Abundance! What abundance? Things are crook out there.
Despite what you read about lenders’ issues with the availability and cost of funding, access to finance for consumers is abundant.
Creditworthy customers can access credit on reasonable terms and it looks like they’ll be able to for the foreseeable future.
Sure FAM (Fog- A- Mirror) loans aren’t as abundant as they once were- but they weren’t responsible and should have been scarce anyhow.
I can remember times when access to credit wasn’t abundant; indeed I can remember times when it was downright scarce.
For instance, prior to 1983 deregulation of banking and during that ‘had to have’ recession in 1990/91. Some household name lenders flew very close to the wind and some had to cease or ration lending as funding and capital was very scarce.
Yet there was a vibrant and active broking community at this time despite this scarcity- indeed one could say that these pioneer brokers owed their existence to scarcity.
In this narrower world pre the web, knowledge wasn’t abundant and brokers assisted with their knowledge of where to find appropriate funding.
There was an active ‘grey market’ of private lending and some financial institutions - particularly regional banks and the “NBFI’s” - lacked geographic dispersion. They scarcely had customers outside their narrowly defined regions and brokers assisted these lenders to spread their footprint and to punch above their weight.
Rolling forward into the mid ‘90’s when brokers themselves moved into the mainstream, there were spurts of innovation, with new lenders, wide price differentials and new product features. In these heady times, awareness of the options available and where to find the ‘best’ deal was indeed scarce.
Since then there’s been massive convergence, from product features to interest rates- frankly there’s not much new in the zoo in the mortgage area- when was the last ‘big’ product innovation?
(Note to lenders- if you’ve got the time and a massive R&D budget- call me; I’ve got a few ideas)
So we’ve got homogeneity and an abundance of funds to lend. Not particularly good for brokers of itself, I would venture.
The “dismal science” of economics is concerned with the allocation of resources in the
presence of scarcity.
In the absence of scarcity, i.e. in a time of abundance, one finds potential resource misallocation and its handmaiden, reductions in price- which in the broker space could translate to reductions in commissions.
I believe that broking thrives on scarcity. The good news is that abundance often generates its own tracts of scarcity.
In the future brokers need to align their business to focus on what’s scarce when homogenous products are abundant.
To truly thrive, brokers should possess something that others lack and customers want, rather than focussing on providing credit assistance to obtain ‘mere debt’.
Time, understanding, energy, cash flow planning, monitoring, control and discipline are all things that may be scarce in abundant times.
An old adage is that ‘the fate of the middleman is to be the agent of their own oblivion’. In the future, brokers can avoid such a fate and indeed thrive by focusing on what’s scarce.
Remember: The Future isn’t what it used to be.