Allen’s dynamic leadership style and his willingness to take chances, he’s been able to confront these challenges head-on.

Allen can’t predict the future for Australian brokers, but he does know that those who want to ride it out need to embrace change and adapt – after all, look where it got him.

HOW DO MORTGAGE BROKERS GET PAID IN CANADA?

  • Brokers are paid average commissions of anywhere between 0.5% for one-year terms with the banks and A-lenders, and up to about 0.8%, or 80bps, for a five-year term with A-lenders.
  • B and C deals (non-banks and private lenders) command commissions of anywhere between 1% and 5% of the mortgage amount.
  • The average mortgage commission for Matrix Mortgage is CAD$4,800 per deal. The brokerage primarily does private second mortgages. Second mortgages go in behind first mortgages. They are used by borrowers of all kinds when they do not want to break the terms and conditions of their existing mortgages. A second mortgage might be used, for example, to pay out a borrower’s credit card debts, or to take out equity for renovations before the sale of a property.
  • The average first mortgage amount is $450,000, and the average second mortgage is $150,000.
  • The fee is paid on closing; there is no trail commission.
  • Brokers get paid both by banks and directly by the borrowers, depending on the lending institution and type of loan.
  • The Bank of Canada has hiked rates five times since the summer of 2017. Its interest rate now sits at 1.75%.
  • The prime interest rate is currently 3.95%.

PROFILE

Name: Shawn Allen
Company: Matrix Mortgage Global
Title: CEO
Years in the industry: 15

Career highlight: “Placing 10th on the Growth 500 list of the fastest-growing financial services companies in Canada”

Career lowlight: “In 2011 we moved office buildings from an AAA-grade o ce space to a less appealing space that didn’t represent our business well”